The rising price of oil will wreck the world economy, well before the physical oil shortage becomes a life threatening worldwide problem. As people are forced to expend more and more of their income on fuel, the demand for a lot of other things will disappear taking hundreds of millions of jobs with it. I doubt if the economy can expand with rapidly rising energy cost, and eventual rationing.
The timing of the start of the crisis now depends on how fast Iraq can ramp up oil production, and on the rate of growth of the world economy.
I laugh when I hear people say that there is plenty of oil floating around on tankers and in storage. You have plenty of food, until you take that last can out of your pantry. Thankfully, more food can be grown. Oil is different.

@ Peter:

First, I have to agree with Bill Simpson’s commentary. While considerably higher oil prices will make alternative energy sources very competitive with oil, the “now fragile” global economy will surely sink, if oil prices increase significantly.

A Far Safer Bet is to Short BP:
On the subject of the BP trade, I’ll take the opposite side of that trade; I’ve stated this in another blog, and will repeat it here. I believe BP will easily go down to 20 within the next month or so, and maybe a lot more!!! The oil and gas pressure has been increasing, not decreasing, and the amount of leakage is also increasing. This is a very bad sign.

In the meantime, our wonderful government is grossly underestimating the daily oil spill (it’s over 100K barrels daily!), and BP has steadfastly refused to disclose it’s all important “mudlogs” . . . a review of which would reveal just how dangerous the current situation truly is. Only BP knows for sure, but isn’t saying. The settlement from the Exxon Valdez oil spill was not finalized for about 3 years or so; yet strangely, an American President is able to extort $20 billion from BP after only a 20 minute conversation??? Exactly what does BP know that the rest of the world does not know, in regard to this disaster?

BP is in a “race against time” as the two relief wells won’t be “ready” until August. In the meantime, there is a high likelihood that the existing blowout well will completely erode over that time frame. If that happens, all hell would break loose, and BP stock could drop like GM or Citi stock did.