Well, the price for oil is determined by the last barrel sold. Like any traded commodity, the market price for oil reflects the balance between supply and demand. Demandwise, we're using a lot of oil.

Economic growth means greater demand, and despite some wobbles, the US (the biggest consumer of oil) continues to grow. China and India are also importing as much oil as they can.

Right now the world is pumping nearly all the oil it can, so supply is stretched.

Iraq has the third-biggest oil reserves in the world, most of it concentrated in the southern and northern parts of the country. The southern part is still pretty unstable, with Shi'ite militias vying with each other for regional control.

Yet it's in the south that Iraq is pumping what little oil it can . . . about two million barrels a day . . . and exporting it out of the Persian Gulf port of Basra.

The potential additional supply is in the northern part of Iraq. There is a barely used 600-mile-long pipeline going from the huge, but landlocked, oil field of Kirkuk, through Turkey, to the Mediterranean coast port of Ceyhan.

Until now, the northern part of Iraq has been stable . . . or what passes for stable in Iraq.

Iraq's five million Kurds are concentrated in the north. The US invasion in 2003 simply took away some of the last constraints on their autonomy.

For more than 15 years, they have been more or less selfgoverning. The Kurdistan Regional Government functions, more or less. Despite lacking a financial system, Kurdish cities are booming.

In September, property developers with more cojones than Sean Dunne broke ground on a $55m five-star luxury hotel in the Kurdish city of Erbil.

Kurds have two brand new international airports. Rather than wait for squabbling politicians from Iraq's factions to agree in Baghdad on an oil law, the Kurds passed their own and started divvying out exploration contracts to Norwegian, Canadian, French and US oil firms. There was just about enough production to convince Western oil companies that oil could start to flow through the pipeline from Kirkuk, promising to add new capacity to the world's oil market.

The Kurdish part of Iraq is what Washington neocons had in mind when imagining what the country could be like after the war: prosperous, relatively liberal and relatively democratic for that part of the world, something to build on.

But last week, things went badly off the rails. The Turkish parliament voted overwhelmingly to authorise the army to enter northern Iraq to pursue Kurdish PKK rebels.

Southeastern Turkey has lots of Kurds, and the PKK has been fighting on and off for 20 years for independence or at least autonomy. Once the Kurds in northern Iraq had something resembling autonomy, Turkish Kurds began using it as a base.

Iraqi Kurds speak a different dialect, but many feel a sense of solidarity with their Turkish cousins.

Twice in the 1990s, the Turks crossed the border into northern Iraq to go after PKK rebels. In recent months, the Turkish army alleges that the PKK has stepped up attacks.

A 7 October attack killed 13 Turkish soldiers. The Turkish government and military are under increasing and understandable pressure to do something about it.

In the background is an even bigger threat. Kirkuk, the oil-rich centre measured above, is sometimes called the 'Kurdish Jerusalem'. Saddam's policy was to 'Arabise' the town, by transplanting Arab-speakers from the country's south. Since 2003, the Kurds have come back. A referendum was scheduled for around now to determine whether Kirkuk would come under the authority of the Kurdish Regional Government.

The outcome is a forgone conclusion, but without a national Iraqi deal to share the oil profits, there is little chance of it being scheduled.

So the pressure continues to mount.

As it enters its last year in office, the best the Bush administration can hope for is to try and keep Kurdish Iraq from looking like the rest of the fiasco, keep the Turks out and get a deal done that secures a decent future at least for the Kurds.

But you wouldn't trust these guys to pour water out of a bucket if the instructions were written on the bottom.

So yeah, we're going to see $100 oil. Soon. So fill up your petrol tank and stock up on canned goods. It gets worse from here.