Middle East Conflict and Global Offshore Market
sinosteelpipe 
1. The conflict in the Middle East has started an "accelerator" for rising energy prices.
(1) Changes are taking place in the Middle East, and the energy market has entered a turbulent mode
On February 28, 2026, the United States and Israel launched the "Epic Wrath" operation. The situation in the Middle East suddenly changed. The Strait of Hormuz, the global energy artery, was blocked. Energy facilities in various countries in the Middle East became targets. The price of Brent crude oil futures was close to US$120 per barrel and continued to fluctuate at high levels. European natural gas benchmark prices have risen rapidly, and Dutch front-month natural gas futures have increased by more than 50% compared with the beginning of the year. Safe-haven demand has led to a strengthening of the U.S. dollar. The U.S. dollar index rebounded rapidly from the pre-conflict range of about 97-98, once exceeding 100, pushing up global inflation expectations and intensifying global energy market turmoil.
(1) Changes are taking place in the Middle East, and the energy market has entered a turbulent mode
On February 28, 2026, the United States and Israel launched the "Epic Wrath" operation. The situation in the Middle East suddenly changed. The Strait of Hormuz, the global energy artery, was blocked. Energy facilities in various countries in the Middle East became targets. The price of Brent crude oil futures was close to US$120 per barrel and continued to fluctuate at high levels. European natural gas benchmark prices have risen rapidly, and Dutch front-month natural gas futures have increased by more than 50% compared with the beginning of the year. Safe-haven demand has led to a strengthening of the U.S. dollar. The U.S. dollar index rebounded rapidly from the pre-conflict range of about 97-98, once exceeding 100, pushing up global inflation expectations and intensifying global energy market turmoil.
(2) Energy corridors have become the focus, and the shipping and oil services market is facing impact
The disturbances in the Middle East and the statements of various countries affect the nerves of the global energy market. From the perspective of energy supply, the Middle East's daily crude oil production will account for approximately 31% of the world's total in 2025, and its natural gas production will account for approximately 17% of the world's. From the perspective of energy transportation, most of the energy exports of these countries need to pass through the Strait of Hormuz. Whether the Strait is unblocked directly affects the interests of energy importing countries. For example, about 95% of Japan's imported crude oil comes directly from the Middle East. India, South Korea and other countries are also highly dependent on the Middle East for crude oil and natural gas.
The geo-risk premium has driven up the freight rates of energy transportation ships. Clarkson data shows that the one-year time charter rent of 310,000 dwt VLCC has doubled compared with before the conflict, and the time charter equivalent (TCE) of some routes in the spot market once exceeded US$400,000/day. The price of LNG ships has also doubled compared with the beginning of the year. However, it is currently in the off-season of market demand, and most of them are long-term leases. There is still a gap between the rent and the historical high. At the same time, ship insurance costs have undergone drastic changes, with the proportion rising from around 0.2%-0.25% (single voyage) to around 1%, with some quotes reaching 3% or even higher.
Offshore ship operations in the Middle East have come to a standstill. Since offshore engineering vessels mainly serve the regional oil and gas market, oil and gas companies in the Middle East stopped or evacuated after the conflict. Some contractors suspended drilling operations, and offshore engineering vessels were forced to become idle. From a global perspective, since ships cannot be deployed to other regions around the world, rental levels in major regions have not increased significantly, and the short-term impact on global rental rates and utilization rates is limited.
The disturbances in the Middle East and the statements of various countries affect the nerves of the global energy market. From the perspective of energy supply, the Middle East's daily crude oil production will account for approximately 31% of the world's total in 2025, and its natural gas production will account for approximately 17% of the world's. From the perspective of energy transportation, most of the energy exports of these countries need to pass through the Strait of Hormuz. Whether the Strait is unblocked directly affects the interests of energy importing countries. For example, about 95% of Japan's imported crude oil comes directly from the Middle East. India, South Korea and other countries are also highly dependent on the Middle East for crude oil and natural gas.
The geo-risk premium has driven up the freight rates of energy transportation ships. Clarkson data shows that the one-year time charter rent of 310,000 dwt VLCC has doubled compared with before the conflict, and the time charter equivalent (TCE) of some routes in the spot market once exceeded US$400,000/day. The price of LNG ships has also doubled compared with the beginning of the year. However, it is currently in the off-season of market demand, and most of them are long-term leases. There is still a gap between the rent and the historical high. At the same time, ship insurance costs have undergone drastic changes, with the proportion rising from around 0.2%-0.25% (single voyage) to around 1%, with some quotes reaching 3% or even higher.
Offshore ship operations in the Middle East have come to a standstill. Since offshore engineering vessels mainly serve the regional oil and gas market, oil and gas companies in the Middle East stopped or evacuated after the conflict. Some contractors suspended drilling operations, and offshore engineering vessels were forced to become idle. From a global perspective, since ships cannot be deployed to other regions around the world, rental levels in major regions have not increased significantly, and the short-term impact on global rental rates and utilization rates is limited.
