* Brent gains as much as 1.4 pct to one-week high of $116.50
* U.K., France, U.S. say Libya must comply with UN
resolution
* Gaddafi says to storm Benghazi, showing "no mercy, no
pity"
* Coming Up: Saudi King to issue decrees after Friday
prayers
(Updates prices)
By Alejandro Barbajosa
SINGAPORE, March 18 (Reuters) - Brent crude jumped by more
than $1 to $116 on Friday on fears of rising geopolitical
tension in the oil-rich Middle East and North Africa, after the
United Nations approved military action to contain Libyan leader
Muammar Gaddafi.
Front-month Brent rose $1.10 to $116 by 0725 GMT,
after earlier touching a one-week high of $116.50, while U.S.
crude for April rose $1.49 to $102.91.
Japan's strongest earthquake on record a week ago sent fear
coursing through global financial markets, raised concerns of
reduced demand from the world's third-largest oil user and
triggered a drop in Brent to a three-week low near $107 two days
ago.
High oil prices and Japan's disaster may pose a twin blow to
the nascent economic recovery. Brent is less than $4 away from a
2-1/2-year high of almost $120 reached on Feb. 24, when an
uprising against Gaddafi shut down at least two-thirds of
Libya's oil output.
"The initial shock in the markets with regards to the
negative impact on growth as well as the short-term effect on
Japanese demand is now subsiding and people are turning to the
medium- and long-term implications of the earthquake on oil
demand and turmoil intensifying in the Middle East," said Yingxi
Yu, a Singapore-based commodities analyst with Barclays Capital.
The involvement of foreign forces "could prove to be a
further escalation of the situation in Libya. It seems difficult
that this will speed up the flow of Libyan oil back into the
world market," Yu added.
The U.N. Security Council, meeting in emergency session on
Thursday, passed a resolution endorsing a no-fly zone to halt
government troops now around 100 km (60 miles) from Benghazi. It
also authorised "all necessary measures" -- code for military
action -- to protect civilians against Gaddafi's forces.
French diplomatic sources said military action could follow
within hours, and could include France, Britain and possibly the
United States and one or more Arab states; but a U.S. military
official said no immediate U.S. action was expected.
Libya's pre-crisis oil output of about 1.6 million barrels
per day (bpd) is unlikely to reach international markets even if
Gaddafi holds on to power, controls and repairs oil
infrastructure and resumes shut-in production, analysts said.
"To go from condemning Gaddafi to buying his oil in short
order would be politically difficult, and while sanctions would
be financially painful for consuming countries, it would be an
easier option if OPEC fully fills the gap," JP Morgan oil
analysts headed by Lawrence Eagles said in an e-mailed note.
Saudi Arabia and other member countries of the Organization
of the Petroleum Exporting Countries (OPEC) have increased
production this year, partly to offset the loss of Libyan
barrels. That has also eroded spare capacity, leaving a thinner
cushion to compensate for potential further disruptions.
BAHRAIN UNREST
Earlier this week, Bahraini forces cracked down on Shi'ite
protesters demanding reform by the Sunni monarchy, which drew
criticism from key Bahraini and Saudi ally the United States and
also from Iran.
The involvement of Saudi Arabian troops and other forces
from Gulf Cooperation Council (GCC) countries in Bahrain also
raised the stakes of confrontation in the island state, which
lies less than 100 kilometers from the hub of the Saudi oil
industry.
"Events over the past week suggest that something profound
has changed in the dynamics of the region," Yu said.
"The relation between the U.S. and Saudi Arabia has been the
key foundation of the oil market for many decades. Recent events
seem to be creating some stress on the relationship."
Saudi Arabia's King Abdullah will address the nation on
Friday to issue a number of decrees, the royal court said in a
statement released by the top oil producer's state news agency
late on Thursday.
"It's absolutely crucial for the oil market to watch for
potential changes in the Saudi leadership," Yu from Barclays
said. "It's the only country that holds a meaningful amount of
spare capacity and the disruption in Libya has already put some
stress on it."
Saudi Arabia has mostly avoided the wide unrest that toppled
rulers in Egypt and Tunisia and spread to other Gulf countries,
but there are pockets of dissent in the absolute monarchy, which
has no elected parliament. Most demonstrations have been in the
east of the kingdom, where the world's largest oil reserves are
located and home to a large Shi'ite population.
"Day of rage" protests planned for a week ago in Saudi
Arabia failed to materialize or fizzled quickly amid a
widespread police presence, but social media networks had
initially also called for a second day of protests on March 20.
(Editing by Clarence Fernandez)
