The US-Israeli-led war with Iran has already had global economic impacts, with oil and gas prices soaring and stock markets around the world plunging on fears of supply disruptions and economic chaos. Construction projects in the region face forced shutdowns and uncertain futures, with no clear path forward to maintain supply chains and security.
A week after the start of the airstrikes on February 28, the price of both Brent crude and West Texas Intermediate oil were now above $90 a barrel for the first time in two years with disruptions to the Persian Gulf and other production facilities caused by military strikes, pre-emptive shutdowns and the effective shutdown of Iranian shipping in the Strait of Hormuz.
“The scale and duration of a price hike will depend on how much oil is kept off the market, and for how long, due to danger in the strait, higher shipping insurance rates or damaged Gulf infrastructure,” S&P Global Energy CERA analysts said in a March 5 note.
Some engineering and construction companies working in the region have noted disruptions, particularly to energy projects, although they declined to specify the impacts or the locations of the projects. Industry watchers have speculated that a months-long dispute will have wider impacts on other construction sectors, such as transport and construction.
Saudi Arabia’s energy ministry confirmed on March 2 that there was “limited” sustained damage to unspecified energy production sites after two drones were intercepted.
State-owned QatarEnergy said it was halting liquefied natural gas production following military attacks on two facilities, including the giant Ras Laffan facility. He has also declared force majeure in this place as a protection against contractual obligations. About a fifth of the world’s LNG comes from Qatar.
While there are some media reports that QatarEnergy’s broad project shutdown is also affecting its gas field expansion efforts, a spokesperson for Italy-based contractor Saipem told ENR that the company is not affected by a declared force majeure, although they declined to confirm whether work is being done at this site or those of its other clients in the region.
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Israel said it has shut down some of its offshore natural gas production at two sites in the Mediterranean Sea, while Bahrain’s news agency confirmed that Iranian drone strikes had hit a major refinery in the country. Iraq temporarily shut down its Basra refinery after the country was hit by a nationwide blackout on March 4, while oil storage and storage activities at the UAE port of Fujairah were suspended due to a fire caused by an intercepted drone, several media reported.
“I don’t think there’s any precedent for this kind of conflict across the region with facilities being attacked by all kinds of methods, over a wide period of time, and all kinds of facilities basically at the same time,” says Robin Mills, CEO of Dubai-based energy consultancy Qamar Energy.
Supply chain impacts
Cargo ships are not exempt from these dangers of war. Insurance companies have increased or canceled their war risk coverage, and shipping rates are skyrocketing, making it much more expensive to ship essential construction materials and equipment to the region.
Steel, special grades of rebar, aluminum, heavy machinery, engineering components and virtually all other supplies arrive by sea at ports now targeted, including Saudi Arabia’s King Abdulaziz Port in Dammam and the commercial port of Jubail.
Delays in deliveries are already said to be forcing construction project schedules to change. Anything that touches the supply chain, from the Gulf states’ much-touted renewable energy projects to their latest theme parks, is expected to increase costs and delays, with developers already recalibrating scope and schedule.
Saudi Vision 2030, the country’s plan for a modernized future powered by artificial intelligence and powered by renewable energy, was already being rethought. Before the Iran war, Saudi Arabia’s NEOM project, a huge futuristic city planned on the coast of the Red Sea, was under review to reduce its scope. NEOM includes Oxagon, a partly floating industrial city; Trojena, a luxury-oriented mountain resort and The Line, a planned 170 km strip of ultra-modern city, 200 meters wide and 500 meters high.
The United Arab Emirates has halted plans to expand its aviation hubs at Dubai International Airport and Zayed International Airport, both of which have been damaged by Iranian drones. The Jebel Airport expansion project has also been suspended. Emirati rail company Etihad Rail could also face problems with its planned expansion with connections to Saudi Arabia and Oman, as well as plans to start a high-speed rail project. Renewable energy-driven desalination projects in Kuwait and Qatar are also facing concerns over delays in equipment delivery.
Global engineering and construction companies themselves have avoided saying too much about the exposure of their projects to the disruptions of war in the region.
“At this time, impacts to McDermott’s operations are isolated. While we have taken precautionary measures in parts of the Middle East, McDermott’s global operations continue to operate,” said a company statement provided to ENR. “Manufacturing assets in the [conflict] The region has been temporarily closed and the crew has disembarked the marine assets from the dock. The safety of our people remains our priority.”
A spokeswoman for the company declined to confirm whether force majeure measures have been taken at its workplaces. “This is a fluid situation,” he said. “We are working closely with our customers to assess and mitigate potential impacts and ensure safe operations.”
A Worley spokesman would not confirm whether its projects in the region had been damaged or shut down, saying only that the contractor is “closely monitoring developments in the Middle East” and that it “continues to work with customers to manage potential risks or disruptions in accordance with established protocols.”
U.K.-based construction engineer Wood, which announced in December that it had secured more than $1 billion in regional contracts, also declined to comment on the status of operations at its facilities or the construction of the project, stressing that “the safety and well-being of our people is our absolute priority” and that the company is “monitoring the situation closely.”
A spokesman for major contractor Keller would not confirm comments reported by British industry publication Building that several of its jobs have been halted in the United Arab Emirates and Bahrain, although not in Saudi Arabia. The company has about 500 employees in those three countries, Building noted. Keller CEO James Wroath, who took on the role last year, told analysts on a March 3 investor call that its Middle East business represents about 5% of its global revenue and profit. “We hope that the political and military situation will calm down and allow us to get back to work,” he said.
