… as you go up to say $90 a barrel, you’re consuming 4.5% of the global economy [for oil]. That in itself is a ceiling - you cannot go indefinitely into more expensive alternatives without destroying [the] economy and therefore destroying demand. So we do have a ceiling on prices and how much expensive alternative fuel we can put into the market.

We are now more than a year past the July 2008 oil price (and production) peak and in that time we have seen the price of oil drop as low as US$30 per barrel to then recover to about $80 per barrel. While the global financial crisis was brought on by a property debt bubble that was destined to burst at some stage, an analysis by economist James Hamilton (PDF 637KB) indicated that it was the record high oil prices of mid-2008 that pricked that bubble. Indeed, as described by commentator David Murphy, most US recessions since the 1970s have followed periods of rapidly rising oil prices: the US economy cannot tolerate an expenditure on oil which constitutes more than 5-6 per cent of GDP.

Mainstream thought in peak oil circles is now that the $147/barrel oil price of July 2008 may represent the “peak oil price”. In other words, we may never see an oil price that high again since, at that level, the high cost of energy cripples economic activity, plunges economies into recession and thus kills demand. This is what Sadad al Husseini is talking about. (Amusingly, this phenomenon has provided a face-saving escape route for the most ardent critics of the peak oil thesis - namely BP’s chief executive Tony Hayward and oil industry cheer-leader Cambridge Energy Research Associates - who now declare that the developed world has passed “peak oil demand”. However, that is nothing but a delusion to disguise the fact that dwindling oil supplies have ended economic growth in the developed world for the foreseeable future.)