Breakingviews - Aramco’s war-risk snake trumps oil-price ladder

A view shows branded oil tanks at Saudi Aramco oil facility in Abqaiq, Saudi Arabia October 12, 2019.

LONDON (Reuters Breakingviews) - Saudi Aramco has been handed a curse disguised as a blessing. The fallout from the U.S. strikes that killed top Iranian general Qassem Soleimani, plus bellicose talk by President Donald Trump about sanctions on Iraq, pushed oil prices above $70 a barrel on Monday morning. Yet shares in the Saudi oil giant slipped to 34 riyals ($9.1) – their lowest level since last month’s initial public offering, and 11% below their post-listing peak.

That’s weird. European oil and gas stocks are up 2% since Thursday, according to Refinitiv data. Traders are betting that Iran will retaliate for the killing of such a key figure, raising the prospect of disruption to shipping in the Strait of Hormuz, through which 20% of oil consumed globally flows. If Iraq expels the 5,000 U.S. troops on its soil and Trump follows up by imposing sanctions, an oil producer responsible for around 5% of annual global supply could be muzzled.

All this should, in isolation, be good for Aramco’s worth. Were oil prices to stay at the current $70 a barrel or above, the group should move closer to the $2 trillion market value target set by Crown Prince Mohammed bin Salman. As the world’s biggest oil producer with the largest spare capacity, Aramco might be in a sweet spot of having to pump more, at higher prices.

The group’s shareholders are right to be wary, though. One of the risk factors spelled out in the group’s November prospectus was the danger of armed Middle East conflict. Given that half of Saudi oil supply was temporarily knocked out in September after a strike that Reuters reported was planned by Iran, there is a real danger of further attacks.

A direct response by Tehran would be likely to target Americans, either in Iraq, in military bases, or via cyberattacks. Yet this would cross Trump’s now clearly delineated red line, threatening even greater escalation. Targeting Aramco might have less severe consequences - Trump did not retaliate after the September attacks. For Aramco investors, these jitters will more than cancel out any boost from higher oil prices.


Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

Sign up for a free trial of our full service at and follow us on Twitter @Breakingviews and at All opinions expressed are those of the authors.