Saudi Construction Costs Rise Due to Hormuz Disruption

Construction costs are rising in Saudi Arabia as disruption at the Gulf’s maritime chokepoints forces contractors to deliver by truck materials that would normally arrive by sea, industry experts have told AGBI. Shipping through the Strait of Hormuz is yet to return to the levels of prior to the start of the Iran war, pushing cargo that was once landed at nearby ports onto alternative routes. Chris Seymour, Mace Consult’s managing director for the Middle East and Africa, explained that the supply chain impact is significant, with the major cost being the transportation of materials rather than the materials themselves. Saudi Contractors Authority data supports Seymour’s comments, showing that while locally produced materials like cement have seen little change, imported materials such as electrical wire and cable have increased in price by up to 26 percent year on year. Despite these challenges, Saudi Arabia’s construction pipeline has remained active, with SAR111 billion ($29.6 billion) of construction contracts awarded between January and July, marking an almost 60 percent increase year on year. Timelines have absorbed the shock rather than been blown out, as clients and contractors have reordered project timelines to accommodate the disruption. Seymour noted that while some costs have been absorbed by those holding fixed-price deals, clients have also been open to accepting local substitutes to avoid delays. The ongoing war has also coincided with a strategic shift by Saudi Arabia’s Public Investment Fund, which has moved away from giga-projects like Neom in favor of greater private sector involvement. This recalibration has affected contractor expectations, particularly for long-term projects, although sectors like water and rail remain robust.