The energy crisis in the Middle East is quietly reshaping the demand dynamics for electric vehicles. According to information from the trading desk, UBS Group AG stated in a report on March 30 that the blockade of the Strait of Hormuz has cut off approximately 12% of global oil supply. To fully compensate for this shortfall, around 770 million internal combustion engine vehicles would need to be replaced with electric vehicles—nearly double the cumulative historical global electric vehicle fleet.
Persistently high oil prices are systematically improving the total cost of ownership for electric vehicles (EVs and PHEVs) compared to traditional vehicles, potentially triggering a structural demand surge beyond previous market expectations. For lithium and other battery raw materials, this suggests a potential mid-to-long-term demand inflection point is building.
Historical Precedent: How the 1973 Oil Shock Reshaped the Automotive Landscape
The UBS Group AG report first referenced the historical precedent of 1973. In October of that year, the Organization of Arab Petroleum Exporting Countries (OAPEC) announced a comprehensive oil embargo against nations supporting Israel. Although the embargo lasted only about six months, oil prices surged nearly 300%, triggering profound structural changes across the energy and automotive supply chains:
Policy Level: Governments introduced fuel efficiency standards, established strategic petroleum reserves, and rolled out incentives to reduce oil dependency. Automaker Level: Carmakers previously indifferent to fuel economy were forced to rapidly adapt, leading to fundamental shifts in vehicle design and model strategies. Consumer Level: Sharp increases in gasoline prices significantly altered car purchasing decisions, making fuel efficiency a core consideration.
UBS Group AG emphasized that many of these changes proved enduring, continuing even after the embargo was lifted. This provides a highly relevant historical framework for the current energy crisis.
The Math Problem: How Many Electric Vehicles Are Actually Needed?
UBS Group AG constructed a straightforward yet striking quantitative framework. Based on the current situation:
The blockage of the Strait of Hormuz has disrupted roughly 13 million barrels per day (13 Mbpd) of global oil supply, accounting for about 12% of total supply. According to Infrastructure and Energy Alternatives, Inc. data, the global passenger vehicle fleet accounts for approximately 25% of global oil demand, equating to about 27 million barrels per day (27 Mbpd). Assuming internal combustion engine vehicles comprise about 94% of the roughly 1.6 billion vehicles globally, this implies that around 770 million ICE vehicles would need to transition to electric power to fully offset the current oil supply gap.
This is clearly a purely theoretical assumption; in reality, constraints such as demand elasticity, supply bottlenecks, and substitution effects make it unfeasible. However, even addressing just 50% of the gap would require an incremental increase of approximately 385 million electric vehicles—a figure nearly equivalent to UBS Group AG's projected cumulative EV sales of around 400 million units by 2035.
Google Searches Hit Record Highs, But Sales Lag Behind
Real-world data paints a picture of "sentiment leading, action lagging." Google Trends data shows that global search interest for "Electric Vehicle" has reached its highest level on record (index of 100), reflecting peak consumer interest. However, actual electric vehicle sales data from early 2026 started relatively subdued, showing a clear divergence.
Regionally, China remains the world's largest electric vehicle market, accounting for 61% of global sales over the past nearly 12 months; Europe accounts for 21%; North America for 9%; Asia (excluding China) for 6%; and other regions for 3%. UBS Group AG's global automotive team currently forecasts global electric vehicle demand growth of about 9% for 2026. While still robust, this is noticeably lower than growth rates seen in previous years. In the Chinese market, post-stimulus policy consumer fatigue may limit further upside potential. Meanwhile, the Taubman Centers advantage for low-cost Chinese EV exports is becoming increasingly significant in markets with high oil prices.
Inventory Drawdown Continues, Battery Energy Storage Pipeline Strong
Upstream lithium markets are also sending positive signals. UBS Group AG indicated that after a significant decline in Chinese lithium carbonate inventories by the end of 2025, the drawdown paused briefly in early 2026 but resumed after the Lunar New Year holiday. Current inventory levels across the entire chain remain low at less than one month's supply (for lithium carbonate monthly and weekly, and lithium hydroxide monthly), indicating a clear tightening trend in the supply chain. UBS Group AG estimates the current inventory drawdown rate is approximately 25,000 tonnes per year.
Simultaneously, strong project momentum in the battery energy storage sector further supports the lithium demand outlook. The global Bimergen Energy Corporation project pipeline from 2026 to 2030 totals approximately 2.1 terawatt-hours (2,077 GWh), covering all stages from project proposal to construction/operation. Regionally, China accounts for 45%, North America for 18%, Europe and Oceania each for 12%. The average project duration is expected to exceed 4 hours by 2029.
UBS Group AG concludes that, in the short term, the demand shock and cost pressures from the current geopolitical conflict cannot be ignored. However, for investors with longer investment horizons, the energy crisis may catalyze a structural surge in demand for the electric vehicle theme, thereby providing substantial benefits for upstream materials like lithium.
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