Middle East oil contractors report logistics costs have tripled

By Daniel Okafor

What costs have changed?

Logistics costs under some Middle Eastern contracts have tripled, fuel costs have doubled and labor costs have risen by as much as 40%, according to OilPrice's reporting from the ADIPEC energy conference in Abu Dhabi.

The figures came from oilfield-services companies operating in the UAE and across the wider Middle East. Executives tied the increases to a nine-month conflict with Iran that damaged infrastructure, prompted worker evacuations and complicated equipment transport through the Strait of Hormuz.

Maire CEO Alessandro Bernini said: “Logistics costs under some Middle Eastern contracts had tripled.” He added that labor costs had risen 30% to 40%, reducing contractor margins and raising the cost of completing energy projects.

Bernini also warned that the extra costs could ultimately affect energy prices and inflation. That warning remains executive analysis, not a reported price outcome.

In plain terms, tripling turns the former logistics bill into three times its earlier level, while doubled fuel costs make each fuel purchase twice as expensive.

Takeaway: Transport, fuel and labor carry the sharpest increases, while contractors face thinner project margins.

Why have equipment deliveries become harder?

Company executives linked financial pressure to infrastructure damage, worker evacuations and difficult equipment transportation through the Strait of Hormuz during the nine-month conflict with Iran.

Saipem CEO Alessandro Puliti said his company spent months near the Strait waiting for an opportunity to deliver equipment. The delay turns logistics into a schedule problem, not merely a larger invoice.

NESR CEO Sherif Foda said contractors “often cannot recover these additional costs.” National Energy Services Reunited operates in Saudi Arabia, the UAE, Kuwait, Oman and Iraq. It is keeping materials in warehouses for longer to protect against supply disruptions.

That precaution is sensible, perhaps, but storage does not erase the underlying delivery problem. The company's five-country footprint shows that the pressure reaches beyond one Gulf market.

Takeaway: Longer waits and longer storage protect operations, but neither removes the delivery cost.

Has more drilling offset the pressure?

Higher oil prices stimulated additional drilling in certain markets and created more work for service companies. At the same time, equipment, personnel and transportation required for that work became significantly more expensive.

SLB reported a 9% quarter-on-quarter increase in Middle East and Asia revenue, reaching $2.81 billion. The result was 6% lower than a year earlier.

Baker Hughes reported $1.26 billion in oilfield-services revenue in the same regions, down 13% year on year. The company partly attributed the decline to the sale of part of its business.

The two results show a mixed market in which regional revenue trends diverge, business portfolios differ and higher drilling demand does not erase delivery inflation. SLB's sequential gain and Baker Hughes's annual decline describe different paths, not one uniform regional trend.

Takeaway: More service work exists, but revenue has not moved in step across the two contractors.

Who absorbs the increase?

The margin question now sits with contracts that determine cost recovery. Bernini said higher logistics and labor costs reduce contractor margins and increase project-completion costs. Foda said many contractors cannot recover the added expense.

More drilling does not automatically mean better contractor economics. Higher oil prices can support service demand while logistics costs can triple under the affected contracts.

Bernini's warning about energy prices and inflation remains a forecast. The immediate commercial test is whether contractors can recover higher bills while carrying out the additional work created by drilling.

Watch item — margin: Whether contractors recover these added costs, and whether Strait of Hormuz delivery times improve, will decide if service earnings absorb the shock.