From OPEC Shock to Minsky Moment: Why Every Bubble Follows the Same Five Stages#

Hyman Minsky spent most of his career being ignored. A professor at Washington University in St. Louis, he published papers on financial instability that were politely acknowledged at academic conferences, then filed away in the intellectual equivalent of a basement storage locker. The efficient-market hypothesis — the reigning orthodoxy — insisted that markets were self-correcting, that prices absorbed all available information, and that bubbles, to the extent they existed at all, were unpredictable flukes. Minsky argued the exact opposite: financial instability wasn’t an accident but a natural byproduct of stability itself. Calm markets bred recklessness. Recklessness bred crisis. And crisis arrived with the regularity of a metronome. He died in 1996, twelve years before the events that would make his name a household word in finance, and two decades before “Minsky moment” became the phrase central bankers instinctively reach for when they need to sound knowledgeable about a crash they didn’t see coming.

I bring Minsky in here because Robert Shiller’s framework, powerful as it is, has a diagnostic blind spot. Shiller can tell you whether a market is in a bubble. He gives you the binary: yes or no. What he can’t tell you is where in the bubble’s lifecycle you’re actually standing. Are you in the early innings, with years of inflation still ahead? Are you at the peak? Has the peak already come and gone? For that kind of precision, we need Minsky’s five-stage model — a framework that treats a bubble not as a single event but as a biological process, with identifiable phases, each carrying its own symptoms, its own internal logic, and its own characteristic arc.

The Five Stages#

Minsky’s Financial Instability Hypothesis lays out a cycle that moves through five stages. I want to walk through them carefully, because we’re going to map the oil price bubble onto this model with real specificity.

Stage One: Displacement. Every bubble starts with a legitimate shift — a new technology, a new market, a fresh source of demand that creates genuine profit opportunities. The displacement itself is real; it’s the interpretation that goes sideways. In the oil market, the displacement was the rise of China and India as industrial powers, paired with the intellectual reclassification of commodities as a legitimate “asset class” fit for institutional portfolios. Both were real developments. China was genuinely industrializing. Commodities genuinely offered diversification benefits. The displacement provided the kernel of truth around which the bubble would form — the grain of sand at the center of the pearl.

Stage Two: Boom. Capital starts flowing toward the new opportunity. Prices rise. Rising prices attract attention, and attention attracts more capital. The positive feedback loop Shiller described is now running, but at this stage it’s still tethered — loosely, but tethered — to fundamentals. Between 2003 and 2007, oil climbed from roughly $25 to $70 a barrel. Commodity index fund assets under management ballooned from negligible levels to hundreds of billions of dollars. The infiltration pipeline — the network of index funds, swap dealers, and hedge funds documented in earlier chapters — was being built and brought online during this phase. Money was flowing in. Prices were rising. And the rising prices appeared to vindicate the thesis.

Stage Three: Euphoria. This is where the bubble crosses the line from exuberance into pathology. The hallmark of euphoria is the collective abandonment of traditional valuation standards. Price-to-earnings ratios stop mattering. Historical price ranges stop mattering. The phrase “this time is different” — the four most dangerous words in finance, as Sir John Templeton put it — becomes the prevailing narrative. In the oil market, euphoria showed up in the first half of 2008. Oil rocketed from $100 to $147 in six months. Goldman Sachs called for $200. Other banks piled on. TV pundits floated $300, even $500. The narrative shield — Peak Oil, the permanent supply deficit, the unstoppable Asian supercycle — reached maximum density. Anyone who questioned the trajectory was waved away as naive, uninformed, or simply incapable of grasping the “new paradigm.”

During euphoria, the shadow oil price detaches completely from the real oil price. The paper barrels — that vast sea of futures contracts destined never to result in physical delivery — are now setting the market price, not reflecting it. The tail is wagging the dog, and the dog has forgotten it ever had a tail.

Stage Four: Profit-Taking. The smart money heads for the door. Not all at once — that would crash the market too soon and destroy their exit prices. Quietly, gradually, the most sophisticated players start trimming their positions. In the oil market, this phase was visible only in hindsight: a handful of analysts — those dissenting voices we encountered in the narrative shield chapters — began publishing warnings in mid-2008. Lehman Brothers, in one of history’s richer ironies, put out a research report comparing the oil market to the dot-com bubble. A few hedge fund managers quietly rotated out of long commodity positions. The music was still playing, but the people closest to the speakers had started sidling toward the exits.

Stage Five: Panic. The marginal buyer vanishes. Prices fall. Falling prices trigger margin calls, forced liquidations, and stop-loss orders that produce still more price declines. The positive feedback loop that inflated the bubble now runs in reverse with the same self-reinforcing violence. Fear replaces greed as the ruling emotion. In the oil market, panic kicked off in mid-July 2008 and gathered speed through the autumn. Oil plunged from $147 to $34 in five months — a 77 per cent wipeout that was, as we established in the previous chapter, already well underway before Lehman Brothers filed for bankruptcy.

The Mapping#

What makes the Minsky model so compelling when you lay it over the 2008 oil price event is the tightness of the fit. This isn’t a loose analogy. Each stage has a clear window in time, identifiable market behaviors, and specific institutional actors:

The overlap between profit-taking and euphoria isn’t a mistake — it’s a feature. In the real world, unlike in textbooks, stages bleed into each other. The smart money was leaving while the retail money was still pouring in. Goldman Sachs was calling for $200 while Lehman was sounding the dot-com alarm. The simultaneous presence of euphoria and profit-taking is itself a diagnostic marker — it means the bubble is at or very near its peak.

Two Lenses, One Diagnosis#

We now have two complementary diagnostic frameworks in hand. Shiller tells us what we’re looking at: a speculative bubble fueled by enthusiasm, sustained by a naturally occurring Ponzi structure, and rationalized by narrative contagion. Minsky tells us where we are in its lifecycle: displacement through panic, each stage identifiable, each transition readable.

Together, they form a clinical toolkit. Shiller provides the blood test; Minsky provides the staging scan. The blood test says: yes, this is cancer. The staging scan says: it’s stage four, and the outlook isn’t good.

The oil market of 2008 came back positive on both.

In May 2026, the UAE’s sudden exit from OPEC — a rupture the Financial Times described as a wholesale rewriting of the global oil order — sent crude prices into a sharp slide that laid bare the structural fragility Minsky had spent his career warning about. Speculation over a US-Iran diplomatic thaw piled onto the shock within days, compounding the downward pressure and forcing credit markets to reprice energy-sector risk almost overnight. Margin calls cascaded across the trading complex, and financial commentators reached instinctively for the phrase “Minsky moment.” They were right to — not necessarily because the 2026 event was a bubble bursting, but because the phrase captures something fundamental about how financial instability works. Stability breeds complacency. Complacency breeds leverage. Leverage breeds fragility. And fragility, when hit with a big enough shock — a geopolitical surprise, a policy reversal, a sudden shift in the prevailing story — produces the kind of violent, self-reinforcing price action that Minsky predicted and that efficient-market theorists swore couldn’t happen.

Minsky, who died in obscurity, would have savored the irony. The market that finally proved him right was the one that had spent the longest insisting he was wrong.

What remains, now that we have our diagnostic frameworks locked in, is to examine the bubble’s internal machinery at the microscopic level — to catalogue the specific pathological mechanisms at work inside each of Minsky’s five stages. That’s the job of the next chapter: the pathology of bubbles, examined not as a historical curiosity but as a clinical manual.