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Middle East crisis further hinders late project delivery

construction over-runs delays Asian construction workers working on a building, Kingdom of Bahrain Reuters/Gareth Dewar
Stakeholders rush to get a head start on construction but then run into misunderstandings and disagreements, leading to delays, observers say
  • Mena construction suffering
  • Red Sea crisis added to problems
  • Israel-Iran conflict is new threat

The escalating Middle East conflict involving Israel, Lebanon and Iran is further hindering already stretched construction timelines in the Gulf.

Safe passage through the Strait of Hormuz is threatened, with concerns that Iran will close the waterway. This route is critical to GCC oil and gas exports.

Building projects in the Middle East suffered some of the worst overruns in the world last year. And this was further compounded by the Red Sea shipping crisis.

Deep-sea port calls in the Red Sea in the first six months of this year fell by 85 percent after Yemen’s Houthi militia started attacking cargo vessels through the waterway in response to the war in Gaza, data from the research company Sea-Intelligence shows.

Carriers stopped using King Abdullah Port in Saudi Arabia from January until the end of June, while Jeddah received only a quarter of the ships in January that it had in December, the consultancy said in a report last month. 

“Even after a slight improvement in July 2024, the port is averaging just 37 calls per month compared to the pre-crisis average of 135 monthly calls,” Sea-Intelligence said. 

Shereen Nassar, global director of logistics studies at Heriot-Watt University in Dubai, says the year-long Suez Canal bottleneck has “undeniably” aggravated construction challenges in the region

Any new flare-up in violence, Nassar says, would increase construction overruns, expenses and supply chain uncertainty, although many companies are adopting measures, “such as diversification of suppliers and more prudent planning”, to deal with this risk.

Craig Finlayson, senior director at advisory services company Currie & Brown, says the drop in freight traffic prompted some short term construction overruns, but shipping companies have some of the most advanced technology to plan and circumnavigate these issues, “although that does often lead to additional costs". 

Oil price increases in the middle of a larger conflict would affect the regional supply chain and projects the most, Finlayson says. “This impacts everything – people, transport, manufacturing – across all industries.”

However, he says he is “taking an optimistic view at the moment” that the world would manage a dip in supply from Iran, as it did with Russia after the invasion of Ukraine.

The upheaval of the past 12 months has been made worse by recurring project design flaws in the region that arise primarily because stakeholders rush to get a head start on construction but then run into misunderstandings and disagreements. That is the finding of the seventh annual CRUX Insight Report by the global dispute resolution consultancy HKA, published last week. 

Jad Chouman, head of Middle East at HKA, says: “They want to commence very quickly but it’s taking longer periods of time to finish. I would say, ‘Go slow before you go fast'.”

Shereen Nassar: any new flare-up in violence will increase delays. Photo: Heriot-Watt

As a result, the Middle East continues to suffer from some of the world’s longest project overruns, according to the HKA report, with construction delays meaning timelines are extending by 80 percent on average, against the nearly 60 percent globally.

Suzannah Fairbairn, a partner in law firm Dentons' Middle East construction and engineering practice based in Dubai, says such challenges are only bound to increase in the next six years as demand for materials and labour ramps up before the deadline for Saudi Arabia’s Vision 2030.

“The delays are likely to be further exacerbated by the geopolitical issues and the Red Sea shipping crisis, as these are likely to interfere with supplies that are already in high demand,” she says.

The latest escalation of the Middle East crisis has yet to make its impact felt on regional construction, says Mansour Faried, chief engineer at the China State Construction Engineering Corporation in Mena. But the stark drop in freight traffic through the Red Sea over the past year has had a tremendous effect, he says.

That is largely because while some countries have made efforts to localise materials, equipment and labour, most is still imported from overseas. 

Increased distance

“Any increase in risk factors will directly impact the goods rates due to higher insurance components, and will also reduce the ability of the supply chain to commit over larger orders,” Faried says.

Record high inflation worldwide, surging demand locally, driven by Saudi Arabia and the UAE, and the residual impact of the pandemic, have “greatly magnified” the impact of the crisis, and weakened all parties’ ability to predict the near future and fulfil their commitments, Faried says.

Carriers going via the Cape of Good Hope at the southern tip of Africa to avoid the Suez Canal have increased the distances ships have to travel by an average of 9 percent, the shipping company Maersk has estimated. It wrote in a blog on its website in July that “extended transit times and port congestion have significantly affected reliability”.

Chouman says: “We had that during the pandemic, and definitely we are still seeing it today on some of the projects that were affected by the Suez Canal issues. The late delivery of material and equipment to some of the mega projects and the infrastructure projects is still causing delays to many of them.”