Baker Hughes (BKR.O) signaled on Monday that annual global spending by oil and gas producers is expected to decline modestly in 2026, as geopolitical tensions stemming from the Middle East conflict weigh on drilling activity and capital allocation decisions across the industry, according to a Reuters report published July 27. The oilfield services giant noted that while spending growth is anticipated in Latin America, offshore Africa, and North American land operations, these gains will be more than offset by reduced expenditure in Europe and the Middle East. Escalating tensions between the United States and Iran have been a dominant force shaping energy market dynamics this year, prompting upstream operators to adopt a more defensive posture.
"Customers remain focused on maximizing production from existing assets while preserving flexibility to respond to evolving market conditions," CEO Lorenzo Simonelli said on a conference call with analysts following the company's earnings release on Sunday. Despite the cautious industry outlook, Baker Hughes shares surged more than 6% after the company beat second-quarter profit estimates. A key driver of the outperformance was its Industrial and Energy Technology (IET) segment, where orders doubled year-over-year to a record $7.1 billion.
However, the company issued a warning that the IET segment faces a projected revenue headwind of 1% to 2% due to disruptions caused by the regional conflict. Baker Hughes forecast third-quarter IET segment revenue in the range of $3.17 billion to $3.47 billion, falling short of the $3.79 billion consensus estimate compiled by LSEG. "While the overall impact from Middle East disruptions should remain modest, we expect some increase in logistics and inflationary pressures at our regional facilities during the third quarter," said CFO Ahmed Moghal.
He added, however, that the impact of the Iran conflict is expected to be offset by strength in regions outside the Middle East. In North America, Baker Hughes anticipates a further seasonal recovery in the third quarter, with Brazil and Mexico identified as key growth drivers in Latin America. Looking beyond the near-term volatility in oil markets, Baker Hughes is increasingly positioning itself around structural growth areas such as LNG infrastructure and power grid upgrades.
The company announced plans to further expand its gas turbines and generator capacity, with new capacity expected to come online by 2029, supporting what it described as nearly $5 billion in annual power systems revenue opportunity. Source: Reuters, reporting by Vallari Srivastava and Sumit Saha in Bengaluru; editing by Leroy Leo.
Source: reuters.com