meed-logo

line1 line2 line3
SIGN IN / REGISTER

Red Sea crisis raises Saudi construction costs

13 March 2024

Register for MEED’s guest programme 

While the severity of the disruption caused by the Red Sea crisis to international shipping, global supply chains and logistics is evident, country and sector-specific impacts have taken longer to become apparent.

For Saudi Arabia, the burning question for several months has been whether the disruption has the potential to impact the supply of construction materials on route to the country’s west coast gigaprojects, including the Oxagon port and The Line at Neom, as well as the Red Sea Project.

Riyadh-based Jadwa Investment has now estimated that disruption to commercial shipping in the Red Sea and Gulf of Aden has contributed to a 25-50% construction material price rise in recent weeks.

This steep rise comes amid renewed escalation in the Red Sea following a start to the year characterised more by falling risk perceptions due to the heavy build-up of the US-led naval coalition in the area.

All of this changed on 18 February with the holing of the Belize-registered Rubymar, which sank on 3 March. That ship had been carrying Saudi fertiliser from Dammam to Bulgaria.

However, perhaps a more direct concern for the Saudi construction sector is the strike on 6 March of the bulk carrier True Confidence, which came from China loaded with steel and commercial vehicles.

The attack led to a fire on board, three fatalities and the abandonment of the vessel by its crew. It was also a telling indicator of the rising risk to the delivery of construction materials – much of it headed from Asia – specifically to the western coast of Saudi Arabia.

Weighing risk

Industry suppliers, shippers and logistics firms will need to make increasingly difficult choices as they work to keep the booming Saudi construction sector supplied.

Transiting the Gulf of Aden route now holds not just hypothetical but very much proven risk. War risk insurance premiums have skyrocketed – at the last count, rising to around tenfold the normal cost and equivalent to up to 1% of vessel value, depending on the build.

The alternative – overlanding material from Asia from the safe harbour of Saudi Arabia’s eastern coast – carries less risk, but higher transport overheads given the inefficiency of conveying bulky construction materials in large volumes by road – the only option at present.

The scenario makes an excellent, if belated, business case for the $7bn Saudi Landbridge, a west-to-east railroad scheme that unfortunately will only be be completed half a decade from now

As it stands, some tough decisions lie ahead. Suppliers and contractors locked into fixed pricing assumptions for construction materials will be rapidly onboarding financial risk. Projects under tender potentially face the prospect of contractors revising their bid submissions with sharply rising cost projections.

And the worst may be yet to come. While spot market prices for shipping reflect the costs incurred by the Red Sea disruption, with two to five-fold price rises for some global routes, many short-term contracts have not yet absorbed the price rises and could be set to be renegotiated in the coming months.

This raises the prospect of further price rises if the conflict and its impacts continue.

MEED’s April 2024 special report on Saudi Arabia includes:

> GVT & ECONOMY: Saudi Arabia seeks diversification amid regional tensions
> BANKING: Saudi lenders gear up for corporate growth
> UPSTREAM: Aramco spending drawdown to jolt oil projects
> DOWNSTREAM: Master Gas System spending stimulates Saudi downstream sector
> POWER: Riyadh to sustain power spending
> WATER: Growth inevitable for the Saudi water sector
> CONSTRUCTION: Saudi gigaprojects propel construction sector
> TRANSPORT: Saudi Arabia’s transport sector offers prospects

https://image.digitalinsightresearch.in/uploads/NewsArticle/11592922/main.JPG
John Bambridge

Register for MEED's guest program now to access this article.

Click here to register
Exclusive from Meed
Related Articles
  • Levant states wrestle regional pressures

    1 July 2025

    Commentary
    John Bambridge
    Analysis editor

    The Levant countries of Jordan, Lebanon and Syria are all in various degrees of distress, and collectively represent the Israel-Palestine-adjacent geography most severely impacted by that conflict, including in the latest phase initiated by Israel’s attack on Iran. In all three cases, however, recent developments have provided tentative hope for the improvement of their political and economic situations in 2025.

    In the case of Lebanon, still reeling from Israel’s invasion and occupation of the country’s southern territories in retaliation for Hezbollah’s missile attacks on northern Israeli cities, the hope has come in the form of the country’s first elected president since 2022, and a new prime minister. 

    The task before both leaders is to stabilise a deeply fragile political and economic situation while avoiding further degradation to Lebanon’s weakened state capacity. If the country can ride through present circumstances to the upcoming parliamentary elections in May 2026, the possibility could also emerge for a more comprehensive shake-up of its stagnant politics.

    In civil war-wracked Syria, the toppling of the Bashar Al-Assad government in December and the swift takeover by forces loyal to Ahmed Al-Sharaa have heralded a political transition – even if it is not the secular one that Syria’s population might have once hoped for. 

    The new president has already made progress in reaching agreements for the rollback of EU and US sanctions and an influx of foreign investment that his predecessor could only have dreamt of securing. This opens the door to a future of economic recovery for the country.

    The reopening and reconstruction of the Syrian economy also has the potential to benefit the entire region, by rebooting trade and providing growth opportunities.

    For Jordan, the recent conflict in Israel and the occupied Palestinian territories has hit tourism hard, while also pitching the country’s anti-Israel street against its US-allied government. Washington’s threats to cut aid and to raise tariffs on Jordan have added to the political strain on the country, and this has only been staved off by in-person overtures by King Abdullah II to the US government. 

    The outbreak of hostilities between Israel and Iran has only worsened the economic climate for Jordan, with both Israeli jets and Iranian munitions frequenting Jordanian airspace and providing a constant reminder of how close the country is to being dragged into regional unrest. Yet Jordan has avoided conflict to date, and the country’s GDP growth is expected to rise modestly in 2025 as an increase in exports and projects activity stimulates the economy, despite the wider regional headwinds.

