The tanker explosion will spur fresh concern about potential conflict in the world's most important crude-producing region after attacks on ships and drones earlier this year, and most recently a strike on Saudi Arabian energy infrastructure.
US defense officials say they are sending more troops and military hardware to Saudi Arabia following a major attack last month on the kingdom's oil facilities that USA and Saudi officials have blamed on Iran.
Friday's incident could push tensions between Iran and the United States even higher, more than a year after President Donald Trump unilaterally withdrew America from the nuclear deal and imposed sanctions now crushing Iran's economy.
Saudi officials have declined to comment on the incident that could lead to heightened military tensions between the two countries in the middle east.
Shana, the news agency of Iran's oil ministry, denied the attack, saying "the tanker in question was completely stable."
The move comes after an attack on Saudi Arabia's oil facilities in September.
(NIOC), who identified the tanker as the Sabiti.
The Sabiti last turned on its tracking devices in August near the Iranian port city of Bandar Abbas.
In September, the United States announced deployment of 200 troops as well as Patriot missiles to the kingdom in the wake of the attacks on Saudi oil installations blamed on Iran.
According to the news service, the resulting explosions caused oil to leak into the Red Sea. Saudi Arabia is a "long-standing security partner" of the USA, and the deployment is needed "in response to continued threats", Esper said. Iran however, has denied any role in those attacks.