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When Saudi Aramco was road-showing its record-setting IPO in November, it warned investors of a number of particularly fearsome risks. Chief among them was “that terrorism and armed conflict may materially and adversely affect the company and the market price of the shares.”

Less than a month after Aramco’s trading debut and investors are having to stomach precisely that.

The turmoil in the region since the United States killed Iranian military commander Gen. Qassem Soleimani in a drone attack in Iraq last week has driven home the Saudi oil company’s vulnerability in an unstable region, contributing to a near 12% drop in the share price since hitting a peak on Dec. 12 that briefly valued the company at more than $2 trillion.

Iran struck back for Soleimani’s killing early Wednesday, firing ballistic missiles at two Iraqi bases housing U.S. troops. Investors in Riyadh are feeling the collateral damage.

Fears that Saudi Aramco, guardian of Saudi Arabia’s vast oil wealth, could be caught up in any conflict between Iran and the United States have outweighed the boost to the oil company’s revenues from a surge in the oil price since Soleimani was killed.

Drone attacks

“I think there’s general agreement that the recent movement we’ve seen in the share price has been due to the escalation in geopolitical tensions in the region,” said Salah Shamma, head of investment, Middle East and North Africa, at Franklin Templeton Emerging Markets Equity.

The drone attacks on Saudi Aramco installations in September, which knocked out half of Saudi oil production, were “still fresh in investors’ minds,” he told Fortune. “There are assumptions out there that Aramco installations or other oil installations could be targeted (in any hostilities) so I think that is … weighing down the share price,” he said.

Houthi rebels in Yemen claimed responsibility for the September attacks, but the United States went ahead and blamed Iran, U.S.-allied Saudi Arabia’s arch rival.

Iran has in the past threatened to close the Strait of Hormuz, a key transit route for Saudi crude exports, if the country were threatened.

Cyber sabotage

Another danger cited by Saudi Aramco in its IPO prospectus was the risk of cyber attack. Back in 2012, thousands of computers at Saudi Aramco were disabled by a cyber attack that some security experts blamed on hackers working on behalf of Iran.

There could be a more traditional explanation too for the share sell-off. Some analysts contend Saudi Aramco shares were hugely over-valued to start with, and believe the steady three-week decline is only the beginning of a protracted slide.

All eyes will be on the shares again on Thursday for another reason. Tomorrow marks the end of the period during which the underwriter, Goldman Sachs, can exercise an option to sell more Aramco shares to the public to satisfy those still wanting more shares following the initial strong demand. The IPO was subscribed 4.65 times.

Analysts expect Goldman Sachs to announce on Thursday, or soon afterwards, that it has taken up the option, raising the number of shares sold to investors by 15% to 3.45 billion, creating a free float of 1.725% of Saudi Aramco shares. The market will already have soaked up those shares, so the announcement should not have a big impact on the price.

If this so-called “greenshoe” option is exercised, it will raise the value of Saudi Aramco’s IPO to $29.4 billion, smashing the previous record IPO set by Alibaba in 2014. But even that achievement won’t distract from the weaker share performance of late.

Neil Beveridge, senior oil analyst at brokerage Bernstein, said he believed the decline in Aramco’s share price was “primarily linked to valuation.”

“Our target price for the stock is 25.50 riyals which is significantly below the current stock price,” Beveridge told Fortune.

Saudi Aramco shares closed Wednesday at 34.20 riyals down 0.44%. That’s still about 7% above 32 riyal initial float price.

Only place to go is ‘down’

Bernstein last month gave Saudi Aramco shares an “underperform” rating and valued the company at $1.36 trillion, a full 25% less than its current market value of $1.82 trillion.

After the company hit a market value of $2 trillion soon after listing, “the only place to go from there was really down, and that’s what we’ve seen, so I think it’s largely profit taking,” Beveridge said.

Allen Good, an Amsterdam-based equity analyst with investment research firm Morningstar, said he believed Aramco’s shares were over-valued, although they would be supported for some time by its large base of Saudi retail investors, who have been promised a one-for-10 bonus share if they hold on to the shares for six months.

“The Iran situation probably brings back to the forefront the risk around Aramco’s production base being concentrated solely in Saudi Arabia,” he told Fortune.
Since the Soleimani attack, Aramco shares have fallen by 2.7%, a touch less than the main Saudi share index, which is down 3.3%.

Some analysts wouldn’t be surprised if Aramco shares were to fall further, perhaps even below the IPO price at some point. Morningstar has put a fair value on the shares of 26 riyals and “theoretically we’d expect it to converge with our fair value over time,” Good said.

Beveridge said that with 5 million retail investors there would be a lot of political pressure not to see Saudi Aramco’s stock drop too far. But he pointed to the precedent of PetroChina, whose shares soared after its 2007 IPO to value the company at more than $1 trillion, before falling back to be worth around a quarter of that by the end of the following year.

“The idea that just because you’ve got a lot of retail investors participating in it means it can’t go down—I don’t think that’s correct. I think it will probably trade at something of a premium to fair value. I do think ultimately that fundamentals will mean that it underperforms other global oil majors,” he said.

The IPO is the cornerstone of Saudi Crown Prince Mohammed bin Salman “Vision 2030” plan to diversify the Saudi economy and lessen its reliance on oil. But initial plans to sell up to 5% of Aramco shares on an international exchange to raise up to $100 billion were abandoned in favour of a listing confined to the Saudi stock exchange of Tadawul.

The IPO, driven by an intensive local advertising campaign, drew strong interest from individuals and institutions in Saudi Arabia and the Gulf. But Western investor interest was low because many thought the price was too high and because many had concerns about investing in the world’s biggest oil company at a time when global warming is prompting a switch to renewable energy.