The Saudi Arabian Oil Company — better known as Saudi Aramco — is forging ahead with plans for an initial public offering that may value the company at $2 trillion, or perhaps less, as investors weigh the risk rewards associated with what could be the world’s biggest ever floatation.

Aramco, Riyadh’s crown jewel that pumps an estimated 10% of global crude supply, has successfully recovered from a drone attack in September that briefly incapacitated half of Saudi Arabia’s oil production and temporarily sent crude prices on a tear.

That incident appears to be casting a long shadow over the kingdom’s ability to get maximum value from its planned IPO, the terms of which could be revealed soon. Both Bloomberg and The Wall Street Journal reported last week that company is aiming for a valuation at or near $2 trillion. But Aramco’s banking team — led by JPMorgan Chase (JPM), Morgan Stanley and Goldman Sachs (GS) — believe a $1.5 trillion price tag is more realistic, The Journal reported.

A valuation above $2 trillion “is an aspirational goal by the Saudis, but isn’t justified at today’s oil prices or the values being placed on oil and gas reserves by the financial markets,” according to Dan Pickering, founder and CIO of Pickering Energy Partners.

Aramco’s efforts to get top dollar for its offering could be stymied by a range of extenuating factors — which include soft oil prices, decelerating global growth, internal and external challenges to Crown Prince Mohammed bin Salman rule, and the Middle East’s perpetual turmoil that raise pointed questions about oil security.

“Aramco would have to dramatically change their operating cost structure, governance and/or dividend policy to achieve a premium valuation that would result in a $2 trillion value,” he said.

The company is planning to list its shares on the local Saudi Arabian exchange before pursuing an international listing. However, the accumulated weight of all the issues facing the company are likely to weigh heavily on the minds of potential buyers of its stock when it eventually offers stock to world investors — a key staple of bin Salman’s efforts to liberalize and diversify Saudi Arabia’s economy.

Conversely, a local market placement “increases the odds of a higher valuation as the local investors and smaller trading float could create a fear-of-missing-out dynamic,” Pickering added.

‘A lot of questions’

Aramco’s public offering was initially floated over three years ago, but was shelved in 2018 as Wall Street questioned whether the company could comply with stringent governance standards associated with international listings, and how much investors were willing to pay.

And playing in the background is a volatile market that’s largely soured on big-name offerings, the worst case being the aborted lift off of office-sharing giant WeWork. The sky high valuations and lofty goals offered by Lyft (LYFT), Uber (UBER) and Slack (WORK) have — at least for now — turned to dust as investors humble their share prices.

“There are just a lot of questions hanging over” the Aramco offering, Dec Mullarkey, managing director of investment strategy at SLC Management, which has $160 billion in assets under management, told Yahoo Finance in a recent interview.

Mullarkey called the Aramco offering “not that compelling” based on fundamentals, and “not something we’d get super excited over” for several reasons.

“For decades people have felt that infrastructure in Saudi Arabia has been well protected, well guarded and the risk of interruptions [were] minimal,” he said.

But many of assumptions were upended by September’s drone attack, which exposed vulnerabilities in Saudi Arabia’s infrastructure. In the wake of lingering security concerns sparked by an attack widely suspected to have been engineered by Iran — Saudi Arabia’s chief regional antagonist —Mullarkey suggested there would be “pushback” from investors that may take it out on Aramco’s valuation.

“It’s better to tie down open questions themselves as opposed to investors handicapping the offering,” he added. Left unanswered, those vulnerabilities could in extremis, cost Aramco a 15 to 20% discount in value, Mullarkey said.

The region’s multiple flashpoints, highlighted by Saudi Arabia’s ongoing war in Yemen and Turkey’s widening conflict in Syria, are emerging as new reasons for investors to question Aramco’s ability to manage the multiplying risks, especially as cracks emerge in the U.S.-Saudi bilateral relationship.

President Donald Trump’s “reluctance to respond militarily to the attack on Aramco’s Abqaiq facility, a core asset for the global energy infrastructure and the most important Saudi facility, has significantly undermined deterrence against Iran, which the early Trump administration invested significant resources towards bolstering,” Ayham Kamel Eurasia Group’s practice head of Middle East & North Africa, wrote recently.

A long-term oil security plan by Aramco “needs to be tested by time, and only then could there be a genuine effort to sell that to the public,” David Tawil president of Maglan Capital, a hedge fund told Yahoo Finance recently. “It’s a really long road to hoe.”

Javier David is an editor for Yahoo Finance. Follow Javier on Twitter: @TeflonGeek

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