As leaders gathered in New York for the Millennium summit, oil prices were already rising. By midweek they were spiraling steeply upward, but by week's end prices were hurtling downwards. The impresarios of this show were the Saudis. Their previous show in October 1973 led to a two-year-long stagflation, This time a deal was quickly made. The results should soon be visible in an "October surprise." Franz Schurmann, professor emeritus at UC-Berkeley, has been writing on global oil since the late 1970s.

"Oil prices were soaring when the Millennium summit began at the UN in New York. President Clinton reportedly told Saudi strongman Prince Abdullah, "I'm extremely worried that soaring oil prices are not only going to affect America but the whole world."

He warned of a global recession if the OPEC members didn't increase production immediately. But when the Summit ended on Friday oil prices dropped.

What happened?

The answer can be found in a comment made by American oil expert John M. Blair in 1972: "Between the end of World War II and the mid-1960s the international and domestic market control mechanisms operated with the precision of a finely tuned watch." Indeed, graphs drawn in the early 1970s show the world price of oil between 1950 and 1970 as a straight horizontal line.

The finely tuned watch started to falter with the Six Days War in June 1967. Israel won a brilliant victory but most of the Arab world turned away from America and towards the Soviet Union. The major exception was Saudi Arabia, then and now the world's biggest oil producer with the greatest reserves.

The watch completely broke down with the October 1973 war. On October 19, President Nixon asked Congress to approve a $2.2 billion gift of military assistance to Israel. The following day, Saudi Arabia decreed an oil boycott that immediately quadrupled world oil prices.

What followed was dubbed "stagflation," a theoretically incompatible combination of economic stagnation with financial inflation. During 1974, 1975 and much of 1976 the U.S. experienced the highest levels of unemployment since the Great Depression of the 1930s, but this time with high inflation as well.

In reality, that finely tuned watch was a consortium named Arabian-American Corporation, Aramco. The Arabian part was Saudi Arabia. The other part consisted of "seven sisters," seven largely American oil companies which between them lifted all of the plentiful oil in the Arabic-speaking Gulf countries, especially Saudi Arabia.

In the late 1940s, America, the big winner in World War II, started a drive to substitute oil for coal in industrial applications all over the world. At that time, Aramco controlled just about all oil sold on markets. Though "price-fixing" was a serious crime in the United States and a number of CEOs were sent to prison, Aramco was spared because oil was declared vital for American national security.

The oil scene has kept on changing from the 1960s till now. But a big constant remains. Global capitalism cannot function without more and more oil coming onto markets. Yet the entire system requires financial stability and since 1937, when Saudi gushers first started spouting, the system only works if the Saudis and the big Anglo-American oil companies keep working closely together.

A finely tuned watch is no longer an appropriate metaphor. Now price control involves linking many millions of computers. Another control mechanism is the corner gas station.

Now just about everywhere in the world, you find gas stations with big brand names. By now most are automated so that consumers just stick in their credit cards and start pumping. The owners do little or nothing except post the new daily prices. In fact many if not most make their profits from convenience stores, car repair, parking, overcharges for special services, etc.

Despite their denials, evidence has accumulated that the Saudis can single-handedly force price changes. Earlier this year OPEC members balked at increasing low production that boosted prices but gave them profit windfalls. At Washington's urging, however, the Saudis turned the tap higher and immediately prices came down.

The Saudis are careful and cautious conservatives. Their faith is a puritanical Islam founded by Ibn Abdul-Wahhab in the Saudi heartland around 1750. He was a great warrior who trounced the Ottoman Turks. That same faith now moves the Afghan Taliban and their guest, the Saudi citizen Osama Bin Laden. Wahhabism is also the faith that moves Islamic fundamentalists in many formerly Soviet areas.

During the Summit week the Taliban scored a big victory in northern Afghanistan. They have now virtually eliminated the so-called Northern Alliance that is still supported by the vast majority of UN members. So angry was the UN at this turn in the events that they scuttled their mine removal teams in Afghanistan.

Prince Abdullah has been the de facto decision maker in Saudi Arabia for a long time. He wants nothing so much as peace and prosperity in the Middle East so that the radical Wahhabis in the region can also become careful and cautious conservatives.