Iraq's largest oil refinery is under attack from Sunni militants on Wednesday and may largely be controlled by insurgents, according to unnamed security sources and refinery employees who spoke to the Reuters news agency.
"The militants have managed to break in to the refinery. Now they are in control of the production units, administration building and four watch towers. This is 75% of the refinery," an official speaking from inside the refinery told Reuters. It was not clear why the official spoke on the condition of anonymity.
On Tuesday, the Baiji refinery was shut down and foreign workers were evacuated as Iraq security forces prepared for a siege of the compound by insurgents. The sprawling facility is situated about 50 miles north of Tikrit.
Crude oil prices did not immediately rise sharply on the news of the attack, which is taking place with mortars and machine guns, although they did move higher. The July crude oil futures contract added 29 cents to the barrel to $106.65.
Clashes between Sunni Muslim militants from the al-Qaeda breakaway group known as the Islamic State of Iraq and the Levant — referred to as ISIL or ISIS — are also continuing Wednesday in areas to the north of Iraq's capital Baghdad.
But if the Baiji refinery were to fall it could prove to be a dramatic new twist in the story and may have a big impact on supplies in Iraq and potentially across the world. Iraq is a major supplier of the world's oil.
"An increasing risk of supply outages in Iraq comes against a backdrop of an already tight global demand/supply balance that has markets already on edge," IHS energy experts wrote in a recent note.
Meanwhile, the Turkish Foreign Ministry said its diplomats were investigating claims that militants abducted 60 foreign construction workers, including some 15 Turks, near the oil city of Kirkuk in northern Iraq.
Separately, speaking live on television on Wednesday, Iranian President Hassan Rouhani said his country stood ready to defend Shi'ite Muslim holy sites in neighboring Iraq against "killers and terrorists," according to Reuters.
"We declare to all superpowers, their mercenaries, murderers and terrorists that the great Iranian nation will not miss any effort in protecting these sacred sites," Rouhani said.
Washington has yet to decide how it will deepen its involvement in the conflict although it has already deployed a few hundred troops to protect the U.S. Embassy and other American interests.
Contributing: Associated Press