US President Donald Trump and Iran threatened to escalate their war, targeting energy and fuel facilities in the Persian Gulf, which could again roil global energy and financial markets and deepen a regional crisis.
Trump on Saturday threatened to "obliterate" Iran's power plants if Tehran did not fully reopen the Strait of Hormuz within 48 hours.
Iran warned on Sunday it would target US infrastructure, including energy facilities in the gulf, if Trump carried out his threat, which he made as US Marines and heavy landing craft continue to head to the region.
Tehran would likely target gulf energy facilities in Saudi Arabia, the United Arab Emirates and Qatar, which, "would deepen and prolong the pain of higher energy prices and drag the conflict into a broader regional crisis," said IG market analyst Tony Sycamore.
Oil prices jumped on Friday and settled at their highest in nearly four years, after Iraq declared force majeure on all oilfields developed by foreign firms, Israel attacked a major gas field in Iran and Tehran responded with strikes on neighbours, Saudi Arabia, Qatar and Kuwait.
Iranian attacks have effectively closed the Strait of Hormuz, a narrow choke point that carries around a fifth of global oil and liquefied natural gas supplies, causing the worst oil crisis since the 1970s. Its near-closure sent European gas prices surging as much as 35 per cent last week.
"If Iran doesn't FULLY OPEN, WITHOUT THREAT, the Strait of Hormuz, within 48 HOURS from this exact point in time, the United States of America will hit and obliterate their various POWER PLANTS, STARTING WITH THE BIGGEST ONE FIRST!" Trump posted on social media around 19:45 EDT (23:45 GMT) on Saturday.
The Strait of Hormuz strait remains open to all shipping except vessels linked to "Iran's enemies", Iran's representative to the UN maritime agency was quoted as saying in Iranian media reports published on Sunday.
Ali Mousavi's comments came from an interview published on Friday by Chinese news agency Xinhua, before Trump's threat to target Iranian power plants if the strait was not "fully open" within 48 hours.
Ali Mousavi, Tehran's representative to the International Maritime Organisation, said passage through the narrow waterway was possible by coordinating security and safety arrangements with Tehran.
Ship-tracking data has shown some vessels, such as Indian-flagged ships and a Pakistani oil tanker, have managed to negotiate safe passage through the strait. Pakistan has good ties with Iran while maintaining close relations with the US and Saudi Arabia.
Trump's idea in targeting Iranian infrastructure is to make the Hormuz blockade, "economically and politically unbearable for Tehran, without destroying Iranian oil fields that would cause long-term global supply damage," Sycamore said.
Iran's Khatam al-Anbiya military command headquarters said if the US attacked Iran's fuel and energy infrastructure, Iran would target all US energy, information technology and desalination infrastructure in the region.
The Islamic republic's power grid is deeply intertwined with its energy sector. Striking major plants could trigger blackouts, crippling everything from pumps and refineries to export terminals and military command centres.
Iran's largest power plants include the Damavand facility near Tehran, the Kerman plant in the southeast and Ramin in Khuzestan province, all of which have much greater generation capacity than Iran's sole nuclear plant at Bushehr on the southern coast.
Tehran fired long-range missiles for the first time on Saturday, expanding the risk of attacks beyond the Middle East, while an Iranian strike landed near Israel's secretive nuclear reactor about 13 kilometres (8 miles) southeast of Dimona.
Iran launched two ballistic missiles with a range of 4,000 km (2,500 miles) at the US-British military base at Diego Garcia in the Indian Ocean, said Israeli military chief Eyal Zamir.
"These missiles are not intended to strike Israel. Their range reaches European capitals - Berlin, Paris, and Rome are all within direct threat range," Zamir said in a statement.
The Israeli military said on Sunday it was striking Tehran just hours after Iran's attacks on southern Israel.
(Reporting by Phil Stewart and Idrees Ali in Washington, Andrew Mills in Doha, Timour Azhari in Riyadh, Maayan Lubell in Jerusalem and Alexander Cornwell in Tel Aviv; Additional reporting by Reuters bureaus; Writing by Lisa Shumaker and Michael Perry; Editing by William Maclean and Alexander Smith)