As President Trump and Ali Khamenei roll up their sleeves in a new tussle, the rippling effects span wide across Europe and the Middle East, sending signals that the stock markets are receiving in bad fate. The tension emanating from the killing of one of Iran’s most powerful generals, Qasem Soleimani has resulted in dwindling stock activities in the markets around the world.
Saudi Aramco has suffered its biggest loss since its record breaking IPO late last year. CNN Business reported that the stock dropped 2% ($200 billion) amid concerns of retaliation from Tehran. Saudi Arabia is a key American ally in the Middle East, and could be a victim of Iran’s reprisal attacks for the death of Soleimani. With its oil installations having been targets of attacks in the past, the paranoia of losing its oil infrastructure is not something the Middle East kingdom could dismiss. It has happened before and it may happen again.
The realities of the threat is notable in the activities of the oil market. Despite a 6% surge in crude oil prices since Thursday that got the price close to $70 per barrel, which should boost the earnings of Aramco, the company’s shares have dipped instead.
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Since after its IPO, Saudi Aramco has been struggling to meet the expectations of its shareholders. On Monday, the company’s decline topped 10%, wiping more than $200 billion off its market value. That’s a lot to lose in a few weeks after Aramco debut the biggest IPO in history, and it has begun to give investors concern, especially at this time of Iran vs. America tension.
In 2012, Saudi Aramco suffered a major cyber attack, one of the worst in history. A total of 35 computers were destroyed and their information wiped off.
In September 2019, the company’s oil facility suffered a missile attack that reduced its production capability to a half. The U.S pointed at Iran though they denied the responsibility.
Iran has an undeniable prowess in cyber attacks. There have been some other cases where the country was fingered. For instance, the cyber attacks involving major American banks, JPMorgan Chase, Bank of America and Wells Fargo. These attacks left compromising marks on these institutions, with a lot of data compromised and customers denied access to their accounts.
It is more like a retaliatory pattern to any political event from the U.S against Iran. In a note shared by Evercore analysts, Ken Talanian and Kirk Materne, to investors, they noted that “Iran has a long history of politically motivated cyber attacks across the world. The attacks often follow closely to changes in U.S sanctions.”
The killing of Soleimani has become one of those events, and there is reasonable expectation of the usual response from Iran, and Saudi oil installations may be at the receiving end because of its relationship with the United States.
Oil prices are expected to spike due to these events that have limited production and most of all, supply of oil to Asia because of irregularities in the Strait of Hormuz, that have narrowed the passage of oil tankers to a few. But the psychological effects is having even tighter grip on the stock markets than the spiking price.
Analysts at Goldman Sachs indicated in a research note that the looming dangers are already reflected in crude oil prices, and to sustain them (prices) near current levels, a supply disruption would be needed.
“We therefore believe that price risks are skewed to the downside in coming weeks, with oil prices already trading above our fundamental fair value of $63 a barrel ahead of the recent events,” they said.
A supply disruption may likely come from any retaliatory action taken by Tehran against Saudi that cuts the production or supply of crude oil to any part of the world, especially Asia.
However, the drop in Saudi Aramco’s stock has shown that its performance doesn’t depend on the spike of oil price. Dubai based head of equity strategy at Tellimer investment bank, Hasnain Malik, said Saudi Aramco’s stock depends on continued support from local and regional investors.
“Fundamentally, Aramco is massively overvalued,” said the director of energy at Palissy Advisors, Anish Kapadia. So it will be a struggle for Aramco to live up to the value based on market forces.