High oil prices raise prospect of accelerated EV sales

Clayton Christensen’s ‘The Innovators’ Dilemma’, perhaps the most influential business book of the past three decades, includes a chapter on electric cars that was prescient about the ways the industry could develop. Writing 30 years ago, Christensen predicted many of the issues that EVs have faced, including the dangers of aiming for unnecessarily high performance, and the threat of obstructions from established dealer networks.

To succeed, he argued, EVs would need to be simple, reliable and convenient. They would need to evolve rapidly as the market developed. And they would need to be sold at lower price points than their gasoline-engined rivals. All of these characteristics apply to the Chinese EV industry, which has had remarkable success in winning market share, initially in its home country but increasingly internationally as well.

After the rise in fuel prices that followed the outbreak of conflict in the Gulf in February, there has been a surge in EV sales in response. The possibility that flows of crude and oil products from the Gulf could remain disrupted for years to come has raised the prospect that worldwide EV adoption could progress significantly faster than seemed likely at the beginning of 2026.

The latest escalation in the conflict, with strikes against oil tankers by both Iran and the US, and gains for Iran-backed Houthi rebels on the Red Sea coast of Yemen, has put upward pressure on crude prices. Brent crude rose above US$108 a barrel on Thursday, for the first time since May.

President Donald Trump said on Wednesday that he expected the war to end “immediately” after the US midterm elections, which are on 3 November. But the Wall Street Journal reported that the president’s advisers had raised the possibility that the war could drag on through the remainder of his term, which ends in January 2029.

The impact on fuel prices from the conflict in the Middle East has been exacerbated by Ukraine’s attacks on Russian refineries, adding to tightness in global product markets, particularly for diesel. Ultra-low sulphur diesel in New York harbour has been trading this week at the equivalent of more than US$200 a barrel.

The average retail price of gasoline in the US has been about US$4.28 a gallon this week. That is up about 34% from its level of a year ago, but still significantly below its record high of about US$5.02 a gallon, reached in June 2022 after Russia’s invasion of Ukraine. Retail prices for diesel, however, have been hitting new all-time highs, averaging about US$5.98 a gallon at US filling stations this week.

Conventional wisdom until now has been that EV sales have generally not been driven by fuel prices. When EVs are priced significantly higher than equivalent internal combustion engine (ICE) models, customers buy them for status, for performance, or for environmental reasons. The emergence of a wave of low-priced Chinese EVs, and the availability of mid-market EVs from companies including Tesla, Volkswagen and Hyundai, may be changing that equation.

EV sales have surged in several markets around the world. Over January to July 2026, BEV sales in France were 69% higher than for the same period of last year. In Germany they were 51% higher, and in the UK they were 29% higher.

Some Asian markets have also been very strong. Wood Mackenzie estimates that BEVs will account for about 30% of light passenger vehicle sales in Thailand this year, and almost 25% in South Korea.

China has been one of the principal beneficiaries of the international EV boom. Its vehicle exports have soared this year, with more sold abroad in the first eight months of 2026 than in the whole of 2025. About half of those export sales are what China calls new energy vehicles (NEVs), meaning pure battery-electric vehicles (BEVs), plug-in hybrids, and fuel cell vehicles.

In China the car market has been weak, but BEVs have been gaining market share. They are expected to account for about 40% of sales this year.

The US is an outlier among major vehicle markets for its slow pace of EV adoption. BEVs are expected to be only about 6% of US car sales this year.

US vehicle manufacturers have abandoned plans for a rapid transition to EVs. Ford’s electric truck, the F-150 Lightning, seen as critical for the success of electrification in the US, has been discontinued. Now Ford is trying again with a low-cost EV platform. General Motors is still moving towards electrification, but its CEO Mary Barra describes EVs as the “end game” for the company, not an imminent transformation.

In their home market, US manufacturers are protected by tariff rates of more than 125% on imported Chinese EVs, and by restrictions on Chinese electronic hardware, software and connectivity. Internationally, where many countries do not have the same barriers to keep out imported Chinese cars, the US companies risk losing market share.

The Trump administration has argued that China’s EVs are so competitive because they are subsidised by the government. Scott Bessent, the US Treasury secretary, said at a recent trade forum that a Chinese EV made by BYD was “the best $70,000 car that $35,000 can buy.”

He is correct that Chinese manufacturers benefit from government support including tax breaks, grants, low-cost financing and trade-in subsidies. His calculations probably overstate the cost advantage provided by those government incentives. But for a neutral consumer who only wants the best available deal, the message seems clear: a Chinese EV could be a great buy.

The Wood Mackenzie view

Wood Mackenzie analysts last month published a report in our Horizons series, looking at the possibility of more rapid adoption of EVs worldwide. The report, titled ‘Electric Shock: how electric vehicles could hit the accelerator’, maps out a possible scenario in which the global EV fleet in 2040 is about 50% larger than in our base case forecast.

In our base case, we are forecasting strong growth in EV sales over the next ten years. We project that by 2035, EVs will be have a market share for passenger vehicles of about 80% in China, about 70% in Europe, and almost 30% in the US. But given the right conditions, the transition could be even faster.

