Our last major upshift in gas prices was over the spring and summer of 2008. I thought I remembered that when gas crossed the $4.50/gal. mark, a lot of people radically changed their consumption patterns, and this NYT article seems to bear that out (http://www.nytimes.com/2008/11/21/business/economy/21oil.html).
It's true that oil demand is not perfectly elastic, but I suspect the average American household could cut consumption of oil by 10-15% without major disruption, and by 20% or more if seriously motivated (and yes, I'm counting in the cost of oil used to deliver food to the grocery store). Make oil nosebleed expensive, and more people will carpool, switch from oil to natural gas heat, and so on. They won't enjoy it, but they'll do it. Multiply it by people in other countries doing the same thing, and that has the potential to push down aggregate demand by a fair amount.
Responses to the last spike
It's true that oil demand is not perfectly elastic, but I suspect the average American household could cut consumption of oil by 10-15% without major disruption, and by 20% or more if seriously motivated (and yes, I'm counting in the cost of oil used to deliver food to the grocery store). Make oil nosebleed expensive, and more people will carpool, switch from oil to natural gas heat, and so on. They won't enjoy it, but they'll do it. Multiply it by people in other countries doing the same thing, and that has the potential to push down aggregate demand by a fair amount.