While many analysts are forecasting a sharp increase in crude oil prices due to the deteriorating political situation in Libya, one group has issued an even more dire warning.

Commodity analysts at Nomura Holdings Inc. said. Brent crude prices could double to $220 per barrel in the coming weeks if Libya descends into an all-out civil war and further shuts down oil production in the country. Moreover, if the unrest spreads to neighboring Algeria, global spare capacity would be sliced to the narrowest margins not seen since just before Saddam Hussein invaded Kuwait and ignited the first Gulf War.

We could see $220 a barrel should both Libya and Algeria halt oil production. We could be underestimating this as speculative activities were largely not present in 1990-1991, said Michael Lo, the bank's oil strategist.

Nomura indicated that a shut-down in Libya and Algeria would reduce global supply by 2.9-million barrels per day and slash OPEC spare capacity to 2.1-million barrels per day -- similar to figures at the dawn of the Gulf War and worse than during the oil price surge of 2008 when prices reached an all-time high of $147 per barrel.

Already, a number of foreign oil explorers, including Germany’s Wintershall has stopped production at its facilities in Libya. Even the largest producer in the nation, Italy’s ENI spA (NYSE: E) said it will suspend activities at various locales.

Libya normally produces 1.6-million barrels a day, the majority of which is exported to Europe, notably Italy which relies heavily on Libyan crude.

Nomura said past oil shocks have typically exhibited a three-stage pattern, with a final surge in prices in the final phase. The current crisis is at the first stage.

Nomura further said that the $220 prediction might actually be an underestimate, since speculative oil traders could distort prices even higher. Nomura also explained that a leap to $220 would likely lead to temporary collapse in global oil consumption of 2 million barrels a day.

“I see a higher chance for Libyan production to stop at the moment, but I will not be surprised if this rolls over into Algeria too,” Lo told Bloomberg. “We are hearing a threat to oil infrastructure in Algeria already.”

Higher crude oil prices, should they be sustained, could seriously harm any chances of a global economic recovery.

Fatih Birol, chief economist for the International Energy Agency, said rising energy costs pose a serious risk for the fragile economies of the OECD bloc.

Jeremy Leggett, a British expert on energy issues, told reporters that the Libyan crisis shows the extreme fragility of the global system. People don't realize how close we are to a potential precipice if this unrest reaches critical mass in enough OPEC countries. Governments need to draw up emergency plans and get cracking on proactive measures while we still have time, he said.