In June 2004 a Sunday newspaper ran a fantasy horror story: ‘What If Bin Laden Conquers Saudi Arabia?’ In this scenario, crude oil prices ‘are nudging $100’. In the real world, bin Laden is still in his cave and the accommodating Saudi royals were until recently pumping as much oil as they could. Yet oil nonetheless touched $140 per barrel in mid-2008. Fact proved to be more dramatic than fiction. What happened? And why did it happen during a financial crisis already causing difficulties enough for the world economy? Prices have since more than halved from their peak and have fallen as low as $40 per barrel. Should we be more concerned about the boom, or the bust? The links between the recent oil shock and the financial crisis and global recession are indirect but very important, and in this chapter I try to trace them. The issue is not merely of historic interest, since there is a serious risk that a strong global economic recovery will trigger another surge in oil prices. Even the tentative global recovery in the summer and autumn of 2009 led to a doubling of prices from their low point.
