Fears that the oil industry of the world's biggest crude exporter could implode increased yesterday after an unprecedented hostage-taking in Saudi Arabia left 22 civilians dead.

Saudi commandos jumped from helicopters to storm a residential complex to end a 25-hour siege that began when suspected al-Qa'ida gunmen attacked two oil firms and residential compounds in the Gulf city of Khobar on Saturday. The attackers fled into a residential compound, where they seized hostages. About 50 hostages were freed by the Saudi raid.

Traders warned that oil prices were likely to rise this week in response to the latest attack in the kingdom, the second in a month. Prices have slipped in the past fortnight from a 13-year high of $41.85 a barrel, but a renewed surge is expected when markets reopen tomorrow, taking them back above $40 and bringing the prospect of the £4 gallon of petrol closer. In America, where the oil price is a hot electoral issue, the prospect of steadily rising prices will be viewed with dismay.

The 40-per cent rise in oil prices over the past year has been caused only partly by the violence in Iraq. At least as big a factor is the fear that attacks in Saudi Arabia by al-Qa'ida will undermine the kingdom's oil infrastructure and threaten supplies to the rest of the world. "It's another indication that Saudi Arabia is potentially vulnerable to terrorist attack," said one trader. "It raises the fear."

The final death toll was not clear last night, but was known to include attackers, Saudi nationals and some hostages. Among the dead was a British oil executive, identified as Michael Hamilton. Also killed was a 10-year-old Egyptian boy, an Italian cook, three Filipino civilians and an American businessman.

Mr Hamilton was reported to have been driving to work at about 7.15am on Saturday when the attack was starting. Witnesses said that he was shot and dragged behind a car for about a mile.

The Saudi ambassador to the United States, Prince Bandar bin Sultan, condemned the attack. "The terrorists' goal is to disrupt the Saudi economy and destabilize our country, but they will not succeed," he said. "With every desperate act of violence, our effort and resolve to destroy the terrorists only grows."

Several Islamic websites carried messages saying the attack had been carried out by "al-Qa'ida in the Arab Peninsula". Abdul Aziz Issa Abdul-Mohsin al-Moqrin, identified as its spokesman, appeared on a videotape broadcast on the sites. In it, he said that the attackers had "slaughtered" hostages.

Although officials said it was too soon to be certain of the claim's credibility, the attack appeared to bear the hallmarks of al-Qa'ida, such as careful planning and the choice of a target designed to create maximum international media impact.

The oil market has panicked twice in the past six weeks following terrorist outrages in the Middle East. In late April, oil prices rose after suicide bombers detonated speedboats laden with explosives next to Iraq's main tanker terminal in the Gulf at Basra. Early in May they again rose sharply after five employees of a Swiss company in Saudi Arabia were gunned down in Yanbu.

Saudi Arabia is pumping more than nine million barrels of oil a day and has pledged to increase output by a further 700,000 barrels to try to contain prices. Opec, whose members supply about a third of the world's oil, meets in Beirut on Thursday to approve a plan to lift output.

In an attempt to ease jitters in the West, the state-run Saudi oil company Aramco said that normal operations continued at all its installations. "The company is committed to carrying out the Saudi Arabian government's policy of providing a reliable supply of oil to meet world energy demand," it added.

The Saudi oil minister, Ali al-Naimi, was meeting Western oil executives last night to try to ease concerns about the safety of their staff.

© 2004 Independent Digital (UK) Ltd

###