Rising Costs, Gulf Shipping Disruptions Compress Oil Service Companies Margins

Rising costs and shipping disruptions are squeezing oilfield service and engineering companies margins.

The firms are facing sharply higher operating costs across the Middle East as the conflict involving Iran disrupts equipment deliveries, increases transportation expenses, and complicates the execution of energy infrastructure projects, according to industry executives speaking Tuesday in Abu Dhabi.

Executives from Italian engineering groups Maire and Saipem, along with National Energy Services Reunited (NESR), described significant increases in logistics, fuel, labor, and insurance expenses as the conflict enters its ninth month.

Alessandro Bernini, chief executive of Maire, said logistics expenses associated with some Middle Eastern contracts have increased as much as threefold. Fuel costs have doubled, while labor expenses have risen between 30 per cent and 40 per cent.

These increases are placing pressure on contractor profit margins and raising the cost of developing and maintaining energy infrastructure throughout the region.

The disruptions extend beyond higher transportation prices. Damage to regional infrastructure, employee evacuations, and restrictions affecting shipping through the Strait of Hormuz have complicated the delivery of specialized equipment and materials.

Saipem Chief Executive Alessandro Puliti said equipment shipments have been delayed outside the Strait of Hormuz for months, creating difficulties for contractors attempting to maintain project schedules.

NESR, which operates in Saudi Arabia, the United Arab Emirates, Kuwait, Oman, and Iraq, reported that shipping and logistics represent its largest sources of additional expense.

The company has also increased material storage requirements to protect operations against potential transportation interruptions.

NESR Chief Executive Sherif Foda indicated that contractors are generally absorbing these additional expenses rather than passing them directly to customers, underscoring the financial pressure facing service providers operating under existing agreements.

The challenges come as international oilfield service companies report signs of improving activity following earlier disruptions.

SLB reported a 13% sequential increase in Middle East revenue during the third quarter, although regional revenue remained below year-earlier levels.

Halliburton reported an 8% sequential increase in revenue from its Middle East and Asia region, supported by stronger activity in Saudi Arabia and Kuwait.

Baker Hughes, however, anticipates a sequential decline in Middle Eastern activity during the fourth quarter as logistics challenges and supply-chain constraints continue affecting operations.

The contrasting outlooks illustrate the difficulty of translating recovering drilling and infrastructure activity into stronger profitability.

For energy investors, the implications extend across engineering, procurement, construction, drilling services, and equipment suppliers.

Companies with substantial fixed-price contracts may face greater margin pressure when transportation and labor expenses increase unexpectedly. Contractors with stronger pricing flexibility, regional supply networks, and established logistics infrastructure could be better positioned to manage disruptions.

Longer term, repairs to damaged production facilities, pipelines, refineries, and export infrastructure could generate additional demand for specialized services.

However, the timing of that recovery will depend on regional security conditions, customer capital spending, and the restoration of dependable transportation routes.

The sector’s financial performance will increasingly depend not only on the volume of available work, but also on its ability to execute projects profitably under elevated operating costs