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Shares in SNC-Lavalin Group Inc. are sinking as investors fret that Canada's biggest engineering firm will get caught in the crossfire of the Trudeau government's political row with Saudi Arabia.

The stock has fallen in two of the past three trading sessions since the dispute blew up on Sunday, shedding another 1.7 per cent Thursday to close at $53.80. Ottawa shows no sign of backing down while Saudi Foreign Minister Adel al-Jubeir has said his country is prepared to take further measures to punish Canada.

Of all Canada’s companies, SNC-Lavalin might have the most to lose if the fight escalates. The Montreal-based firm, which has been working in the Middle East kingdom for five decades, generated nearly $1-billion in revenue from Saudi Arabia last year, representing about 11 per cent of total sales. That’s more revenue than from the rest of the Middle East and Latin America combined.

“The fallout from protracted political instability could be material” for SNC-Lavalin, said Maxim Sytchev, an analyst with National Bank of Canada, estimating an $81-million decline in fiscal 2019 earnings before interest and taxes in a worst-case scenario.

In a statement late Wednesday, SNC-Lavalin said it was not able to fully assess the effects of the situation on its current and future business opportunities in Saudi Arabia. But it warned that if the kingdom puts in place a widespread commercial embargo on Canadian commercial interests on a prolonged basis, that would hurt SNC’s future financial performance. SNC officials did not respond to a request for additional comment Thursday.

The dispute broke out a week ago after Foreign Affairs Minister Chrystia Freeland and her department sent out several tweets calling on the Saudis to release immediately arrested women’s rights activists, while decrying Riyadh’s recent crackdown on dissidents. The Saudi government then called the comments “blatant interference” in its affairs by the Trudeau government.

The Saudis have retaliated by halting new investments in Canada and selling off assets, among other measures. So far however, those moves have sent only a mild ripple through Canada’s markets and business community. That’s because Saudi assets in this country are modest in scope, while Canada’s businesses and the economy in general have little exposure to the Middle East kingdom.

With so little at stake in the bilateral relationship, each side might be more prone to stand its ground. But that won’t be without consequences.

Riyadh also announced it would immediately suspend education scholarships and require all Saudi students to withdraw from Canadian universities. That will affect up to 15,000 students and their family members and is “credit negative for the Canadian university sector because it will decrease university operating revenues,” Moody’s Investors Service said in a note published Wednesday.

Germany offers a lesson in what could happen if Saudi Arabia shuts the door to Canadian businesses. When the political relationship between the European country and Saudi Arabia soured earlier this year, Riyadh initiated a de facto boycott of big German multinationals such as Siemens, Daimler and Bayer. Since then, contracts for German businesses in the kingdom have dried up and meetings to discuss new deals are being canceled, according to the Spiegel newspaper.

But if that were to happen to Canadian firms, it wouldn’t necessarily be the end of the world. SNC-Lavalin is a multinational anchored in North America that scouts the world for opportunities. As Laurentian Bank Securities analyst Mona Nazir notes, the company’s diversified model has stood up to sudden reductions in geographic revenues in recent quarters. Bombardier Inc., which has two projects currently in Saudi Arabia, has many more lucrative ones elsewhere in its US$8.5-billion-a-year train business.

An escalation of the conflict could unwind relationships that have taken decades to build. And that is never positive.

SNC-Lavalin’s ties to Saudi Aramco, the oil and gas giant, run particularly deep. After winning Saudi Aramco’s Qassim pipeline project in 1996, SNC subsequently picked up a steady stream of control system mandates from the company. It eventually parlayed that success into more work from Aramco, shifting staff and industry expertise from Calgary to an office in Al-Khobar in the process. A key milestone cementing its reputation in the country came in 2005, when it won major contracts to do front-end engineering on the massive Khurais water injection and Shaybah gas plant projects.

Today SNC continues to cultivate the relationship with Saudi Aramco, signing another five-year deal last month to provide general engineering services to Al Khafji Joint Operations, a partnership between Aramco Gulf Operations Co. Ltd. and Kuwait Gulf Oil Co. The Canadian firm said it will help engineer new offshore platforms, onshore crude and gas handling facilities, and gas pipeline networks, among other work.

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