Dubai — The attacks on Saudi Arabia's oil plants highlight the risks of buying shares in the kingdom's state oil giant Saudi Arabian Oil Co., analysts and other sources said.

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Drone attacks hit two Aramco oil sites in Abqaiq and Khurais early Saturday, including the world's largest crude stabilization site. Yemeni-based Houthis claimed responsibility for the attacks but Saudi Arabia said an investigation is ongoing.

"The attacks obviously demonstrate the security risks which should be baked into the valuation of Aramco," Hasnain Malik, head of equity strategy research at Tellimer, told S&P Global Platts.

Even if oil prices rise on the 5.7 million b/d of lost oil production, the attacks are "a net problem for the IPO," a source familiar with the planned sale share said. This person was skeptical that a local share sale would be well-received.

"Even on a pessimistic forecast, let's assume they only get a $1 trillion valuation," the source said. "That's still $10 billion that they will seek in Saudi. Where will they get that?"

Higher prices would help to deliver the desired $2 trillion valuation, which the Crown Prince Mohammed bin Salman previously desired from the sale. The IPO, which could raise $100 billion from a 5% stake, will provide funds to support his Vision 2030 plan to diversify the kingdom's economy.

"Assuming the conflict with the Houthis in Yemen, or any other opponent of the government persists, then this attack provides an opportunity for Aramco to demonstrate the redundancy and resilience of its supply chain by minimizing disruption to customers and thereby helping to mitigate the valuation impact of this risk," Malik said.

Interested investors in the IPO were probably already aware of the security risks in Saudi Arabia, Malik said.

Saudi Arabia has been viewed favorably, particularly by emerging market investors, owing to the country's dollar peg, low risk of default, and stable political system.

"I can't think of anything better designed to undermine valuations," said Christopher Johnson, managing attorney at Al-Sharif Law in Riyadh. "Of course the news will affect the IPO, and also the attractiveness of other projects that will depend on foreign investment in an increasingly fragile environment, such as NEOM, Qaddiya, Red Sea, Amaala, and King Abdullah Economic City.”

A source said the attacks could make potential investors realize that they have been underestimating the geopolitical risk involved in doing a deal in Saudi Arabia.

The IPO and how Saudi Arabia has chosen to handle the listing had some material changes over the past week. Former energy minister Khalid al-Falih, who was thought to have been sceptical of a $2 trillion valuation, was dismissed.

He was replaced with the crown prince's half brother, Prince Abdulaziz bin Salman, who announced last week in Abu Dhabi that Aramco plans to also list 1% of its stock on the local Saudi exchange.

"I don't think this will have an impact on valuation but it will affect how many investors show interest and how many shares they choose to buy." another source told Platts. "This could not have been worse-timed for the Saudis because they are about to launch the IPO."

The attacks may also hurt foreign direct investment in the Middle East at large, the person said.

The Middle East region at large may be negatively affected by hurting foreign direct investment, the person said.

McKinsey has reported that Saudi Arabia needs around $4 trillion in fixed direct investment to double its GDP.

"This will do nothing to help that, this is going to retard expected growth over the years," the person said.

(Updates with lawyer comment)

--Miriam Malek, miriam.malek@spglobal.com

--Edited by Claudia Carpenter, claudia.carpenter@spglobal.com