Oil prices fluctuate, impacting the automobile industry?

Ask AI · How are Chinese automotive brands responding to fluctuations in the Middle Eastern export market?

Gas stations are once again forming long lines.

Following the fuel price increase at 12:00 a.m. on March 9, the domestic refined oil prices will undergo the sixth adjustment of the year. Based on an estimated increase of 2000 yuan per ton, gasoline 92 will rise by 1.60 yuan, and gasoline 95 will increase by 1.69 yuan. This means that for a household car with a 50L tank, filling up will cost about 80 yuan more after the price hike.

Based on the current price of 7.60 yuan per liter for 92-octane gasoline in Beijing and Shanghai, after the price adjustment on March 23, domestic fuel prices may return to the “9-yuan era.” And every time fuel prices rise, long lines at gas stations with people filling up to the brim are once again happening.

With the largest increase in domestic fuel prices, we may enter the 9-yuan or 10-yuan era, with long queues at many gas stations.

The military strikes launched by the US and Israel against Iran have not only heightened geopolitical tensions in the Middle East but also shaken the global energy landscape, triggering a series of chain reactions.

After Iran announced the blockade of the Strait of Hormuz, large ships carrying crude oil, natural gas, and other energy resources collectively halted operations. This narrow waterway, only about 30 kilometers at its narrowest point, handles roughly one-third of the world’s seaborne crude oil exports and is a vital artery for global energy transportation.

On March 21, Iran further tightened the rules for passing through the Strait of Hormuz, deploying naval forces to strengthen control; on the same day, the US carried out precise strikes on Iranian missile positions along the coast and accelerated the formation of an international escort alliance. International oil prices surged again, rising about 50% since the conflict erupted on February 28.

Beyond oil prices, automotive exports may also be affected. According to data from the Passenger Car Association, by 2025, China’s automotive exports to the Middle East will account for about 20% of total overseas exports, totaling 1.39 million units. The Middle Eastern market has become an important growth area for Chinese car exports, with brands like Chery, Changan, and Geely having significant strategic presence and already holding certain market shares, entering the top tier of the market.

Multiple unstable factors have forced automakers to take countermeasures. Lotus Group CEO Feng Qinfeng recently stated that due to geopolitical factors, Lotus has temporarily halted exports to the Middle East; brands like Toyota and Hyundai have implemented production cuts, with Toyota estimating a reduction of nearly 40,000 vehicles.

The war seems to have inevitably spread to the automotive industry.

Limited impact on the domestic car market?

Due to the Middle East situation, international oil prices soared, approaching $120 per barrel at one point, but on March 10, they fell back below $90 per barrel.

On March 11, the International Energy Agency held an emergency meeting, and 32 member countries officially agreed to release 400 million barrels of oil reserves— the largest joint reserve release in history. Rumors of “oil shortages” and “preparing for oil prices of $200 per barrel” sparked online discussions.

Many consumers believe that the automotive industry is highly linked to oil prices; fluctuations will gradually transmit to refined oil prices. Not only private car owners will feel the impact on refueling costs, but also taxi, ride-hailing, and freight operation costs may change, potentially affecting travel and transportation prices to some extent.

However, Cui Dongshu, Secretary General of the Passenger Car Association, said in a Tencent “Car Market Hot Discussion+” interview: “Our domestic oil prices are weighted based on Brent crude oil and other prices. In many places, the cost of oil procurement is actually very low, so the pricing is essentially determined by the international market. Domestic consumers only bear the final cost. Whether oil prices go up or down has little relation to our actual cost of fuel consumption.” He believes the impact on domestic consumers is not that significant.

More pressure is transmitted to enterprises. For example, rising crude oil prices will drive up the costs of upstream raw materials like rubber and plastics used in automotive manufacturing, continuously increasing vehicle production costs. Meanwhile, shipping fuel costs are also rising, further squeezing profit margins.

But there are also new opportunities. For instance, rising fuel prices increase the cost of operating internal combustion engine vehicles, which may shift consumer preferences. Both domestically and internationally, more consumers might consider hybrid or pure electric models.

Therefore, unlike Chinese automakers that are heavily investing in new energy vehicles, Western and Japanese/Korean automakers, which still mainly produce fuel vehicles, may be the first to feel the market pressure from rising oil prices.

Opportunities outweigh challenges

Currently, China’s automotive presence in the Middle East is shifting from pure vehicle exports to localization—including local assembly, manufacturing, and R&D. These infrastructure projects are mainly concentrated in Turkey and have not yet been affected by the geopolitical situation. However, the airspace and especially maritime shipping have been noticeably impacted, with effects extending beyond Iran.

The Middle East is one of China’s most important export markets for automobiles. Last year, exports to the region totaled about 1.3 million units, ranking second only to Latin America and surpassing the EU market, making it China’s second-largest export market for cars. Most of last year’s exports to the Middle East were new cars, primarily second-hand vehicles. After policy tightening, these vehicles were released in December, and most arrived at ports in January and February.

The impact is mainly concentrated on the UAE and Saudi Arabia. The UAE is less affected by the Strait of Hormuz because it has two coastlines, and it has already adjusted its export strategy by shipping vehicles from another port. This adjustment has been implemented, and some vehicles are now arriving at new ports.

Industry experts note that Saudi Arabia can reroute shipments through the Red Sea via Jeddah port, which already handles about two-thirds of Saudi car imports. This means local land transportation costs may rise, but in terms of vehicle transport, this can somewhat offset the impact of the Strait blockade. Historically, many vehicles in the Chinese market were imported through the UAE, so Middle Eastern transshipment trade is quite flexible. If one market becomes inaccessible, shipments can be redirected elsewhere.

Currently, Chery, which has been operating in Iran for 20 years, may be most affected. As early as 2004, Chery became one of the first Chinese brands to localize production in Iran through CKD assembly. It now has two joint-venture CKD factories with an annual capacity of about 300,000 units. Also, BYD’s expansion into the Middle East this year is a key strategic move, which will likely be impacted to some extent.

More critically, the uncertainties in the Middle East have led many multinational automakers to classify the region as a “risk zone,” affecting consumer sentiment.

Different automakers are adopting various strategies, including timely loss-cutting, strategic contraction, or shifting. Industry insiders believe that despite volatile oil prices, rising logistics and insurance costs, and setbacks for Chinese brands operating in the Middle East, the overall impact on China’s automotive industry remains limited. Conversely, this conflict has exposed the fragility of global supply chains and may accelerate energy transition efforts. For Chinese automotive brands that have been heavily investing in new energy vehicles for over a decade, the opportunities outweigh the challenges.

Author: Zheng Yu