Iran fueled massive speculation on Friday when its media reported that one of its oil tankers was targeted by suspected missiles while sailing in the Red Sea.
Oil prices surged more than 2 percent on the news, which raised fresh concerns about Middle East supply with tensions still high after last month's attacks on Saudi Aramco’s Abqaiq and Khurais oil facilities. The Kingdom, United States and Europe blamed Tehran for those attacks.
The National Iranian Tanker Company said the hull of the Sabiti was hit by two separate explosions about 100 kilometers (60 miles) off the Saudi coast, which damaged two of its tanks on the starboard side.
It said the blasts were "probably caused by missile strikes".
"All the ship's crew are safe and the ship is stable too," NITC said, adding those on board were trying to repair the damage.
"This clearly puts fuel on the Mideast fire," SEB commodities analyst Bjarne Schieldrop told AFP.
Nordea Markets analyst Thina Margrethe Saltvedt said it was not the particulars of the latest incident that were worrying traders but the fear of worse to come.
“The risk premium is rising... not because the tanker per se contains enough oil to squeeze the market, but the risk that this incident will be retaliated or more attacks would come.”
Iran's foreign ministry said the tanker was attacked "from a location close to the corridor it was passing, east of the Red Sea."
Oil was leaking from the tanker into the waters of the Red Sea, it added.
"The responsibility of this incident, including the serious environmental pollution, falls on the perpetrators of this reckless act," said ministry spokesman Abbas Mousavi, adding that investigations are continuing.
The ship is slowly moving back towards the Gulf.
According to ship tracking service TankerTrackers, the Sabiti is fully laden with one million barrels and has declared the Gulf as its destination.
Pictures published by Iranian state television showed the ship's deck without any outward signs of damage, said AFP.
Oil prices climbed as much as 2 percent after the reports, with benchmark Brent and US West Texas Intermediate crude futures both rising more than $1 a barrel. Brent was trading around $60 a barrel on Friday.
Crude prices had eased after spiking above $70 in response to the September 14 attacks on the Saudi oil sites, which shut down 5.7 million barrels per day (bpd) of production, about half of Saudi output and roughly 5% of global supply. Output has since been restored.
Friday’s incident comes after a spate of still unexplained attacks on shipping in and around the vital seaway to the Gulf involving Iran and Western powers.
Washington accused Tehran of attacking the vessels with mines, something it denied.
There have also been seizures of both Iranian and Western-flagged vessels.
The United States has formed a naval coalition to escort commercial vessels through the Strait of Hormuz, the strategic chokepoint at the mouth the Gulf.
It has been joined by Australia, Bahrain, Britain, Saudi Arabia and the United Arab Emirates.
Friday's incident is the first involving an Iranian ship since the "Happiness 1" broke down at about the same location in early May.
That ship was repaired in Saudi Arabia and held in the Kingdom until July 21 when it was released.
In the first response to Friday’s development, China called on all parties to "exercise restraint" in the "highly complex and sensitive" situation.
Iran has been locked in a standoff with the United States since US President Donald Trump withdrew from a 2015 deal that gave it relief from sanctions in return for curbs on its nuclear program.
The British-flagged oil tanker Stena Impero arrived in Dubai late last month, after being detained with its crew in Iran for more than two months.
The seizure was widely seen as a tit-for-tat move after authorities in the British overseas territory of Gibraltar detained an Iranian tanker, since released over US objections.
Tehran repeatedly denied the cases were related.
At the height of the crisis, Trump ordered retaliatory strikes against Iran after Tehran downed a US drone but called them off at the last minute.