JERUSALEM, July 14 (Reuters) - Israel's security cabinet approved a budget of 1.3 billion shekels ($434 million) for establishing 34 new settlements in the occupied West Bank, right-wing Finance Minister Bezalel Smotrich said on Tuesday, adding to tensions over territory widely viewed as central to a potential Palestinian state.

U.N. bodies, Palestinians and most countries view the settlements as illegal under international conventions - a stance disputed by Israel - and a primary obstacle to peace.

By Samia Nakhoul

BEIRUT, July 14 (Reuters) - Having choked off shipping through the Strait of Hormuz, Iran is now signaling it could play its most dangerous card yet: using Yemen's Houthi allies to shut the Bab el-Mandeb gateway to the Red Sea, opening a new front against Washington and putting two of the world's most vital energy arteries at risk.

July 14 (Reuters) - Russia on Tuesday accused Ukraine of terrorism over its escalating attacks on shipping in the Sea of Azov, a route that handles about a quarter of its grain exports.

Ukrainian drones hit 11 Russian vessels in the Sea of Azov overnight, Kyiv's drone forces commander said.

In a statement on Telegram, Robert Brovdi said the targets included five tankers, five dry cargo vessels and a tugboat, bringing the total number of vessels struck in the past nine days to 116.

LONDON, July 14 (Reuters) - The chemical tanker Stolt Magnesium caught fire on Tuesday following the "explosion of an unidentified external device" as it was sailing in the Arabian Sea off the coast of Oman, according to its manager Stolt Tankers, the main unit of Norwegian shipping company Stolt-Nielsen's.

• The incident occurred at 12:40 a.m. (2040 GMT on Monday) and caused a fire in the vessel's engine room, it said in a statement.

• All of the vessel's seafarers were safe and accounted for, it added, and the crew had begun fighting the fire.

By Patricia Zengerle, Max Hunder and Andrea Shalal

WASHINGTON/KYIV, July 14 (Reuters) - For Ukraine and its supporters, the sudden death of U.S. Senator Lindsey Graham raises an important question: Without a close ally of President Donald Trump advocating loudly for President Volodymyr Zelenskiy's government, will his administration's recent tilt in favor of Kyiv last?

The answer will especially affect two major issues - legislation to sanction Russia, which Graham pushed for more than a year, and military assistance for Ukraine.

WASHINGTON, July 13 (Reuters) - U.S. President Donald Trump on Monday said that the U.S. would take out Pickaxe Mountain in Iran, as he warned that Washington would continue to hit the country hard.

"We're going to take out Pickaxe Mountain. Tell the Iranians to be ready," Trump said in an interview on the Hugh Hewitt Show.

WASHINGTON, July 13 (Reuters) - President Donald Trump said on Monday that the United States was reinstating a naval blockade on Iran and would be reimbursed 20% on all cargo shipped through the Strait of Hormuz after Tehran claimed it had closedthe vital waterway.

"The Hormuz Strait is OPEN, and will remain OPEN, with or without Iran. We are reinstating THE IRANIAN BLOCKADE," Trump said on Truth Social.