Saudi Stocks Drop as Tensions Surge After Aramco Drone Attacks

(Bloomberg) -- Saudi Arabian stocks declined the most in the Middle East after drone strikes highlighted the vulnerability of the kingdom’s oil facilities to terror attacks.

The Tadawul All Share Index fell as much as 3.1%, led by Al Rajhi Bank and Saudi Basic Industries Corp.. The drop erased this year’s gain and lowered the gauge’s valuation to the weakest since March, before the kingdom’s stocks were included in MSCI Inc.’s emerging-market gauge. Equities in the United Arab Emirates, Qatar, Kuwait and Bahrain retreated at least 0.3%.

This is a “very tense situation,” elevating risk in the region “to unprecedented levels,” said Mohammed Ali Yasin, the chief strategy officer at Al Dhabi Capital in Abu Dhabi.

The attack cut production in half and the biggest on Saudi Arabia’s oil infrastructure since Iraq under Saddam Hussein fired Scud missiles into the kingdom during the first Gulf War. Iran-backed Houthi rebels in Yemen, who’ve launched several drone attacks on Saudi targets in the past, claimed responsibility for the assault on Saudi Aramco’s Abqaiq plant, one of the world’s largest crude-processing facilities.

U.S. Secretary of State Michael Pompeo in a tweet blamed Iran directly, but didn’t offer any evidence. Iran denied responsibility for the attacks.

While the incident won’t derail Aramco’s initial public offering, it may impact the company’s valuation, according to the Eurasia Group. “Crown Prince Mohammad Bin Salman will push the company to demonstrate that it can effectively tackle terrorism or war challenges,” said analysts led by Ayham Kamel, head of Middle East and North Africa research.

Helping Hand?

The main index recovered about half its losses within the first hour of trading, a sign government funds may have limited the decline. The Tadawul declined 1.1% at the close, and both Sabic and Al Rajhi curbed losses of about 5% to close at 2.6% and 1.2%, respectively.

“This a classic trading pattern that we have witnessed earlier as well,” said Joice Mathew, the head of equity research at United Securities in Muscat. “They intervene in the first hour with some buying, and then come back and buy at market close.” The pressure on Saudi stocks will probably “continue until we hear from Aramco that the plant is fully functional,” he said.

To contact the reporter on this story: Filipe Pacheco in Dubai at fpacheco4@bloomberg.net

To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, Shaji Mathew, Sara Marley

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