With Korean construction companies’ overseas construction orders falling a 13-year low in 2019, military standoffs between the United States and Iran cast a gloom over prospects for construction orders in 2020.
Construction industry watchers said on Jan. 8 that Korean construction companies, including Hyundai Engineering & Construction, Daewoo Engineering & Construction, and Hanwha Engineering & Construction, are operating as many as 14 construction sites in Iraq.
Some 660 workers are building an oil refinery in Karbala in central Iraq, a project which are jointly carried out by Hyundai E&C, Daewoo E&C, and SK E&C. About 400 workers are constructing a new town in Bismayah, another Iraqi city, in a project executed by Hanwha E&C. Daewoo E&C undertakes four civil engineering and construction projects in Iraq with a total of 73 workers, including Korean employees of its subcontractors. Not a Korean builder launched construction projects in Iran, a troubled region.
An official of the Ministry of Land, Infrastructure and Transport said that Korean builders’ construction sites in Iraq are all operating properly. “If the situation is getting worse, we will consider discontinuing construction work and transferring workers to safe areas, and even implementing withdrawal plans in cooperation with the Ministry of Foreign Affairs,” said the official.
Major construction firms are carrying out construction projects at more than 20 sites in disputed areas near the Persian Gulf, the United Arab Emirates, Saudi Arabia, Kuwait, Qatar, and Bahrain, as well as Iraq. Most of the sites are located far away from the U.S. military bases attacked by Iran’s air raid, so there have been no reports of damage at the sites. But builders operate a local emergency team and closely monitor the situation in the region.
Construction industry sources prospect that Iran’s missile attacks against the United States military bases in Iraq will shrink overseas construction orders. In particular, overseas orders stood at US$21 billion in 2019, dropping by more than 30 percent from 2018 and marking the lowest level in 13 years. Korean construction firms set the goal of achieving US$35 billion as recently as in the first half of 2019 when their overseas orders continued to go upward. The orders, however, fell far short of their goal and stayed at barely US$21 billion, hitting the second lowest record after US$16.4 billion in 2006. Above all, orders from the Middle East amounted to US$4.45 billion as of Dec. 24, 2019, only a half of US$9.2 billion in 2018.
If the U.S.-Iran tensions are escalating, the situation will deteriorate as the Strait of Hormuz could be shut off. Iran used to threat to close the key waterway in the past decade whenever Teheran clashed with Washington. In reality, however, the strategically important strait has never been closed. A blockade of the waterway could have adverse ripple effects on ongoing construction projects in Middle Eastern countries, such as the UAE, Bahrain, Qatar, Kuwait, Iraq, and some regions of Saudi Arabia, which have awarded Korean builders biggest overseas construction orders.
On the other hand, some analysts say that long-term increases in the international oil prices could provide an opportunity for the construction industry. Baek Kwang-je, a researcher at Kyobo Securities, noted that the international oil prices soared to the US$140 range per barrel in 2008 because of China’s growing demand for crude oil and escalating crisis in the Middle East as Iran initiated constructing nuclear facilities in the early and mid-2000s. “At that time, the construction industry enjoyed an unprecedented boom with its stock index hitting the highest point since 2000,” said the researcher.