Oil is up; will the economy go down? Sharp oil price rises (where monthly averages were more than 75 per cent higher than a year earlier) were followed by US recessions in 1974, 1980, 1990, 2000 and 2008. It could be time for a repeat; crude was 47 per cent more expensive on Thursday than a year earlier and 80 per cent above the 2009 average.

Why have price explosions correlated with economic implosions? Genuine shortages are not the problem; production has easily kept up with the 1.1 per cent annual rate of demand growth since 1990. The tie is more financial. A price rise transfers more money from consumers to producers. The pain for consumers would be softened if producers spent all their gains on exports from consuming countries but they put much of the windfall into the financial system. These petrodollars, as they used to be called, create what are now called global imbalances. Financial indigestion throws the economy off course.

This time could be different. To start, the price surge might not last. There is no actual shortage and other producers are willing and able to make up for lost Libyan production. If the tension in the Middle East dies down or does not cut output further, the oil price could fall back.