Electric Vehicles Will Reorganize the Global Economy
The US must take steps now to ensure it’s not left behind
In 1960, leaders from five Middle Eastern countries met in Baghdad, Iraq, and created a group dedicated to “the coordination and unification of the petroleum policies of Member Countries and the determination of the best means of safeguarding their interests.” Today, membership in this cartel has grown to 13 countries and is known as the Organization of the Petroleum Exporting Countries, commonly called OPEC. OPEC collectively controls about 80% of the world’s proven oil reserves and yields unparalleled global power and influence. However, the eventual transition from combustion engines to electric vehicles (EVs) stands to fundamentally reorganize the global economy and transfer power from oil-based economies to countries that hold the critical minerals required for battery technology.
The possession and control of oil created substantial wealth for OPEC and other oil-producing countries, raising them from predominately poor agricultural economies to wealthy oil-based economies. In the second half of the 20th century, oil became the world’s most popular energy source as the use of personal vehicles grew exponentially after World War II. As a result, barren Middle Eastern deserts transformed into sprawling oil fields with profits invested in building megacities out of the sand. Today, these economies remain dependent on oil; for example, in Saudi Arabia, oil accounts for roughly 87% of budget revenues and 90% of export earnings. Most of OPEC’s oil exports are used for transportation, which is powered predominately by combustion engines. The U.S., which is the world’s largest consumer of oil, consumes two-thirds of petroleum for transportation in the form of motor gasoline.
However, the EV revolution has begun, and I predict that before OPEC’s centennial celebration, new cartels will replace it, wielding their power, influence, and wealth.
However, the EV revolution has begun, and I predict that before OPEC’s centennial celebration, new cartels will replace it, wielding their power, influence, and wealth. These new cartels will be formed by countries that hold the natural minerals used in electric battery technology, such as lithium, cobalt, graphite, nickel and manganese. These battery metals are currently found in countries that have been excluded from the historical transportation energy markets. For example, Australia, which produces a small share of global oil production, produces nearly half of the world’s lithium and has the second-largest nickel reserves. Likewise, Chile, Argentina and Bolivia, famously referred to as the “lithium triangle,” produce meager amounts of oil today but make up 58% of global identified lithium resources.
There is practically no overlap when oil-producing countries overlay with those countries that possess the minerals needed for the EV battery supply chain. One notable exception is China, and this poses a substantial economic and security risk for the U.S. China is currently a significant producer of crude oil, and they stand to benefit from the oil-to-battery-metal-transition. According to BloombergNEF’s 2020 rankings, China is ranked as the number one country in the lithium-ion raw material supply rankings as they possess 80% of global refining capacity for raw materials needed for batteries and 60% of the world’s graphite production. Conversely, the U.S. ranks in 15th place in the lithium-ion raw material supply rankings, a hard fall from its dominant position as the world’s top oil producer.
The proliferation of hybrid vehicles and the adoption of EVs have already cut into oil revenues. At current growth rates, Bloomberg estimates that the amount of oil displaced by EVs will hit two million barrels per day as soon as 2023, an effect equivalent to what triggered the 2014 oil crisis. Over the remainder of the decade, EV batteries will improve in performance, and prices will continue to fall. These are the two primary objections often raised by prospective consumers, soon becoming a nonissue.As a result, the sale of EVs is expected to continue to accelerate, leading to mass adoption and accounting for an estimated 35% of all new vehicle sales by 2040. Increasing government incentives and improving electric vehicle infrastructure, such as charging stations and the electricity grid, will further facilitate this growth.
The transition from combustion engines to EVs will profoundly change the global geopolitical and economic landscape, creating winners and losers. Oil-producing kingpin countries of the late 20th and early 21st century will need to reinvent themselves. With high-demand natural resources now shifting, new OPEC-like alliances will likely form. Countries with similar language, culture, and economic and national security interests, such as the U.S., Canada, and Australia, may look to ally. China will remain a powerhouse in global refining and will continue to invest in Africa, such as the Democratic Republic of the Congo (which holds nearly 70% of the world’s cobalt), and South Africa (home to the world’s largest manganese reserves).
The transition from combustion engines to EVs will profoundly change the global geopolitical and economic landscape, creating winners and losers.
Countries, especially the U.S., and their companies must prepare for the inevitable new energy economy. The next-generation energy cartels that will form may likely be the U.S. and her allies and China and her allies. In November 2021, the U.S. government passed the Infrastructure Investment and Jobs Act, which includes billions of dollars to shore up the EV battery domestic supply chain and electric infrastructure. This is an important step and lays the foundation for the country’s survival in the approaching future-EV world. However, unlike petroleum, very few critical EV battery minerals and refining capacity are located in the U.S. Therefore, the U.S. should emphasize forming alliances with and making investments in friendly countries with raw material inputs.
Access to these materials and the ability to extract them efficiently, ethically, and in an environmentally safe manner will place any country or alliance at the pinnacle of the global supply chain. Once extracted, getting the maximum life from these minerals will also be vital to reducing the need for additional mining, which has a high cost both financially and environmentally and will balance the power between battery metal–producing countries and EV consuming countries. The U.S. should focus its domestic efforts on establishing refining capacity to rival China, extending battery life through reconditioning, remanufacturing, and second life applications; more efficient recycling and upcycling technologies; and advanced research to discover new battery technologies. These additional steps will ensure the country thrives in the post-oil era.
***
Aaron Poynton is co-founder and Chief Commercial Officer of A3Global, a next-generation company focused on the future of transportation.
