Footage has now been released of an Iranian strike and sees a huge orange flash in the middle of the water, followed by rapidly spreading flames.
A faint outline of a ship can be made out, lit red by the growing inferno, with clouds of black smoke billowing into the night sky.
The oil fire continues to swell as more of the vessel is set ablaze, with flames reaching hundreds of feet into the air in a short time.
The boat was one of several ships carrying Iraqi oil supplies hit by the country's Middle East neighbour on Wednesday.
The Iranian attack saw one crew member killed and triggered a rapid response from Iraqi authorities.
Officials rushed to the scene to evacuate crews from the ships as flames engulfed the area.
The vessels were working within Iraqi territorial waters at the time of the strike, according to the country's director general of the General Company for Ports, Farhan al-Fartousi.
He said: 'Two foreign tankers carrying Iraqi fuel oil were subjected to unidentified attacks inside territorial waters, causing them to catch fire.'
All oil ports have 'completely stopped operations' in the wake of the attack, Iraqi officials announced, but commercial ports will keep working as normal.
It is the latest act of Iranian aggression in a bid to choke the world oil supply and leverage popular opinion in other countries, as fuel prices soar.
Iran has all but cut off access to the Strait of Hormuz, a chokepoint in global trade that ordinarily sees around 20 per cent of all oil pass through daily.