Saudi stocks drop as tensions surge after Aramco drone attacks

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 per cent, 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 per cent.

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 was 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 have 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.

Saudi Arabian stocks wipe out their 2019 advance

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 be limiting the decline.

* Tadawul traded 1.2 per cent lower as of 1.08pm in Riyadh

* Volume of shares exchanged was 10 per cent higher than the 30-day average for the same time

* Sabic dropped as much as 5 per cent to the weakest since late 2016

* Al Rajhi curbed its decline to 1.7 per cent, poised for the lowest level since January

“Being Sunday, foreigner participation may not be in full swing, and that should help government funds intervene more effectively,” Joice Mathew, the head of equity research at United Securities in Muscat. Their support “could be identified if we see any sharp recoveries in first 90 minutes of trading,” he said.