As fighting rages on in Iraq, oil legend T. Boone Pickens, founder of BP Capital Management, says that if all of Iraq's production is blocked, crude oil prices could soar to $150 to $200 a barrel.

"That's where you have to kill demand with price," he told CNBC. "That's the only way you can do it, because oil won't be there."

The Islamic State in Iraq and the Levant (ISIS) put the kibosh on repairs to the main pipeline from the Kirkuk oil field to the Mediterranean port of Ceyhan in Turkey when it took over Mosul last week.

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Reports conflicted as to whether the ISIS had seized Baiji, the location of Iraq's largest refinery.

"Everything has got to shut down [in Iraq]. Halliburton and Weatherford are moving out. They can't leave their people in there," he noted. "So where are we? We are using 19 million [barrels of oil per day], producing 8.5 million, importing 10 or 11 million."

Of the amount the United States imports, we get 4.5 million barrels from Canada, 4.5 million from OPEC and 1.7 million from Saudi Arabia, Pickens explained.

Crude prices climbed to nine-month highs Friday, with the July West Texas Intermediate contract settling at $106.91 on the Nymex. Monday, the price of oil finished down 1 cent as fears of widening instability in Iraq, a key energy producer, were tempered by views that its oil exports wouldn't be hurt, for now.

The benchmark U.S. crude contract for July delivery closed at $106.90 on the New York Mercantile Exchange. Earlier Monday, it reached $107.54. Brent crude, a benchmark for international oils, gained 48 cents to $112.94 a barrel on the ICE Futures exchange in London.

Pickens believes the United States, Canada and Mexico should make an oil alliance — the North American Energy Alliance. "Then you don't have to worry about what happens to Iraq and the rest of the world."

Pickens isn't concerned about energy supplies for the long term. "There is plenty of oil around the world," he said. "We have the solution in North America if we just had the leadership in Washington to step up and say, 'let's make a deal,'" with Canada and Mexico.

Others agree with Pickens that a disruption of Iraqi supply could spark a major price increase for crude.

"Right now the market is looking for a comfort zone," James Williams, an energy economist at WTRG Economics in London, Ark., told Reuters. "Should the militants reach Iraq's oil patch, then we have a potential for much higher prices."

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