Whether the US and Iran will reach a deal over the Strait of Hormuz is still not clear, but India’s engineering companies are beginning to see signs of revival. This is in a market that was threatened by the US-Iran conflict.

After a brief lag seen between March and May, project tendering and awards across West Asia are picking up; executives at companies including Larsen & Toubro Ltd and KEC International Ltd have said or reported new orders.

The return of orders is being driven mostly by the resumption of projects that were already in the pipeline before the conflict. While reconstruction spending could also happen, they are still mostly at the discussion stage.

Indian engineering companies entered the conflict with more than Rs 3 trillion of projects under implementation across West Asia.

The immediate priority is therefore to get existing projects moving, secure new awards and resolve claims for higher costs and delays caused by the disruption. Reconstruction could offer a much larger opportunity later, but it remains too early to quantify.

This is a reversal from April, when The Core reported that no major new contracts had been awarded by West Asian clients to Indian engineering companies since the conflict began in February.

The easing of direct attacks, a return to more normal economic activity across much of the region, and continued government spending on infrastructure have since helped restore some momentum.

India’s largest engineering firm L&T has provided the clearest signal yet on this revival. On August 4, the company announced an order worth more than Rs 15,000 crore from Abu Dhabi National Oil Co. for the development of multiple offshore hydrocarbon facilities.

The award followed a Rs 5,000 crore to Rs 10,000 crore contract from Kuwait Oil Co. announced in late July. KEC and KPIL have also secured new West Asian orders in recent months.

The rebound, however, is not uniform. Industry executives point to three trends — tendering is approaching pre-conflict levels; reconstruction discussions are beginning but remain preliminary; and companies are negotiating with clients over cost and time overruns on projects disrupted by the war.

The Billion Dollar Revival

L&T's latest order is significant because the project had been in the works before the conflict. News reports tracking the Middle East market identified it as part of the Umm Shaif gas cap and surface pressure-boosting project, with commercial bids submitted in February.

That suggests the order is less evidence of a new post-war investment cycle than of projects that continued to progress despite the disruption.

L&T's order book shows a similar pattern.

Apart from the ADNOC and Kuwait contracts, its only other West Asian award since March has been a transmission project worth as much as Rs 2,500 crore, announced in May.

However, these are signs of hope.

“​​Tendering activity has improved significantly compared to the immediate period following the conflict and is steadily moving towards pre-February levels,” Vimal Kejriwal, managing director and chief executive officer of KEC, told The Core.

“While decision-making on certain projects has taken longer than usual, the pipeline remains healthy and customer engagement has remained strong.”

KEC won a transmission order from the region in July. KPIL also announced a water-sector project from West Asia in late June. For both companies, the awards followed a lull in March and April.

Kejriwal estimates that KEC alone has a pipeline of opportunities exceeding Rs 50,000 crore across several infrastructure segments.

L&T is somewhat more cautious. Company executives told analysts on July 28 that West Asia tendering and bidding momentum remained robust and that project awards were expected to pick up from the July-September quarter. Crucially, the company said it had not seen cancellations among projects it was actively pursuing.

West Asia still accounted for nearly 20% of L&T's international orders in the first quarter, president and whole-time director R Shankar Raman said in a media call.

“The Middle East continues to find ways to sort of keep going forward with their broader plan,” he said.

Export data offers a more mixed picture. Engineering exports to major markets such as the UAE and Saudi Arabia declined in June, according to the Engineering Exports Promotion Council India.

Exports to Oman, however, surged 420% from a year earlier, coinciding with the implementation of the India-Oman free-trade agreement.

Construction data also shows that the recovery is being driven primarily by projects already deep into execution.

According to data cited by West Asia business publication MEED, GlobalData's Construction Projects Momentum Index for the Middle East and North Africa region rose to 1.18 in June from 1.06 in May, led by execution-stage activity. Pre-execution momentum fell to 0.68 from 0.73.

Execution activity captures projects already moving through construction, while pre-execution activity covers planning, design and procurement. A recovery led by the former can support engineering companies' near-term order books without necessarily signalling a comparable pipeline of projects several years out.

Reconstruction Orders

It is early days to either confirm a reconstruction order from West Asia, or to quantify prospects.

Executives are careful not to overstate it and said this was the start of early discussions.

L&T’s Shankar Raman said on the media call, describing discussions around reconstruction, “They have not yet zeroed in on the scope precisely for us to be able to quantify.”

KEC is seeing some early inquiries around the rehabilitation of transmission infrastructure and other critical utilities.

“We are also seeing early discussions around alternative trade and logistics corridors, including oil & gas pipeline infrastructure, aimed at reducing reliance on the Strait of Hormuz. However, these opportunities remain at an early stage and are expected to take time to materialise,” Kejriwal said.

These opportunities are expected to be over and above the ongoing infrastructure development programmes already planned by countries in the region.

The macroeconomic picture, however, also shows a need for caution.

S&P Market Intelligence said this month that economic recovery across West Asia has been uneven since the sharp deterioration in March following the initial US attacks on Iran.

Saudi Arabia has led the recovery, while growth in the UAE has stabilised at a lower level. Kuwait and Qatar have continued to struggle.

For engineering companies, government spending is therefore as important as the geopolitical outlook.

Infrastructure, energy and economic-diversification programmes in the Gulf states remain the underlying support for project demand.

The Cost Of Waiting

For Indian engineering companies, the most immediate financial question is what happens to the projects already under construction.

Before the US attacked Iran in February, Indian engineering firms already had more than Rs 3 trillion worth of exposure, in the form of under-implementation projects in West Asia.

Large engineering contracts usually contain provisions allowing contractors to seek compensation for certain cost increases and delays.

The conflict disrupted logistics and supply chains, potentially raising the cost of executing projects that were already underway.

The companies are now negotiating those claims with clients.

“Wherever there have been project-specific impacts arising from logistics or supply chain disruptions, these are being actively discussed with the clients,” Kejriwal said.

“Given the evolving situation, most customers are currently adopting a wait-and-watch approach.”

The approval process could therefore take time.

Shankar Raman at L&T is optimistic, “we did not pack our bags and leave,” he said on the call, adding, “this should actually work in our favour when we finally sit down and settle accounts.”

What Happens Next?

For now, the West Asian market appears to be moving back toward business as usual, but not yet back to where it would have been without the conflict.

Despite the early signs of momentum in ordering activity, industry executives still generously use ‘ wait and watch’ in their guidance.

The next phase for Indian engineering companies will depend on three big factors — negotiations over cost escalations, whether geopolitical tensions continue and whether governments across the Gulf maintain the infrastructure and energy spending that created demand for India’s engineering services.

L&T's overall commentary shows the West Asian market offers both opportunity and risk.

“Middle East growth is expected to moderate amid geopolitical uncertainty and energy market disruptions, although government-led infrastructure spending, energy investments, and economic diversification programs will continue to provide support,” the company said.

For now, multiple Indian companies have maintained that West Asia continues to be part of their growth strategy, even as they expand to other newer overseas markets, in Europe and other regions.