2. Three possible energy price trends that conflict with future trends
The offshore engineering market is closely related to international oil prices. Can international oil prices continue to rise in the long term in the future? Can the offshore engineering equipment industry fully recover? One of the important influencing factors is the duration of the current conflict, which will directly affect the sustainability of the rise in oil prices, and in turn affect the future investment willingness and medium- and long-term demand of the offshore industry.
The offshore engineering market is closely related to international oil prices. Can international oil prices continue to rise in the long term in the future? Can the offshore engineering equipment industry fully recover? One of the important influencing factors is the duration of the current conflict, which will directly affect the sustainability of the rise in oil prices, and in turn affect the future investment willingness and medium- and long-term demand of the offshore industry.
Judging from previous changes in the situation in the Middle East, future conflict situations will change rapidly, and the actual situation may switch or mix between the above three scenarios. However, no matter which scenario, this conflict has amplified anxiety about energy security. Mainstream institutions are optimistic about the subsequent trend of international oil prices, and it is generally expected that international oil prices in 2026 will be around US$80/barrel.
3. What is the impact on the global offshore engineering equipment market?
(1) The energy supply pattern faces a new round of reshaping
Compared with the conflict between Russia and Ukraine, the conflict in the Middle East has a wider impact. If the conflict continues, the negative impact of rising oil prices on the economy will be apparent, and countries will further increase their attention to the security of global energy supply. From the perspective of oil-producing countries, emerging oil and gas countries are once again ushering in a period of development opportunities, such as Brazil and Guyana, which are becoming "safe havens" from this energy crisis. Petrobras shares soared after the company said it had "alternative routes outside conflict zones, which bring security advantages and competitive costs to our operations while maintaining margins."
From the perspective of oil-consuming countries, countries have adopted a variety of measures to deal with the crisis, and the pattern of energy imports is also undergoing a new round of transformation. Member states of the International Energy Agency (IEA) agreed to release 400 million barrels of strategic oil reserves to alleviate supply problems, but the actual daily release capacity is insufficient and has limited effect on alleviating supply shortages. The European Union has released updated guidance on REPowerEU natural gas regulations, aiming to improve the flexibility of the prior authorization process for non-Russian natural gas imports to ensure smooth channels for non-Russian natural gas imports. In the long term, the import sources of oil consuming countries will also undergo significant changes. For example, India's state-owned refineries have actively sought suppliers outside the Middle East, and Vietnam is also looking to Japan and South Korea to help increase its oil supply channels.
The development of renewable energy may accelerate. Renewable energy has long been criticized for its high cost. In the context of high oil prices caused by the current conflict, the economics of renewable energy are improving. In addition, countries are changing from "calculating economic accounts" to "calculating security accounts." Even if the conflict ends soon, renewable energy will receive a higher degree of attention because of its ability to be produced locally. For example, the UK has recently announced that it will completely cancel import tariffs on 33 industrial products used to manufacture offshore wind power equipment starting from April 1. Japan, South Korea, etc. have also expressed their stance on accelerating green transformation and promoting the development of nuclear energy, offshore wind power and other industries.
(2) Expected growth in investment in offshore oil and gas projects
From an internal perspective in the Middle East, even if the conflict ends, the recovery of the energy supply gap will continue for some time. In the future, Middle Eastern countries may further increase upstream investment to restore production capacity, thereby driving demand for offshore ship operation services. Repairing facilities after damage is much more difficult than construction. Public data shows that energy facilities in various countries in the Middle East have been hit to varying degrees. For example, the Ras Laffan LNG production line in Qatar was severely damaged and is expected to take 3-5 years to be fully restored. Even if the conflict ends soon, the rapid recovery of production capacity will still take some time, and international oil prices will still face the risk of shortage on the supply side. In order to recover from conflicts as quickly as possible, countries in the Middle East also need to invest a lot of money in facility repairs and production capacity restoration.
3. What is the impact on the global offshore engineering equipment market?
(1) The energy supply pattern faces a new round of reshaping
Compared with the conflict between Russia and Ukraine, the conflict in the Middle East has a wider impact. If the conflict continues, the negative impact of rising oil prices on the economy will be apparent, and countries will further increase their attention to the security of global energy supply. From the perspective of oil-producing countries, emerging oil and gas countries are once again ushering in a period of development opportunities, such as Brazil and Guyana, which are becoming "safe havens" from this energy crisis. Petrobras shares soared after the company said it had "alternative routes outside conflict zones, which bring security advantages and competitive costs to our operations while maintaining margins."
