Here's The Iraq Scenario Where Oil Spikes By Another $50

Brent crude prices have climbed more than $5 since Iraq declared a state of emergency after Sunni insurgents gained control of the city of Mosul last week.

In a note yesterday, Bank of America Merrill Lynch analysts explained how prices could yet spike by another $40-$50 per barrel to never-before-seen levels.

Much of Iraq's oil production, as well as exports, is concentrated in the south, while most of the fighting has occurred in the north. Here are two tables from Columbia University's Center on Global Energy Policy showing what this looks like. First, proven reserves:

Second, the comparison of exports emanating from Basrah, in the south, with those out of Kirkuk in the north. They'd already fallen to zero after a key pipeline to Turkey came under attack.

If the conflict migrates to the South, we could be looking at $160 a barrel, BAML says.

Our commodity research team believes that in the unlikely event ISIS invades the South and the entire 2.6 million b/d of southern oil production is lost, oil prices could face $40-50/bbl upside. Further immediate risks to production seem limited under the base case scenario where oil prices remain around $110/bbl. The bulk of Iraq's oil fields are located in the Shia South, far from the conflict zones.

Meanwhile, analysts said today U.S. gas prices are likely to touch a six-year high of $3.652 this summer thanks to the crude price surge that's already taken place.

The only solace we can take is that booming U.S. production has provided a marginal cushion to global prices.

But overall this is a pretty ugly scenario.