Very soon after learning about Peak Oil, I came to the realization you just summarized. Expensive oil (whether technically peak or not) will put the breaks on the world economy. However, even if demand is reduced, depletion continues, so any equilibrium point will only be temporary until it is eroded by depletion and the decline continues. Any atttempt at recovery will kick up demand, which will kick up prices and strangle the recovery.

I think this will happen to a greater or less extent, even if we're successful at developing alternatives. Alternatives will take time and money, and both are going to be hard to come by. The transition is going to be painful.

We do, however, have a lot of control over how painful it is going to be. I'm just not very optimistic that we will do the right things as a society. I'm pretty sure we'll panic and make the problem worse, maybe a lot worse. I hope I'm wrong, but I'm trying to be prepared for the worst.