SLB said it is attempting to pass higher costs onto customers following supply-chain disruptions caused by the U.S.-Israeli war on Iran and the effective closure of the Strait of Hormuz, a key global energy chokepoint. The company reported its shares rose 3.7% as it communicated plans to seek cost recovery.
Management said the closure of the shipping route boosted logistics, transportation and raw material costs, contributing to a weaker start to the year that pressured results. SLB posted a decline in first-quarter profit after the conflict forced it to curtail operations in a major oil-producing region.
"It was a challenging start to the year, marked by widespread disruptions in the Middle East," CEO Olivier Le Peuch said on a call.
Le Peuch singled out specific regional impacts, saying the effect was "most pronounced in Qatar due to force majeure and the suspension of offshore operations, and in Iraq due to security conditions." The Middle East represents SLB's largest market and the disruptions translated into weaker top-line performance during the quarter.
Revenue from the Middle East and Asia fell 10% during the quarter, to $2.69 billion. At the same time, total net income for SLB decreased 5.6% to $752 million.
The company warned that the ongoing conflict is expected to reduce its current-quarter earnings by 6-8 cents per share, while noting that part of the hit could be mitigated by growth in other international markets.
SLB's reported results trailed those of peers Halliburton and Baker Hughes, both of which beat quarterly profit expectations. However, the rivals also cautioned about near-term headwinds tied to the conflict. Halliburton specifically flagged a 7-to-9 cent negative impact to its current-quarter earnings per share.
Analysts anticipate that reconstruction and repair activity after the conflict could eventually spur demand in the oilfield services sector. Rystad Energy has estimated as much as $58 billion in potential repair costs, a projection that underlines the size of possible post-conflict work for providers with large Middle East exposure.
Outside of regions directly affected by the war, stronger oil prices are supporting activity in the oilfield services market, according to Morningstar DBRS analyst Andrew O'Conor. He said, "In North America, field activity by nimbler small-to-mid-sized oil and gas producers is gradually increasing."
SLB's CEO also signalled expectations for a shift in investment patterns. He forecast increased spending on short-cycle projects in North America and Latin America, and suggested that longer-cycle developments may follow once the conflict subsides.
Taken together, the company's remarks describe a near-term squeeze from elevated operational costs and constrained activity in the Middle East, paired with potential demand tailwinds tied to repair work and higher oil prices elsewhere. SLB's move to recover costs from customers is an attempt to limit margin pressure while the regional situation evolves.