Markets: Middle East OSV Market at a Crossroads After Gulf Conflict
Theodor Sørlie
June 25, 2026
After several years of strong activity, the Middle East offshore market has become more volatile, with geopolitical tensions disrupting day-to-day operations. Following US and Israeli military action and subsequent Iranian attacks on neighbouring Gulf states, operators introduced precautionary measures, including temporary rig suspensions and down-manning in Saudi Arabia, the UAE and Qatar.
This triggered a sharp short-term slowdown from late February into March.
The April ceasefire allowed offshore activity to recover gradually, but fixing volumes remain at low volumes compared the historical average. Fewer active rigs and project delays have softened OSV demand, prompting some operators to seek standby terms or rate reductions. With Hormuz transit constrained, owners have had limited redeployment options, leaving them exposed to lower dayrates and higher near-term availability.
Pre-war, leading macro advisors such as Rystad Energy expected OSV demand in the region to showcase low single-digit growth in 2026. Most industry participants viewed the healthy EPC market as a key absorber of tonnage, while NOC activity began to plateau, albeit at high historic levels. The demand in 2026 is now, somewhat unsurprisingly, heavily influenced by the duration of the war, with a worst case 12-month scenario potentially cutting the pre-war demand forecast by more than 50%.
Moreover, the duration of the conflict is also likely to impact the pace of the return to normality, with a short conflict suggesting returning to pre-war levels already next year, while a prolonged conflict can lead to subdued activity throughout 2027 due to delays in final investment decisions and the constrained supply chain environment.
On the supply side, the current situation will likely add to the already aging fleet in the region, which have reached an average age of more than 16 years. Most shipowners have paused strategic growth plans and fleet renewals locally, which we see leading to another year of limited action to reduce the regional fleet age. Compounding the issue, some shipowners such as HEA Energy in the UAE and Milaha in Qatar face challenges, as their newbuilds in the orderbook remain blocked from entering the region, prolonging reliance on the older tonnage.
© corlaffra / Adobe Stock
Regional Markets Feel the Impact
In Qatar, activity has declined materially, as QatarEnergy declared force majeure twice since late February. With damages to the Ras Laffan LNG facility, we have seen a pause in offshore work since mid-March. Additionally, the number of jack-up rigs on contract herein is expected to fall from around 20 pre-war to mid-teens in the near term and several shipowners have been advised of off-hire periods, rates being reduced to OPEX levels or significant rate cuts. For example, North Field West, has reportedly postponed drilling from the second half of 2026 to the second half of 2027.
In the UAE, the market remains more stable, although some contractors have requested general dayrate reductions of roughly 25%. Shipowners are pushing back however, noting that both daily OPEX and war risk insurance costs have increased materially, leading to unsustainable vessel margins. Longer term, market sentiment remains positive, supported by the UAE’s OPEC exit and the aggressive capacity push to 5 million bpd by 2027, combined with offshore electrification projects to reduce emissions from existing fields.
In Saudi Arabia, the market also remains broadly stable, with fewer shipowners reporting cancellations or dayrate adjustments. Suspended jack-up rigs are generally expected to return to contract once conditions stabilize. A tender for seven to nine additional rigs with expected start-up in the second half of 2026 had an original March deadline, but this has now been postponed.
More broadly, activity levels and payment capacity are being affected by contractors operating on lumpsum or milestone-based contracts, where delays in materials and offshore execution are contributing to lower fixture volumes. Other shipowners have also highlighted challenges related to GPS jamming, which is preventing certain offshore installation work from being carried out safely.
The near-term outlook is a pause, not a structural downturn. Owners with unplanned downtime can use the current window to accelerate vessel maintenance and special surveys, being well positioned for a potential upturn in activity.
While OSV dayrates reached multi-year highs through 2024 and early 2025 due to tight supply and strong EPC activity, forward indicators now point to a stabilizing rate environment once activity normalize. However, overall offshore operating costs are expected to increase, as owners have experienced higher daily crewing costs and insurance, while fuel costs have increased. In terms of incremental demand outside the major markets, Kuwait is expected to see up to four additional jackups on contract in the near term, which is likely to be postponed, yet serve as a key new frontier for activity
Owners Look Beyond Home Markets
The conflict is likely to accelerate regional diversification among major Middle Eastern OSV owners. This shift is already visible, with Astro Offshore expanding into West Africa through PSV and high-end subsea vessel acquisitions, while PIF-backed Zamil Offshore acquired Remøy Shipping last year to support international growth.
With structural oil supply shortages in the global market, we expect higher offshore activity in regions such as the Mediterranean, West Africa, Australia and North Sea in the coming years, encouraging major Middle Eastern owners to pursue growth outside their home markets. This could include both traditional OSV tonnage and adjacent segments such as European or APAC offshore wind, supported by the renewed focus on energy security.
That having been said, the Middle East OSV market currently experience a high degree of uncertainty. Utilization is likely to remain below pre-war levels in the near term, and a sustained recovery will depend on a durable long-term agreement. Until then, owners with balance sheet flexibility and regional diversification will be best positioned to navigate the uncertainty and benefit from the eventual recovery.
