Crude Surges on Iraq Action

Updated from 10:54 a.m. EST

Energy prices soared Thursday following the largest air assault in Iraq since the America-led invasion in 2003.

Oil for April delivery closed up $1.41 to $63.58 on the Nymex. The military operation began this morning north of Baghdad and included more than 1,500 troops and more than 50 aircraft. Iraq has seen its crude output fall 15% over the past four years to 1.7 million barrels per day.

Lower crude exports from Nigeria and a quarrel with Iran over its nuclear ambitions have roiled the energy markets and sent oil prices soaring this year. Nigerian separatists have kidnapped foreign oil workers and attacked the country's pipelines and platforms in a bid to destabilize the federal government and gain a share of the country's petrodollars. Daily oil production is down 25% to 1.6 million barrels.

The U.N. Security Council failed to reach agreement on how to handle Iran's drive to enrich uranium and generate more electricity for its growing population. The council could impose economic sanctions against Iran, though that move is highly unlikely because it would drive up oil prices and lessen world crude supplies. Iran is OPEC's second-largest producer with 4.4 million barrels of oil per day.

Still, Iran has threatened to retaliate and cut its crude exports if the Security Council issues any actions against it.

Against a backdrop of high oil prices and razor-thin stockpiles, energy ministers from the Group of Eight countries met in Moscow Thursday to discuss alternative energies and ways to ensure steady oil supplies. They called for nuclear power development and new investments in transportation, production and refining to help drive down sky-high oil prices.

World tensions have been outweighing plentiful oil stockpiles and keeping crude prices high. On Wednesday, the U.S. Energy Department reported in a weekly update that crude supplies are at their highest level in seven years. Inventories climbed 4.8 million barrels to 339.1 million barrels last week thanks to refinery shutdowns. Seasonal maintenance and operating problems have pushed up supply levels.