    The overall picture for this region is therefore one of tentative recovery from recent shocks, ripe with potential for a better path forward as the Levant rebuilds and works together to overcome the challenges that have so long afflicted the region.

     

    MEED’s July 2025 report on the Levant includes:

    > COMMENT: Levant states wrestle regional pressures

    JORDAN
    > ECONOMY: Jordan economy nears inflection point
    > GAS: Jordan pushes ahead with gas plans 
    > POWER & WATER: Record-breaking year for Jordan’s water sector
    > CONSTRUCTION: PPP schemes to drive Jordan construction
    > DATABANK: Jordan’s economy holds pace, for now

    LEBANON
    > ECONOMY: Lebanon’s outlook remains fraught

    SYRIA
    > RECONSTRUCTION: Who will fund Syria’s $1tn rebuild?

    To see previous issues of MEED Business Review, please click here
    https://image.digitalinsightresearch.in/uploads/NewsArticle/14122966/main.gif
    John Bambridge
  • Jordan’s economy holds pace, for now

    1 July 2025

    Download the PDF

    MEED’s July 2025 report on the Levant includes:

    > COMMENT: Levant states wrestle regional pressures

    JORDAN
    > ECONOMY: Jordan economy nears inflection point
    > GAS: Jordan pushes ahead with gas plans 
    > POWER & WATER: Record-breaking year for Jordan’s water sector
    > CONSTRUCTION: PPP schemes to drive Jordan construction
    > DATABANK: Jordan’s economy holds pace, for now

    LEBANON
    > ECONOMY: Lebanon’s outlook remains fraught

    SYRIA
    > RECONSTRUCTION: Who will fund Syria’s $1tn rebuild?

    To see previous issues of MEED Business Review, please click here
    https://image.digitalinsightresearch.in/uploads/NewsArticle/14177596/main.gif
    MEED Editorial
  • NCP seeks firms for Mecca mixed-use development PPP

    1 July 2025

    Saudi Arabia’s National Centre for Privatisation & PPP (NCP), in collaboration with the Holy Makkah Municipality and the Ministry of Municipalities & Housing, has issued an expression of interest (EoI) and request for qualification notice for the development of a mixed-use project along Prince Sultan Bin Abdulaziz Road in Mecca.

    The EoI notice was issued on 26 June, with a submission deadline of 27 July.

    The development includes a shopping mall, a 200-bed long-term care facility and a 100-bed multi-speciality hospital.

    According to an official notice, the project will be located on a government-owned site spanning about 220,000 square metres  (sq m) and will offer direct access to the Holy Mosque while bypassing the congestion of Mecca’s city centre.

    The public-private partnership (PPP) project will be delivered using a build, own, operate, transfer contract with a 30-year term. Upon completion of the contract term, the project will be transferred to the Holy Makkah Municipality.

    This announcement follows the launch of the EoI notice for the development of the King Fahd suburb boulevard project in Dammam.

    Saudi Arabia’s Ministry of Municipalities & Housing issued the notice in collaboration with Ashraq Development Company and the NCP.

    The project features a 4 kilometre (km) mixed-use zone along a central boulevard, forming part of a larger 7.3km corridor.

    The project will be developed in two phases and span about 1 million sq m.

    Saudi PPP market

    The value of PPP contracts in Saudi Arabia has risen sharply over the past two years as the government seeks to develop projects through the private sector and diversify funding sources.

    According to MEED Projects data, in 2023, the value of PPP concession contracts hit an all-time high of $28.2bn, equivalent to more than 23% of the total value of all project contracts awarded that year. Although that figure fell to 18.3% last year, it was still far higher than the historical average in the kingdom.

    The figures are even starker when taking only government spending into account. In 2023, the value of signed PPP contracts totalled more than a third of the value of government or government-related projects awarded in 2023 and more than a quarter last year. This is compared to the average of 15.6% between 2019 and 2022, and just 3.5% recorded in 2018. 

    Government contracts include awards made by ministries, municipalities and royal commissions, in addition to state-funded key project clients such as Saudi Water Authority, the National Housing Company and Jeddah Airports Company. Public Investment Fund (PIF) subsidiaries such as Neom, the National Water Company and Rua Al-Madinah are also included.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/14176701/main.jpg
    Yasir Iqbal
  • Iraq downstream contract completed

    1 July 2025

     

    Turkiye’s Tekfen has completed a contract as part of the Basra refinery upgrade project, according to industry sources.

    The contract was worth $25m and the scope included upgrading civil structures and underground facilities.

    The contract is part of the wider Basra refinery upgrade project, which is worth several billion dollars.

    Its scope includes installing new facilities, including a vacuum distillation unit and a diesel desulphurisation unit, on land adjacent to the existing Basra refinery.

    The biggest package is focused on upgrading the project’s fluid catalyst cracking (FCC) unit.

    Iraq’s state-owned South Refineries Company (SRC) sent Japan-based JGC a notice of the main contract award for the Basra refinery upgrade project’s FCC package in August 2020.

    The contract awarded to JGC, which uses the engineering, procurement, construction and commissioning model, was worth $3.78bn.

    The project site is located about 12 kilometres east of Iraq’s southern city of Basra.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/14174441/main.jpg
    Wil Crisp
  • June 2025: Data drives regional projects

    30 June 2025

    Click here to download the PDF

    Includes: Top 10 Global Contractors | Brent Spot Price | Construction output

    To see previous issues of MEED Business Review, please click here
    https://image.digitalinsightresearch.in/uploads/NewsArticle/14171168/main.gif
    MEED Editorial