A drone strike on two major oil facilities in Saudi Arabia has severely disrupted world oil production while escalating already heightened tensions in the region. Iran dismissed accusations by the U.S. that it was behind the attacks on the Saudi oil plants and warned yesterday that U.S. bases and aircraft carriers in the region were in range of its missiles. Yemen's Iran-aligned Houthi group claimed responsibility for Saturday's attacks that knocked out more than half of Saudi oil output. But U.S. Secretary of State Mike Pompeo said there was no evidence the attacks came from Yemen and accused Iran of "an unprecedented attack on the world's energy supply."

Iranian Foreign Ministry spokesman Abbas Mousavi, speaking on state TV, dismissed the U.S. claim as "pointless." A senior Revolutionary Guards commander warned that the Islamic Republic was ready for "full-fledged" war and that U.S. military assets were within range of Iranian missiles.

Some Iraqi media outlets said the attack originated from Iraq, where Iran-backed paramilitary groups have wielded increasing power, but Iraq denied this Sunday and vowed to punish anyone who intended to use Iraq as a launchpad for attacks in the region.

Sunday, the Turkish Foreign Ministry condemned the drone attacks, while calling on regional countries to refrain from provocations that might damage security and stability in the Gulf region. The attack on two Saudi oil facilities threatens security and undermines efforts to reduce tensions in the region, the EU said, while stressing the need to clearly establish who was behind the incident. "[Saturday's] attack by drones on two Aramco oil facilities in Saudi Arabia poses a real threat to regional security," an EU foreign policy spokesperson said in a statement.

Regional tensions have escalated since Washington quit an international nuclear deal and extended sanctions on Iran to choke off its vital oil exports, a move supported by U.S. Gulf allies Saudi Arabia and the United Arab Emirates (UAE). The attack comes after U.S. President Donald Trump said a meeting with Iranian President Hassan Rouhani was possible at the U.N. General Assembly in New York later in September. Tehran ruled out talks until sanctions are lifted.

Attacks threaten spare oil capacity, price hikes

State-run oil company Saudi Aramco said the strikes would cut output by 5.7 million barrels per day, or more than 5% of global crude supply, at a time when Aramco is gearing up for a stock market listing. Aramco gave no timeline for when output would resume but said yesterday it would give a progress update in around 48 hours. A source close to the matter told Reuters the return to full oil capacity could take "weeks, not days." The kingdom, the world's top oil exporter, ships more than 7 million barrels of oil to global destinations every day, and for years has served as the supplier of last resort to markets. The U.S. said it was ready to tap its emergency oil reserves if needed after the attack on the oil plants, including the world's biggest petroleum processing facility in Abqaiq. Saudi Arabia's stock market opened down 2.3% yesterday. Saudi petrochemical companies, including Saudi Basic Industries (SABIC), announced a significant reduction in feedstock supplies.

Last week, Saudi Arabia's new energy minister, Prince Abdulaziz bin Salman, half-brother of the kingdom's de facto ruler, Crown Prince Mohammed bin Salman, moved to reassure oil markets that production cuts coordinated with OPEC and Russia would remain in place. Hoping to boost prices, OPEC partnered with non-OPEC nations like Russia to lower their production beginning in 2017, the first such cut for the cartel in a decade. It reduced production by 1.2 million barrels per day, with 800,000 coming from OPEC and 400,000 coming from non-OPEC members. That deal helped push prices back up, becoming what Prince Abdulaziz earlier this week described as an arrangement "'till death do us part." But the accord does not include America, which was the world's top oil producer in 2018, according to the U.S. Energy Information Administration. President Donald Trump has been pushing both OPEC and ally Saudi Arabia in tweets to keep prices low as well, mindful of how gasoline prices can swing elections in America. The average price for a gallon of regular gasoline in the U.S. is $2.56, down from $2.83 a year ago, according to AAA.