Saudi Aramco shares have dropped 11.5% from their IPO peak, and still, the shares are overvalued.
Shares closed on Wednesday at their lowest level (34.15 riyals (($9.10)) since trading began on Dec. 11, after Iran launched more than a dozen ballistic missiles at multiple US military bases in Iraq.
The killing of Iran’s top general Qassem Soleimani last Friday, and the retaliation strikes by Iran on Wednesday, have caused a massive divergence between sinking Aramco shares and surging oil prices. WTI rose 5% to 65.50 on the news of Iranian missile strikes in Iraq. Brent briefly spiked to the 71 handle, and both oil contracts have faded since the attacks.
Aramco shares didn’t benefit from spiking oil prices because its oil facilities are in striking range of Iran.
The Sept. 14 attack on Aramco’s oil processing facilities at Abqaiq and Khurais in eastern Saudi Arabia revealed how Patriot batteries failed to guard high-value assets in the country from Iranian threats.
Russ Mould, AJ Bell investment director, told MarketWatch that investors are concerned Aramco could be the next target of an Iranian missile strike.
“Also, there’s perceived to be a higher risk associated with assets based in the Middle East as they’re so much nearer to any potential further military actions,” Mould said. “One of the risks with Aramco was always a higher risk premium because of where they’re based and the uncertainty in the Middle East. I guess it’s just a reflection of that today more than anything else.”
He said Aramco shares are highly exposed to geopolitical risk and won’t benefit off higher oil prices.
He added: “In the short term in the international context the shares look expensive relative to their peers, so I personally wouldn’t be falling over myself to buy the shares.”