Updated from 2:23 p.m. EDTOil surged to a new high Thursday as growing tension in Lebanon, Nigeria and Iran kept bulls firmly in control. Light, sweet crude for August delivery soared $1.75 to $76.70 a barrel, and unleaded gasoline hit a nine-month high of $2.30 a gallon, up 4 cents. Heating oil climbed 6 cents to $2.07 a gallon. Oil prices surged on news Israel was firing rockets and moving armored forces into Lebanon for the first time since 2000. Israel slapped a naval blockade on its northern neighbor following the kidnapping of two of its soldiers early Wednesday, while Hezbollah was firing rockets into northern Israel. Energy traders are worried that the conflict could widen and affect crude exports in the region. "It is the geopolitical stew that is consuming the markets," said John Kilduff, an analyst with Fimat USA in New York. "While a strike by Israeli forces into Lebanon seems to be far away from the oil patch, when Israel's policymakers lay the blame for Hezbollah's activity at Iran's doorstep, at the same time Iran is being accused of building nuclear weapons by the West, oil subsequently has to be the focus." Crude prices have jumped 26% this year on production cuts in Nigeria and an impasse with Iran over its refusal to halt uranium enrichment. Oil prices rise and fall on geopolitical problems because supply margins are extremely tight thanks to booming demand in China, India and the U.S. The energy markets have been particularly focused on the conflict with Iran because it is one of the world's largest crude producers. The West has offered Iran trade incentives to persuade the country to cease nuclear development, and demanded a response before the Group of Eight meeting in Russia this Saturday. But Iran has thus far said it would issue a response in late August. On Wednesday, the five permanent members of the United Nations Security Council plus Germany recommended that the U.N. intervene in the standoff. On Thursday, President Bush and German Chancellor Angela Merkel said economic sanctions could be forthcoming if Iran doesn't halt nuclear development activities. "I truly think they are trying to wait us out,'' Bush said while visiting Germany on Thursday, Bloomberg reported. "They are going to be sorely mistaken and disappointed that this coalition is a lot stronger than they think." But Iranian President Mahmoud Ahmadinejad said Thursday that the country would never drop its "right to exploit peaceful nuclear technology" but would continue to negotiate with the West over its nuclear program, the Associated Press reported. While Iranian crude supplies may be put in jeopardy by the ongoing conflict, production was further cut in Nigeria with renewed rebel strikes. A pipeline operated by Eni ( E) was attacked late Wednesday and may lose as much as 120,000 barrels of crude per day, Bloomberg reported. Royal Dutch Shell ( RDS-A) has lost around 470,000 barrels of crude per day, or around a quarter of the country's total output, from militant attacks this year. It's unclear when the company will be able to restart production. Nigerian militants have been targeting the country's oil installations in a bid to destabilize the government ahead of national elections next year and gain a share of the country's petrodollars. Much of Nigeria's crude is produced in the Niger River Delta, a poor area where many of the residents have not shared in the region's oil wealth. The conflict with Iran and supply glitches in Nigeria has underlined the need to diversify energy sources away from the turbulent Middle East and to more stable areas. The formal opening Thursday of a 1,100-mile pipeline linking the oil fields of Azerbaijan to Turkey should further that goal. The $9.3 billion pipeline is expected to carry 1 million barrels per day within two years, more than double its current capacity. Elsewhere Thursday, the Energy Department said natural gas inventories rose by 89 billion cubic feet last week, roughly in line with estimates. There is now 19% more natural gas in storage than last year and 27% more than the five-year average. Despite the glut, natural gas prices climbed on the rally in crude prices, warmer temperatures and plants switching to cheaper natural gas. Natural gas, which is used by utilities to generate electricity, gained 26 cents to settle at a two-week high of $6.12 per million British thermal units. Energy shares were dropping 1% on the Amex Oil and Natural Gas indices. Leading declines among oil exploration and refining companies were Sunoco ( SUN), Repsol ( REP) and ConocoPhillips ( COP). On the Amex Natural Gas Index, El Paso ( EP), Southwestern Energy ( SWN) and Apache ( APA) leading declines, down 2% to 3%.