Saudi Arabia said on Thursday it was suspending oil shipments through a strategic Red Sea lane after Yemen's Iran-aligned rebels attacked two tankers in the waterway, underscoring the risk of an escalation in tensions in the region.
Brent crude futures rose 59 cents to $74.52 a barrel by 1008 GMT, extending their rally into a third day but falling from a 10-day high in earlier trading.
Saudi Arabia and arch-foe Iran have been locked in a three-year proxy war in Yemen, which lies on one side of the Bab al-Mandeb strait at the southern mouth of the sea, one of the most important trade routes for oil tankers heading from the Middle East to Europe.
The Houthis, who have previously threatened to block the strait, said on Thursday that they had the naval capability to hit Saudi ports and other Red Sea targets. Iran has threatened to block another strategic shipping route, the Strait of Hormuz.
Saudi Energy Minister Khalid al-Falih said the Houthis attacked two Saudi oil tankers in the Red Sea on Wednesday, one of which sustained minimal damage.
"Saudi Arabia is temporarily halting all oil shipments through Bab al-Mandeb strait immediately until the situation becomes clearer and the maritime transit through Bab al-Mandeb is safe," he said.
The chairman of Kuwait Oil Tanker Company said the country was studying whether to follow suit.
The powerful commander of Iran's Revolutionary Guards Quds force, Qassem Soleimani, criticised the U.S. role in the world's top oil exporting region.
"The Red Sea, which was secure, is no longer secure with the American presence ... (U.S. President Donald) Trump should know that we are nation of martyrdom and that we await him," Soleimani was quoted as saying on Thursday.
Industry and shipping sources said the suspension was unlikely to impact Saudi crude supplies to Asia, but could add shipping costs to Saudi vessels heading to Europe and the United States due to a longer transit.
Traders said the suspension order was only for Saudi-owned vessels, so state-owned Saudi Aramco could still charter foreign ships to move its crude.
Saudi Arabia, the world's largest oil exporter, also has a pipeline route to the city of Yanbu on the Red Sea keeping Europe and North America well supplied -- the 5 million barrels per day (bpd) Petroline.
The OPEC heavyweight, an important U.S. ally, has led a pact among global oil producers to boost output to cool the market after Trump imposed sanctions on Iran and criticised OPEC for high oil prices.
Saudi state media reported shortly after Falih's announcement that the kingdom's Crown Prince Mohammed bin Salman chaired a meeting of the Political and Security Affairs Council but did not mention what topics were discussed.
Saudi Arabia leads a coalition of Sunni Muslim Arab states which intervened in Yemen's war in 2015 to restore the internationally recognised government in exile and thwart what Riyadh sees as Tehran's expansionist ambitions in the region.
Pressure Mounts
Saudi Arabia and the United Arab Emirates strongly backed Trump's decision to quit a nuclear deal with Iran, which the two Arab states accuse of supplying the Houthis with weapons, including missiles. The group and Tehran deny the accusations.
The latest attack on Saudi oil tankers could strengthen Riyadh and Abu Dhabi's position ahead of possible U.N.-sponsored peace talks between Yemen's warring parties, which aims to avoid an all-out assault on the country's main port city of Hodeidah.
"Targeting the two Saudi oil tankers in the Red Sea only confirms the need to liberate Hodeidah from the Houthi militias. The systematic attacks on maritime navigation is a mindless terrorist act," UAE Minister of State for Foreign Affairs Anwar Gargash said in a Twitter post on Thursday.
The Western-backed military alliance launched an offensive on June 12 to wrest Hodeidah from the Houthis in a bid to cut off the primary supply line of the movement, which holds the most populated areas of Yemen including the capital Sanaa.
But the alliance did not make major gains in its offensive and on July 1 it called a halt to operations to give the U.N. efforts a chance.
The United Nations fears cutting off Hodeidah, a lifeline for millions of Yemenis, risks triggering a famine in the impoverished country.
One of the coalition's main justifications for intervening in Yemen was to protect shipping routes such as the Red Sea. It has said it foiled previous attacks there in April and May.
The Bab al-Mandeb strait is only 18 miles (28.97 km) wide, according to the U.S. Energy Information Administration (EIA), making hundreds of ships potentially an easy target.
Falih's statement said the two Very Large Crude Carriers (VLCCs) attacked were operated by Saudi shipping company Bahri , which identified the damaged vessel as the Arsan.
"The two million barrels capacity for each tanker were full of crude oil cargo at the time and were headed for export. One of the VLCCs sustained minimal damage," Falih said.
Most exports from the Gulf that transit the Suez Canal and the SUMED Pipeline also pass through Bab al-Mandeb. An estimated 4.8 million barrels per day of crude oil and refined petroleum products flowed through the waterway in 2016, the EIA said.
(Additional reporting by Aziz El Yaakoubi, Hesham Hajali, Florence Tan and Jonathan Saul; Writing by Ghaida Ghantous Editing by Sonya Hepinstall)