The Oil Price War Between the Two Countries Threatening the Global Electric Vehicle Industry

As the effect of coronavirus increased, the demand for crude oil contracted. It first started in China and outspread in other countries including Japan, South Korea, Italy, and Iran. It caused a huge gap between the supply and demand for crude oil in the international market which in turn, resulted in a downfall in oil prices.

In order to curb the downfall of crude oil prices, in the first week of March, OPEC countries led by Saudi Arabia proposed to reduce the oil production by one million barrel per day (BPD) and asked non-OPEC countries to reduce oil production by half a million per day, in which Russia is a major oil producer. Russia was coordinating in most of the decisions of the OPEC countries for the last three years, however, this time the country vetoed.

As a result, Saudi Arabia announced to cut oil prices to increase its sales. Moreover, it is also expected that the country will increase its production by 10 million per day by April 2020. The reaction of this was also seen on the stock market, as crude oil prices fell by 30% to around $31 per barrel and it is expected in the worst-case conditions that it can reach $20 per barrel.

The whole episode can create a negative impact on the electric vehicle industry globally. One of the major aspects which were in the favor of electric vehicles was the continuous increase in crude oil prices, as electric vehicles were alternative to oil running vehicles. The stable and low prices of gasoline can demotivate consumers to shift toward electric vehicles. With the stable crude oil price, the sales of electric vehicles can see a setback especially in the US, China, and Japan. Already a downfall in electric vehicle sales in the second half of 2019 was witnessed in these countries due to multiple reasons, one of them is the revoke of subsidies in China.

The price difference arising due to the downfall in oil prices can be provided directly to the consumers or can be used to provide more subsidies to the EVs. The decision has to be taken by the governments of oil-importing countries based on which the future electric vehicle industry will move.