From the perspective of oil-consuming countries, countries have adopted a variety of measures to deal with the crisis, and the pattern of energy imports is also undergoing a new round of transformation. Member states of the International Energy Agency (IEA) agreed to release 400 million barrels of strategic oil reserves to alleviate supply problems, but the actual daily release capacity is insufficient and has limited effect on alleviating supply shortages. The European Union has released updated guidance on REPowerEU natural gas regulations, aiming to improve the flexibility of the prior authorization process for non-Russian natural gas imports to ensure smooth channels for non-Russian natural gas imports. In the long term, the import sources of oil consuming countries will also undergo significant changes. For example, India's state-owned refineries have actively sought suppliers outside the Middle East, and Vietnam is also looking to Japan and South Korea to help increase its oil supply channels.
The development of renewable energy may accelerate. Renewable energy has long been criticized for its high cost. In the context of high oil prices caused by the current conflict, the economics of renewable energy are improving. In addition, countries are changing from "calculating economic accounts" to "calculating security accounts." Even if the conflict ends soon, renewable energy will receive a higher degree of attention because of its ability to be produced locally. For example, the UK has recently announced that it will completely cancel import tariffs on 33 industrial products used to manufacture offshore wind power equipment starting from April 1. Japan, South Korea, etc. have also expressed their stance on accelerating green transformation and promoting the development of nuclear energy, offshore wind power and other industries.
(2) Expected growth in investment in offshore oil and gas projects
From an internal perspective in the Middle East, even if the conflict ends, the recovery of the energy supply gap will continue for some time. In the future, Middle Eastern countries may further increase upstream investment to restore production capacity, thereby driving demand for offshore ship operation services. Repairing facilities after damage is much more difficult than construction. Public data shows that energy facilities in various countries in the Middle East have been hit to varying degrees. For example, the Ras Laffan LNG production line in Qatar was severely damaged and is expected to take 3-5 years to be fully restored. Even if the conflict ends soon, the rapid recovery of production capacity will still take some time, and international oil prices will still face the risk of shortage on the supply side. In order to recover from conflicts as quickly as possible, countries in the Middle East also need to invest a lot of money in facility repairs and production capacity restoration.
From a global perspective, high oil prices will improve the investment return rate of offshore oil and gas projects. Under the current expectations of high oil prices, some marginal deepwater projects that were originally near the break-even line have regained good commercial development value. Historically, increases in oil prices have been followed by increases in capital spending. For example, when the Arab Spring broke out in 2011, the civil war in Libya resulted in the supply of crude oil being cut off, and the situation in the Middle East was turbulent. The international oil price fluctuated around US$100/barrel that year, and offshore oil and gas capital expenditures rose sharply by 55% year-on-year.
The fragility of the global supply chain has forced oil and gas companies to re-evaluate their asset portfolios. Diversified strategic layout has become an inevitable choice for oil and gas companies to deal with risks, and offshore oil and gas projects have become a new growth point. Although the cost of producing onshore oil fields in the Middle East is extremely low, once crude oil or LNG cannot be transported out of the Strait of Hormuz, the value of its assets will be greatly reduced. In contrast, although the initial investment in deep-sea projects is huge, as long as they are in safe waters and the transportation routes can avoid sensitive areas, their ability to resist geo-risks will be stronger. Some projects around the world that were not considered a priority may be put back on the agenda. Major oil and gas companies are diversifying geographically and by field type to increase resilience. For example, the Italian oil company Eni proposed diversifying the geographical structure of energy sources as the core of its strategy after the Russia-Ukraine conflict.
(3) The growth of offshore engineering orders is generally controllable, and shipyard production capacity is still the main constraint.
Judging from the latest market conditions, there will be a substantial rebound in demand for offshore engineering orders in 2025, but the order amount has fallen slightly. One of the main reasons is the limitation of shipyard capacity. Currently, the global order-holding guarantee coefficient is about 4 years, and the demand for merchant ships still maintains optimistic expectations. The production load of leading offshore engineering companies is sufficient, especially under the premise that the current market demand for transportation ships is stable. Shipyards tend to accept standardized and batch merchant ship orders. Therefore, the production capacity of high-quality offshore engineering companies is scarce, and whether offshore engineering orders can be implemented is still limited by the release of the shipyard’s effective production capacity. If the conflict continues for a long time and oil prices remain high, the cost-effectiveness of investment in offshore engineering projects will improve, and the demand for investment in offshore engineering orders is expected to accelerate recovery.
Judging from the latest market conditions, there will be a substantial rebound in demand for offshore engineering orders in 2025, but the order amount has fallen slightly. One of the main reasons is the limitation of shipyard capacity. Currently, the global order-holding guarantee coefficient is about 4 years, and the demand for merchant ships still maintains optimistic expectations. The production load of leading offshore engineering companies is sufficient, especially under the premise that the current market demand for transportation ships is stable. Shipyards tend to accept standardized and batch merchant ship orders. Therefore, the production capacity of high-quality offshore engineering companies is scarce, and whether offshore engineering orders can be implemented is still limited by the release of the shipyard’s effective production capacity. If the conflict continues for a long time and oil prices remain high, the cost-effectiveness of investment in offshore engineering projects will improve, and the demand for investment in offshore engineering orders is expected to accelerate recovery.