Neither metals supply nor grid and charging infrastructure would be insuperable obstacles to that faster pace of EV adoption. Putting 50% more EVs on the roads by 2040 would require another 800,000 tons of copper supply that year, but that is only about 2% of projected worldwide supply for that year.

The impact on lithium demand would be greater, about a 14% increase by 2040. China’s dominance of lithium processing and the battery supply chain creates challenges for western countries seeking to develop their own EV industries. But those difficulties can be managed, given sustained policy support.

Similarly, the problems created for the power grid by the growth of EV charging are real, but manageable. Ensuring that charging is shifted to times when the grid is amply supplied would make it possible to add significantly greater demand from EVs, without a need for massive additional investment in infrastructure.

To get to that future of accelerated EV adoption, the report’s authors say three key conditions would have to be satisfied:

1. Governments around the world need to invest in EV and battery supply chains, to reduce reliance on China
2. There needs to be continued progress in EV technologies such as fast charging
3. Consumers need to decide that high and volatile fuel prices are here to stay, cementing the economic benefits of EV ownership.

There are already signs of progress on 1) and 2). In China, BYD, Geely and CATL have been announcing remarkable advances in fast charging. A sustained period of high oil prices resulting from the Middle East conflict could be enough to deliver point 3) as well.

If that accelerated take-up of EVs occurs, it would have profound implications for the global oil market, which are spelled out in the report. Wood Mackenzie’s base case forecast shows world oil demand hitting a plateau in the early 2030s.

Accelerated growth in EVs, and structurally lower long-term oil demand, could turn out to be one of the lasting consequences of the Iran war.

In brief

Bond prices have been tumbling, driving up interest rates, as the surge in oil prices stoked fears about mounting inflationary pressures. The yield on the 10-year US Treasury bond rose over 4.96%, to its highest level since 2023. The yield on the 30-year Treasury rose to about 5.37%, its highest since 2007.

As well as oil prices, other factors have also been raising concerns about inflation, including President Trump’s pledge to pay US$5,000 to every US citizen if the Republicans retain control of Congress in the midterm elections. 

The higher interest rates will raise the cost of capital for households and businesses. That has not yet translated into a general expectation of an economic downturn. Wood Mackenzie forecast in July that US GDP would grow by about 1.9% in 2026, an upgrade from our forecast of 1.7% growth made earlier in the year.

Saudi Arabia’s oil production last month dropped to its lowest level since 1990, according to data published by OPEC. The latest Monthly Oil Market Report from OPEC showed that Saudi Arabia produced 6.238 million barrels per day in August, down about 1.9 million b/d from its level in July. However, the volume it supplied to the market was significantly higher at 7.122 million b/d in August, down only about 300,000 b/d from July, because of barrels released from storage.

Google plans to invest about US$15 billion in Finland, to develop data centres and electricity infrastructure to support them. It has also signed a 22-year power purchase agreement for one of its data centres to support a life extension program for a nearby nuclear power plant, and a memorandum of understanding with the energy company Fortum to explore possible investments in new nuclear generation.

Finland’s government supports data centre investment, and the country’s subarctic climate helps reduce energy costs for cooling.

Other views

UAE’s oil potential boosted by promising shale discovery – Simon Flowers, Robert Clarke, Gavin Thompson and Josh Dixon

The global economy is approaching a tipping point – and investors need to pay attention – Peter Martin

Three things to know about how APAC power systems should adapt to LNG disruptions – Nikhil Babu

North Sea and European upstream: the shift towards energy security – Gail Anderson, Greg Roddick and Lewis Lawrence

US solar’s foundation holds strong, even as the ground keeps shifting – Caitlin Connelly

Data centre boom drives structural LNG demand in Southeast Asia, while South Asia remains out of reach

The yawning gap between ambition and action on nuclear energy – Rachel Millard

Quote of the week

“A few years back every other day there was an article about how oil is dead, right? But now I think people realise that this is a respectable industry that pays well and is well placed at the intersection of AI and energy… Could energy be cool? Yeah, maybe. Now it is the tech guys who are seen as the villains.”
Kaes Van’t Hof, chief executive of Diamondback Energy, told the Financial Times that oil companies had become more attractive places for young people to work and build careers.

Chart of the week

This comes from Wood Mackenzie’s latest US Solar Market Insight report, created in collaboration with the Solar Energy Industries Association (SEIA). It makes the point that although the ground has shifted dramatically under the US solar industry over the past two years, its foundations remain robust.

Trade policy changes, permitting bottlenecks and looming tax credit deadlines have created a series of challenges, but US solar installations this year are on course to be only slightly lower than in 2025. The next few years look healthy, too.

For more details on the outlook for the US solar industry, fill in the form and download the full report for free.

Ed Crooks’ Energy Pulse is featured in our weekly newsletter, alongside more news and views from our global energy and natural resources experts. Sign up today via the form at the top of the page to ensure you don’t miss a thing.