Saudi Arabia announced the decision Sunday, a day after protesters ransacked its embassy in Tehran over the execution of the cleric, Sheikh Nimr al-Nimr.
Saudi Foreign Minister Adel al-Jubeir said Iranian diplomats had 48 hours to leave. Iran’s supreme leader warned Saudi Arabia it would face “quick consequences” for the execution.
Fearing further upheaval in the already volatile Middle East, the United States has urged regional leaders to try to ease tensions.
At around 0610 GMT, US benchmark West Texas Intermediate for delivery in February was up 77 cents, or 2.08 percent, at $37.81. Brent crude for February was trading 91 cents, or 2.44 percent, higher at $38.19.
“Oil started the new year on the mend, as Asian markets reacted to fears that geopolitical tensions in the Middle East may threaten the supply of oil,” said Bernard Aw, market strategist at IG Markets in Singapore.
Despite the rise, Aw said the persistent global crude oversupply would continue to weigh on prices over the longer term.
“Unless we see a convincing drop in oil output from these two nations, and the broader oil-producing community, the supply glut issue will persist, which means oil prices would remain under pressure for a longer period,” he told AFP.
Sanjeev Gupta, head of the Asia Pacific oil and gas practice at professional services firm EY, said that “continued adverse news involving the Middle East region could result in spike in prices, at least in the short term”. But Gupta added that the current supply glut would likely restrict any sharp upswings.
Saudi Arabia is the biggest producer in the Organization of the Petroleum Exporting Countries, which last month decided against cutting output levels despite a plunge in oil prices. Iran is also a key OPEC member.