An emerging surprise from the current energy transition is that oil in the transportation sector now looks more vulnerable than natural gas or coal in the power sector. Without question, the historic policy decision by China to radically transform its road fleet to EVs is the major factor in this trajectory change. While it’s true that adoption of EVs is a global phenomenon, China’s market weighting is so substantial that the collapse of the country’s domestic sales of internal combustion engines (ICE) has become a world-level event. This pattern, where China’s local policy greatly impacts the rest of the world, was observed when global coal consumption was resurrected to new all-time highs, along with oil consumption, on the back of China’s industrial revolution. Indeed, much of the world’s industrial capacity now resides in China. So, to make this point crystal clear, a phrase like “the rest of the world” means far less given that China itself constitutes such a large share of global economic activity.
Yes, ICE vehicles are still selling in China. But the country’s ICE sales peaked nearly ten years ago, in 2017. And it’s the cumulative effect of that inflection point which is now arriving, right into the center of the global oil market. By mid-year of 2026, sales of EVs for the first time crested over 50% of market share, and through the end of August sales of EVs are on course to reach a 53% share. By the time we start plowing through 2027, sales of EVs are going to be marching toward 60% of the market.
In addition to the titanic rollout of EVs into the domestic market, China is of course now exporting surplus production to the rest of the world. The export value of these EVs rose 50% year-on-year through May of 2026, reaching $9.2 billion, and these exports are encountering rapidly expanding markets across Asia. That is fatal to the pathway of future oil demand.
What’s happening in the global auto market, therefore (remember, “market” = China, then everyone else), is that the dream of incumbent destruction is actually happening. In the global power market, by contrast, we have an additive transition that reliably meets much of new demand with newly built clean energy, but which continues to leave legacy energy intact. In the global vehicle market, however, we have an example of what brute-force, centralized policy planning can accomplish. Not only have ICE vehicles been severed from any future growth path, but their production is in collapse as aging, on-the-road ICE vehicles retire.
Just to remind, the global oil market was essentially rescued by the non-OECD after OECD demand peaked 20 years ago. Since then, the non-OECD, through growth, higher incomes, and the creation of a middle class, has been on a course to adopt personal vehicles, but China shifted that river, like an earthquake or landslide would, and there is no going back.
Global oil demand is expected to fall by a stunning 2.5 million barrels per day (mbpd) this year as weaker global growth and high prices curb consumption. The estimate comes from the IEA. That’s a very big decline, on par with a global recession. (Global oil demand fell by 2.6 million barrels a day in the Great Recession of 2008–2009. Admittedly, that was a larger percentage decline.) But we’re not even close to a global recession. The IMF recently forecasted that global growth will finish up close to 3.0% this year. So high prices driven by war in the Strait of Hormuz don’t look complete as an explanation. Accordingly, Cold Eye Earth is reluctant to put the entirety of this decline down to demand destruction.