* Brent up as much as $2.29 to $116.22; US crude tops $103
* Fear of disruption boost prices 1.5pct as West bombs Libya
* Output increases won't ease oil price pressure, Iran says
* Coming Up: U.S. existing home sales for Feb; 1400 GMT
(Adds second wave of air strikes in Libya)
By Alejandro Barbajosa
SINGAPORE, March 21 (Reuters) - Brent climbed 1.5 percent on
Monday towards $116 after western forces launched a military
campaign against Libya, stoking fears that violence will
intensify in North Africa and the Middle East, source of more
than a third of the world's oil.
Unrest over the weekend also flared in Syria and Yemen in
the wake of popular uprisings that toppled long-time leaders in
Tunisia and Egypt earlier this year and a crackdown on protests
in Bahrain last week.
U.N.-backed strikes led by the U.S., the U.K. and France
raised the stakes in a civil war that has cut Libya's oil output
to less than a quarter of the previous 1.6 million barrels per
day (bpd), nearly paralysing shipments abroad from what used to
be the world's 12-th largest crude exporter.
Brent crude for May rose as much as $2.29 to $116.22
a barrel and was up 1.5 percent at $115.69 by 0343 GMT, about $4
from last month's 2-1/2-year high near $120.
U.S. crude for April advanced $1.79 to $102.86 after
western powers launched a second wave of air strikes on Libya
early on Monday, dismissing a ceasefire announced by the
country's military late on Sunday.
"With involvement from the West, the uncertainty that has
surrounded the region and the fear of upheaval and unrest
spreading to countries like Saudi Arabia, where we could lose a
lot more crude that what we did Libya, is definitely going to be
the main price driver," said Matthew Lewis, an analyst at CMC
Markets in Sydney.
President Barack Obama ordered U.S. forces into the biggest
military intervention in the Arab world since the 2003 invasion
of Iraq, while Libyan leader Muammar Gaddafi vowed to fight to
the death.
"At this stage, it looks like Libya has further to play.
Gaddafi still seems very defiant. We'll see further spikes and
shocks in the oil market this week," Lewis said.
Military action on Libyan air defenses over the past two
days, sanctioned by the United Nations in a Security Council
resolution on Thursday, has crippled Gaddafi's capability to
launch airstrikes and detect foreign aircraft, a senior U.S.
military official said on Sunday.
But Gaddafi's control of oil infrastructure in the long term
would probably mean reshaping deals with foreign oil companies
in favour of countries not participating in the attacks.
Libya is considering offering oil block contracts directly
to China, India and other nations it sees as friends, Libya's
top oil official said on Saturday, instead of opening bidding
processes.
China, India, Russia, Brazil and Germany were the five
nations that abstained in last week's U.N. vote to authorise the
use of force against Gaddafi. The other ten members of the
Security Council voted in favour.
The weekend's military intervention hit a diplomatic setback
as the Arab League chief condemned the "bombardment of
civilians".
The strikes began on Saturday, as a coalition of western
nations vowed to prevent Gaddafi from launching attacks on
civilians as he seeks to crush a rebellion against his
four-decade rule.
MIDEAST PREMIUM
Crowds set fire to a headquarters of the ruling Baath Party
in the Syrian city of Deraa on Sunday, while Yemeni President
Ali Abdullah Saleh fired his government after a string of allies
broke ranks with him as he faces increasing pressure from street
protests to step down.
Saudi Arabia and other countries from the Gulf Cooperation
Council (GCC) last week sent troops into Bahrain to help quell
Shi'ite protests there against the Sunni monarchy. That angered
Iran, which denounced the foreign intervention in the island
state that lies less than 100 kilometres from the hub of the
Saudi oil industry.
"The key is really how Saudi (Arabia) and Iran play out.
Cool heads need to prevail. It's contained at the moment but if
things worsen, you see a Mideast premium very quickly," said
Jonathan Barratt, managing director of Commodity Broking
Services.
Iran's oil minister said on Saturday said any output
increase by individual OPEC members aimed at reducing oil price
pressures caused by the Libyan crisis would not have the desired
effect.
Some OPEC countries, including Saudi Arabia, have already
increased production partly to compensate for the drop in Libyan
output and to prevent prices from reaching levels that could
derail the global economic recovery. But that has also eroded
the group's spare capacity to offset further disruptions.
"None of the OPEC countries have considered it (the current
oil price) damaging" to the world economy, Nigerian oil minister
Allison-Madueke said on Sunday.
Oil prices have now recovered completely from a slump
triggered by Japan's strongest earthquake on record on March 11.
Japan hoped power lines restored to its stricken nuclear
plant may help solve the world's worst atomic crisis in 25
years, triggered by the earthquake and a tsunami that also left
more than 21,000 people dead or missing.
Likely to limit oil's gains was Friday's increase in China's
rate reserve requirements as the nation stays focused on
stifling inflation, traders and analysts said.
(With additional reporting by Cho Mee-Young in SEOUL and Nick
Trevethan in SINGAPORE; Editing by Manash Goswami)
