Oil prices rose by over $2 a barrel on Monday as a wave of U.N.-mandated airstrikes on Libya and proliferating unrest in the Middle East fanned concerns about oil supply from the region.

Brent crude for May was up $1.49 at $115.42 a barrel by 1406 GMT after earlier trading over $116, while U.S. crude for April

gained $1.60 at $102.67 a barrel.

Oil prices are still significantly higher... Concern isn't going to go away any time soon and little pullbacks are inevitable, said Michael Hewson, a market analyst at CMC Markets.

Unrest flared in even the most authoritarian regimes in the Middle East over the weekend. In Syria, crowds set fire to ruling Baath Party headquarters in an uprising that has resulted in at least four deaths over the past week.

In Yemen, a powerful general expressed support on Monday for protesters calling for an end to the president's 32-year rule. The killing of dozens of anti-government demonstrators prompted the country's ambassador to the United Nations to resign in protest over the weekend

The 32nd biggest oil exporter lies at the mouth of a key shipping route through which 3.2 million barrels-per-day is estimated to have passed in 2009.

Tension also increased between Bahrain and Iran as tit-for-tat diplomatic expulsions followed Tehran's anger at last week's crackdown on Shi'ites. On Monday, Bahrain's king announced a foreign plot had been foiled and thanked fellow Sunni-ruled neighbors, notably Saudi Arabia, for their support.

The key is really how Saudi (Arabia) and Iran play out. Cool heads need to prevail. It's contained at the moment, but if things worsen, you see a Mideast premium very quickly, said Jonathan Barratt, managing director of Commodity Broking Services.

Saudi Arabia, a U.S. ally, has not seen the kind of mass uprisings that have rocked the Arab world this year, but dissent has built up as unrest has taken root in neighboring Yemen, Bahrain and Oman.

Dozens of Saudi men gathered outside the Interior Ministry in the capital Riyadh on Sunday to demand the release of jailed relatives amid a heavy police presence. Saudis have been warned protests will not be tolerated because they violate the Koran's teachings.

PROTRACTED WAR

Headlines from Japan's troubled nuclear complex revived worries about the country's economy as unexplained smoke from two reactors indicated the crisis was far from over, balancing against bullish news from the Middle East.

The market is very headline driven and we don't know what the next headline from Libya or Japan will be, said Olivier Jakob, an oil analyst at Petromatrix.

Libya's oil output has fallen to less than a quarter of the previous 1.6 million barrels per day (bpd), virtually paralyzing shipments from what used to be the world's 12th-largest crude exporter.

Libyan rebels encouraged foreign air strikes to continue, saying they aimed to capture Tripoli.

The main question for the oil markets is how long production outage could last ... We could end up by having two countries or a protracted civil war. We assume Libyan oil exports will be zero for the next six months, said Mike Wittner, Head of Commodities Research at Societe Generale.

Gaddafi's control of oil infrastructure in the long term could mean deals with foreign oil companies are reshaped in favor of countries not participating in the attacks.

Libya is considering offering oil block contracts directly to China, India and other nations it sees as friends, Libya's top oil official said on Saturday, instead of an open bidding processes.

China, India, Russia, Brazil and Germany were the five nations that abstained in last week's U.N. vote to authorize the use of force against Gaddafi. The other 10 members of the Security Council voted in favor.

(Additional reporting by Alejandro Barbajosa in Singapore; editing by William Hardy)

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