"In 2008, oil prices approached $150 per barrel. Shortly afterwards, the global economy collapsed," King said.
"There were, of course, other problems at the time – an imploding US housing market, the beginnings of a securitization crisis, the collapse of Lehman Brothers – but events three years ago nevertheless offer plenty of evidence that substantial changes in oil prices are big news for the global economy," he added.
"Indeed, for those who believe the global economy is ultimately fuelled by oil and gas, events in 2008 simply confirmed a pattern seemingly in place since the 1970s. Regular as clockwork, increases in oil prices of more than 100 percent lead to declining GDP," King explained.
There has not been a 100 percent jump in prices yet but "there are enough warning signs around for investors to feel a touch edgy," he added.
Exceptions to the Rule
The 2008 jump in oil prices was clearly not the only factor taking the economy into the recession, given the financial crisis blew up a few months later. There where, in King’s view, other examples in which other factors where at play.
One of them is the 1991 recession, "which was probably more affected by the credit crunch than by the temporary spike in oil prices following Iraq’s invasion of Kuwait," another is "the 1987 experience, when real oil prices did indeed double but there was no recession," he said.
"That doubling came from a very low level and, although recession was avoided, a stock market crash wasn’t. For those who were around at the time, memories of October 1987 are enough to make the blood run cold. There was no recession in 1987 but there was a stock market crash," King said.
Demand and Supply
The biggest problem is working out why oil prices are so high, according to King.
"Late last year, oil prices seemed to be rising for two main reasons. First, the Federal Reserve and other central banks in the developed world were pursuing unconventional policies - widely seen as an abuse of the printing press - in an attempt to kick-start economic activity," he said.