Episode
Oil Broke the System
- Published
- Mar 19, 2026
- Duration seconds
- 359
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- https://www.theflyingfrisby.com/p/oil-broke-the-system
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Summary
This is a free preview of a paid episode. To hear more, visit www.theflyingfrisby.com Never mind the dodgy mortgages, oil spiking to $150/barrel in July, 2008, just before the panic set in, was as big a cause of the Global Financial Crisis. The price rise was like a sudden, unexpected liquidity drain on the economy. The US economy is built on oil. Costs suddenly rose across every supply chain. Disposable income was sucked out of households. Corporate margins got squeezed and inflation expectations rose effectively tightening financial conditions, just as the system needed liquidity. Funding costs then rose and collateral quality deteriorated. In a system already stretched with cheap credit and thin margins, highly leveraged institutions and ordinary borrowers were simultaneously pushed over the edge. The structure was fragile and it only worked in a low energy, low rate world. Subprime may have been the trigger, but the energy shock had already destabilised the foundations. The oil price tightened financial conditions before central banks did This is not a one-off As Charlie Morris points out in his piece What Happened in 1974 , there have been three major oil shocks - in 1973/4, 1980 and 2008. In 1973 the US was dependent on Arab nations for most of its oil, and shortly after the Egypt-Syria alliance suddenly declared war on Israel, oil-producing Arab nations imposed an embargo on any nation that supported Israel. “You can support Israel or have cheap oil, but you can’t have both,” the Saudi Arabian king had said on US TV. The oil price went from $3.50 to $10. It would eventually peak at $39.50 in 1980. I was only a little boy in the 1970s but we lived in South Kensington and I remember how many Arabs suddenly moved to the area, many of them with a great deal of money…