Oil prices have climbed for the fourth consecutive month to a level not seen since the 1991 Gulf War.
In New York, the reference light sweet crude contract for March delivery surged to $36.70 a barrel, levels not reached for over two years.
The price of Brent North Sea crude oil for April delivery, the new benchmark contract, gained seven cents a barrel to $32.60 in early trading.
Nerves frayed ahead of a report by UN arms experts who were expected to tell a deeply divided Security Council that Iraq has not given full cooperation on disarmament.
The report by chief inspector Mr Hans Blix and the head of the UN nuclear watchdog, Mr Mohammed El Baradei, at 15.15 p.m. (Irish time) could pave the way for a US-led war despite serious opposition from longtime US allies.
Experts say the impact on oil prices of a Middle East conflict would depend on the length of the war, the extent of any damage inflicted on oil facilities in the region and whether oil consuming nations tap into strategic oil reserves.
Although the market is assuming a Middle East conflict would lead to the loss of Iraq oil, it was still expecting free passage to the Gulf for oil from other producers, and that the coalition forces would be successful.
AFP