DUBAI (Reuters) - Saudi Aramco shares hit a new low on Wednesday after Iran launched missiles against U.S. bases in Iraq, but Gulf debt markets were stable as some had feared stronger action in retaliation for the killing of an Iranian military commander.

Qatar's traders look at share prices on an electronic display at the Doha Stock Exchange in Doha, Qatar January 8, 2020. REUTERS/Naseem Zeitoon

Saudi Aramco shares fell to as little as 34 riyals ($9.06) at the market open, the lowest since they began trading on Dec. 11, putting the market value of the company at around $1.8 trillion from a peak of $2.06 trillion on Dec 12. They ended Wednesday 0.4% lower at 34.2 riyals.

Jason Tuvey, a senior emerging markets economist at Capital Economics, said the geopolitical tensions were causing the latest weakness in Aramco’s shares, although they had already been falling as investors took a harder look at the firm’s prospects with initial IPO fervor dissipating.

Aramco shares are down almost 12% from their Dec. 12 high of 38.70 riyals, but still above their IPO price of 32 riyals, which valued the company at $1.7 trillion.

Aramco’s performance was in line with the wider market, with all regional Gulf indexes closing lower after Iran’s retaliation for a U.S. drone strike last week which killed Qassem Soleiman.

Analysts said Aramco shares may get a lift after U.S. President Donald Trump said the United States did not necessarily have to use its military power against Iran, an apparent attempt to defuse the crisis.

“It will certainly remove the panic in the market,” Nirgunan Tiruchelvam, head of consumer sector equity research at Tellimer.

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“Irrespective of the volatile situation, the case for Aramco is robust. We may be entering a commodity bull after over five years of under investment.”

SIGNS OF STABILITY

Debt markets showed signs of stability after a volatile start to the week, with bonds issued by Gulf governments fairly stable and credit default swaps - used to insure against the risk of a sovereign debt default - unchanged.

“The Iran retaliation seems to be a non-escalation, which is why the markets are not widening. I think once this is confirmed, we might see a small relief rally in the region,” said Zeina Rizk, director of fixed income asset management at Dubai’s Arqaam Capital.

Bonds issued by Saudi Arabia - Iran’s regional foe - were only marginally weaker, particularly at the long end of the curve. Five-year CDS conventional spreads were up a negligible 1 basis point, according to IHS Markit.

Aramco said again on Tuesday that Goldman Sachs may act to stabilize the price of its shares, but no such transactions have taken place since the stock began trading and the stabilization period ends on Thursday.

Aramco raised $25.6 billion in its IPO, exceeding Alibaba Group's BABA.N $25 billion deal in 2014 to become the biggest flotation to date, but foreign investors were wary because of concerns over the valuation.

“The tensions between the United States and Iran are one of the risks people saw with concentrated operations in the Middle East,” said Oswald Clint, senior analyst at Sanford C. Bernstein.

Aramco’s facilities were attacked in September in a strike that temporarily shut down 5.7 million barrels per day of output - more than 5% of global oil supply. The U.S. blamed Iran for the attack, something Iran has denied.

Morningstar, which initiated its coverage of Aramco last month, said its fair value for Aramco was $1.4 trillion.