Oil continues its climb - More talk of war between U.S. and Iraq, ongoing strike in Venezuela push crude to two-year high.

money.cnn.com January 21, 2003: 9:58 AM EST

LONDON (Reuters) - World oil prices hit two-year highs Tuesday as the United States urged the U.N. Security Council not to shirk difficult choices and a military buildup in the Gulf fueled speculation that war is looming.

U.S. light crude in electronic trade rose 44 cents to $34.35 a barrel, its highest since December 2000. London Brent blend added 37 cents to $31.02 a barrel.

Dealers said a seven-week-old general strike in Venezuela that is sapping oil exports and the killing in Kuwait of a U.S. Defense Department employee near a U.S. military base also helped pull prices higher.

"The markets are still very edgy with both Venezuela and Iraq remaining the key issues against a backdrop of increasing demand and falling inventory," said Australian-based independent oil analyst Simon Games-Thomas.

"Prices appear destined to trade higher given the current set of drivers and $35 beckons exorably in the short term," Games-Thomas said.

Secretary of State Colin Powell, addressing fellow Security Council members Monday, said "We must not shrink from our duties and our responsibilities when the material comes before us next week. We cannot be shocked into impotence because we are afraid of the difficult choices that are ahead of us."

Chief U.N. weapons inspector Hans Blix will deliver a major report on Iraqi weapons to the United Nations next Monday and the Security Council evaluates the report on Jan. 29.

Blix spoke to reporters in Athens on Monday after a two-day visit to Baghdad. "The Iraqis became aware that the world is disappointed with their declaration," he said of Iraq's 12,000 page dossier.

"They have to create confidence in the world that they don't have weapons of mass destruction."

Iraq said Monday it would offer the inspectors more help and would form its own teams to search for any banned weapons.

Blix said Baghdad had refused to allow U2 reconnaissance flights over its territory. "They put up a number of conditions that were not acceptable to us," he said.

Iraq wants to accompany the planes with its own aircraft, but would be prevented from doing so if the weapons inspectors flew to the north or south of the country because of no-fly zones patrolled by U.S. and British planes since 1991.

Britain said Monday it was mobilizing some 30,000 troops to join the tens of thousands of U.S. troops already in the Gulf. Venezuela strike in day 51

In Venezuela, foes of President Hugo Chavez extended a nationwide strike into the 51st day, aiming to force the leftist leader to resign and call immediate elections.

The strike has strangled oil supplies from the world's fifth-largest exporter, which accounts for about 13 percent of U.S. petroleum imports.

Exports of only 500,000 bpd, a fifth of normal flows, have cut U.S. commercial crude stockpiles close to 26-year lows.