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Oil prices spiked higher Monday after an Iraqi parliamentary committee recommended rejecting a United Nations resolution on weapons inspections, ratcheting up war fears.

Prices shot up when the news broke but eased off a little when it became clear that the Iraqi government had yet to make up its mind officially, traders said.

Iraq's parliamentary committee for international affairs recommended that Baghdad reject UN Security Council Resolution 1441, which imposes tough new arms inspection terms.

That sent prices spiralling.

"But the market fell back when traders realized that this was not an official decision," said John Kilduff, analyst at Fimat.

The price of reference New York light sweet crude for delivery in December benchmark rose 16 cents to 25.94 dollars a barrel.

The price of reference Brent North Sea crude oil for December delivery, which surged to a high of 24.30 dollars, closed at 23.80 dollars a barrel, still up 22 cents from Friday's finish.

"Iraq is back at the forefront of peoples' minds," said Prudential Bache oil broker Tony Machacek in London.

"The mood of the market is, at the moment, it makes war more likely," said Machacek, adding that prices "did rally very sharply but it's sort of calmed down a bit."

The Iraqi committee also recommended mandating the political leadership to do what it deemed fit to defend the Iraqi people and mandating President Saddam Hussein to do what he thinks is appropriate.

Iraq has until Friday to reply to the resolution which it has called "unfair".

Barclays Capital analyst Kevin Norrish said in London that the market believed that Iraq would ultimately meet Friday's deadline if only to "buy itself some time."

But Machacek added that bellicose comments from US officials over the weekend meant the risk of military action in Iraq was very much alive, and may be greater than the market had, in recent days, begun to assume it to be.

GNI analyst Lawrence Eagles said remarks such as those of US national security adviser Condoleezza Rice had underpinned the recovery in prices.

Rice said Sunday she was "very skeptical" of the Iraqi president's cooperation with the UN-mandated weapons inspection program.

And she was explicit about the US threat to use the military to enforce the declaration.

US President George W. Bush "has reserved all of his options to use the full authority granted to him by the US Congress," allowing him to use military force if necessary, she said.

But Norrish said it was still too soon to know if oil prices were re-acquiring the war premium which has been largely jettisoned in recent weeks.

"Prices could strengthen but it's early days," he said. 

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