Oil Services Industry Face Cost Pressures Amidst Iran Crisis

The Iran conflict is causing the oil services industry to increase its cost assessment for projects due to rising shipment, fuel and security costs, which are affecting its Middle Eastern contract performance, executives said at a conference in Abu Dhabi on Tuesday.

The Iran war, now in its ninth month, has damaged infrastructure and forced staff to evacuate in several countries. Threats to shipping via the Strait of Hormuz have made equipment deliveries difficult, increasing the cost of both labour and insurance.

“What we are facing now with our contracts in the Middle East is that logistics costs have increased - sometimes threefold. Fuel costs have doubled, labour costs have increased 30 to 40 percent,” said Alessandro Bernini, chief executive of Italian engineering group Maire.

The cost jump is eating into margins of service companies, raising the cost of projects and ultimately translating into higher energy prices and inflation around the world, he said.

Logistics have become a problem due to the difficulty of delivering equipment, said Alessandro Puliti, CEO of Italian energy contractor Saipem.

“We have been sitting outside Hormuz for months,” he told the conference.

Oil services company NESR, which has operations in Saudi Arabia, the United Arab Emirates, Kuwait, Oman and Iraq, said the biggest increase in costs was in shipping and logistics, as it had to store materials in warehouses for much longer to cover for possible disruptions. Companies are absorbing those cost increases, its CEO said.

“You eat it most of the time. You are not happy but you just move on. C’est la vie,” said NESR chief executive Sherif Foda.

(Reuters)