Trump says 'good chance' of progress in Iran talks as Saudi Arabia shoots down drones

US President Donald Trump on Monday voiced optimism at the prospects for a negotiated peace deal with Iran as the two sides held their fire for a third consecutive day, though American ally Saudi Arabia said it had intercepted a drone attack launched by Tehran-backed groups in Iraq.

Fighting between the longtime foes has been paused since Friday after 13 nights of renewed US strikes on the Islamic republic sparked by a breakdown in diplomacy over Iran's blockade of the Strait of Hormuz.

But the US leader expressed hope that renewed diplomacy could bring an end to the war that began in late February with a wave of US-Israeli strikes, rattling both the region and the global economy.

"I have a lot of patience... We'll see what happens," he said aboard Air Force One. "I think there is a good chance that something could happen."

Tehran had earlier denied that there were any talks with the US to end the conflict.

"Mediators may convey messages from the American side to us regarding current developments in the region. But at present, we are not engaged in any negotiations with the United States," said Iranian foreign ministry spokesman Esmaeil Baghaei.

But Trump insisted during a speech in Michigan that "right now, they're talking to us about making a deal".

Aboard Air Force One, the US president had earlier said that if the new efforts failed, "we go back to doing what we were doing" before the pause in fighting.

On that subject, he dismissed concerns that US ammunition stockpiles were running low nearly five months after the war began.

"We have a lot of ammunition. We have a lot of the mid-level stuff too, more than we could ever use no matter what," he said.

Saudi Arabia attacked

Despite the recent lull, Saudi Arabia came under attack on Monday, with its defence ministry saying it had intercepted several drones fired by Iran-linked groups in Iraq targeting oil facilities.

No group claimed responsibility, but Riyadh called on Baghdad to prevent such attacks from being launched from its territory.

Iraqi Prime Minister Ali al-Zaidi later called for an investigation into Saudi Arabia's allegations.

Pakistan, which has been mediating a resolution to the Middle East war, condemned the drone attacks, saying they "pose a grave threat to peace and stability" in the Middle East.

The Islamic Resistance in Iraq, an umbrella network of Iran-backed Shia militias conducting attacks against US and Israeli targets while operating outside Iraq's formal military structure, said the Saudi accusations were "fabrications that serve only as an attempt to justify their inability to respond to the painful Yemeni strikes".

It warned Riyadh that any "foolish action" in Iraq will be met with a "tough" response.

Saudi Arabia and other Gulf nations accused pro-Iran militias in Iraq of launching waves of attacks on their territory during the conflict's earlier phase, but the groups have not claimed any attacks in the region since the resumption of hostilities.

Yemen's Iran-backed Houthi rebels also said Monday they launched drone attacks on Saudi Arabian oil infrastructure in response to incursions by the kingdom's drones. Riyadh is yet to comment on the claim.

Elsewhere, the Israeli military, which has not joined the recent fighting, said it had intercepted two drones near the Jordanian border and was investigating where they had been launched from.

Global stock markets meanwhile rallied and oil prices tumbled on Monday after the pause in strikes between Washington and Tehran.

It came as respite for Gulf shipping and the oil industry, with international benchmark Brent dropping six percent to around $86 a barrel.

'Mafia gang'

Control of the Strait of Hormuz remains a hurdle to any peaceful resolution, and Iran insists on managing the crucial conduit for oil and gas.

Its powerful Revolutionary Guards have been stopping vessels trying to transit the trade route in recent days, including six that state television on Monday said had sailed outside Iran's designated route.

Tehran says it has held talks in recent days with Oman, which also borders the strait, on "common principles and operational mechanisms" to ensure the safe passage of shipping.

In June, Muscat and Tehran said they would discuss imposing service fees, a move Washington opposes.

But Oman also angered Iran after saying vessels could transit the Hormuz strait via its waters, with Tehran responding by attacking ships.

Baghaei, Iran's foreign ministry spokesman, on Monday said the United States was not involved in the recent discussions with Oman.

Instead he criticised Washington, saying its conduct in recent years has "resembled that of a mafia gang that adheres to no rules or laws".