The escalating US-Iran war is causing major disruptions in the Middle East's oil and gas sector, with significant impacts on project schedules, costs, and regional energy infrastructure. Key shipping routes and the aviation sector are affected, leading to widespread operational challenges.

Project Delays and Contracting Setbacks

Multiple ongoing engineering, procurement, and construction (EPC) tenders and upcoming expansion projects are likely to be pushed back, significantly impacting project schedules and commissioning. Operators, including major state-owned companies like QatarEnergy, have already started delaying bid processes for multibillion-dollar EPC contracts. Challenges include mounting issues around manpower, project execution, cost assessments, and geopolitical risk. For instance, the bid process for the expansion of QatarEnergy’s Maydan Mahzam offshore oilfield has been hit by fresh delays.

Infrastructure Vulnerability and Rising Costs

The conflict has exposed the vulnerability of the region’s energy infrastructure, creating uncertainty for existing and planned projects across the value chain. The extensive damage caused to regional oil and gas infrastructure is expected to dent investor sentiment and raise project costs directly. These increased costs stem from heightened security considerations and higher insurance premiums. The lack of clear diplomatic off-ramps means significant uncertainty will persist around ongoing tenders until the long-term security situation becomes less volatile.

Operational and Logistical Challenges

On-the-ground operations are being severely curtailed. Many state-owned companies have trimmed their workforce, focusing only on essential services as production is cut and storage facilities reach capacity. Work on major projects like QatarEnergy’s North Field Expansion LNG project has slowed, with onsite workforce presence reduced to below 50%. Key contractors are facing unprecedented logistical challenges, including an inability to secure requisite manpower or procure goods through viable shipping channels due to disruptions like those in the Strait of Hormuz.

Market and Supply Chain Implications

Any disruption in the regional EPC contracting market threatens the region’s long-term spare production capacities. Declining production could take months to reinstate, posing a risk of wider supply shocks in the global market. Furthermore, the procurement and construction segments could face sustained challenges, potentially triggering force majeure clauses in projects from either contractors or operators. Many contractors have begun inquiring about force majeure conditions to avert penalties for project delays, though none have been approved yet by operators.

Industry Reassessment and Future Outlook

While upstream contracting activity rose last year, it is poised to take a significant hit this year as operators reassess project and security risks. Companies are making room for rising commodity and service costs and preparing to deal with potential force majeure conditions. Contractors must now factor in increased costs for procurement, logistics, and security before agreeing to new EPC deals. Additionally, growing attacks on oil and gas installations may lead operators to develop new security protocols for upcoming projects, causing further delays in planning and execution.