Nomura's commodity analysts, led by Michael Lo, are calling for oil at $220 a barrel, ifboth Libya and Algeria were to stop oil production. Oil's currently around $108.

Here's the summary:

The closest comparison to the current MENA unrest is the 1990-91 Gulf War. If Libya and Algeria were to halt oil production together, prices could peak above US$220/bbl and OPEC spare capacity will be reduced to 2.1mmbbl/d, similar to levels seen during the Gulf war and when prices hit US$147/bbl in 2008. This could also result in a temporary demand destruction of some 2.0mmbbl/d globally.

Nomura's using the 1990s Gulf War — which it thinks is the only real oil price 'event' to happen when Opec did not closely control oil prices — as a reference point for what could happen now. And according to the bank, we're only in the first stage of a three-stage process based on that blueprint. Oh dear.

In more detail:

In order to estimate the possible impact MENA crisis has on oil supply and prices, we analyse the past crises that have rocked the region. There have been a few events that drove oil prices higher, most of which are during the period in which OPEC controlled oil prices. For example, during the 1973 Arab-Israel war, OPEC increased oil prices by US$6.5/bbl or 128%, while in 1979-1981 the Iran revolution followed by the Iran-Iraq war saw oil prices move up by about 77%. In fact the only major event that is comparable is the Gulf War in 1990-91 as it is the only event in the Middle East which seems close to the ongoing crisis during the free-market pricing era. Before the Gulf War, OPEC spare capacity stood at 5.9mmbbl/d. During the war, OPEC production capacity was severely reduced (OPEC spare capacity came down to less than 2.0mmbbl/d) and oil prices jumped 130% in a period of two and a half months.

We can identify three distinct stages of the Gulf war which led to changes in oil prices. The initial phase is the anticipation of war and just the threat to oil supply; during this period, oil prices moved up by 21%. This is comparable to what we have seen recently – oil price is up by 13% since the beginning of the MENA unrest and we believe we are still at the initial stage of the three stage process for the current MENA unrest. As we see further evidence of real supply disruption, we will be moving into stage 2 of the event. The second stage is the actual reduction in oil supply when the Gulf war started and during this period oil price moved to its peak of US$41/bbl, up 109% within a period of two months. The third stage will mark the end of the crisis with the anticipation that supply will resume and during the Gulf war, prices returned back to pre-crisis level (below US$20/bbl) in three months.

Currently, OPEC spare capacity stands at 5.2mmbbl/d & OPEC has said that it is willing to increase output if need be. If Libya and Algeria go offline, one can see a 3.1mmbbl/d of reduction in production capacity pushing spare capacity again to 2.1mmbbl/d, as seen in 1990-91. Even in 2008, when oil prices reached US$147/bbl, OPEC spare capacity was as low as 2.3mmbbl/d in June 2008, causing prices to spike a month later. Based on the Gulf War, coupled with the fact that demand is much higher now, leaving a lower spare capacity as % of demand, we estimate oil could fetch well above US$220/bbl, should Libya and Algeria stop production. We could be underestimating this as speculative activities were largely not present in 1990-91.

The good news is Nomura figures that OECD oil inventories (currently at 968mmbbl, with government-controlled inventory adding an additional 1,302mmbbl) could cushion some of the crisis-sparked impact. Currently, Opec still has spare capacity stands at 5.2mmbbl/d with 3.5mmbbl/d of that coming from Saudi Arabia (ahem), which should also help ward off near-term supply disruptions.

But it can't do much in the face of a widespread supply-outage:

If the situation in the region were to worsen in a way that it encompasses other oil producing countries as well in the future, the oil supply-demand balance could change very rapidly. In particular, if the crisis were to spread to Saudi Arabia, (possibility of which is quite low at present according to our Senior Political Analyst Alastair Newton), there can be real threat to global oil production, the impact of which is impossible to ascertain on prices …

And you thought Goldman Sachs' 2008 call of oil at $200 a barrel was extreme.