This paper by James D. Hamilton explores the causes and consequences of the oil shock of 2007-08, contrasting it with earlier oil price shocks. Unlike historical shocks, which were primarily caused by physical disruptions in supply, the 2007-08 price run-up was driven by strong demand meeting stagnant world production. Despite different causes, the economic impacts were similar, with significant effects on overall consumption and domestic automobile purchases. The paper discusses the role of income and price elasticities of demand, historical supply disruptions, and the potential influence of speculation. It concludes that the primary causes of the 2007-08 oil shock were low price elasticity of demand and the failure of physical production to increase, rather than speculation alone. The economic consequences, including a recession in the U.S., are also examined, highlighting the resilience of the modern economy to such shocks.This paper by James D. Hamilton explores the causes and consequences of the oil shock of 2007-08, contrasting it with earlier oil price shocks. Unlike historical shocks, which were primarily caused by physical disruptions in supply, the 2007-08 price run-up was driven by strong demand meeting stagnant world production. Despite different causes, the economic impacts were similar, with significant effects on overall consumption and domestic automobile purchases. The paper discusses the role of income and price elasticities of demand, historical supply disruptions, and the potential influence of speculation. It concludes that the primary causes of the 2007-08 oil shock were low price elasticity of demand and the failure of physical production to increase, rather than speculation alone. The economic consequences, including a recession in the U.S., are also examined, highlighting the resilience of the modern economy to such shocks.