Russia's military offensive in Ukraine has "put an end to the globalisation" that the world has seen over the past 30 years, while also accelerating the global shift to green energy, as countries look for new sources of energy to reduce reliance on Russian oil, according to BlackRock’s chief executive Larry Fink.
"We had already seen connectivity between nations, companies and even people strained by two years of the pandemic," Mr Fink said in a wide-ranging annual letter to shareholders on Thursday.
"Russia’s aggression in Ukraine and its subsequent decoupling from the global economy is going to prompt companies and governments worldwide to re-evaluate their dependencies and re-analyse their manufacturing and assembly footprints — something that Covid had already spurred many to start doing," he wrote.
"And while dependence on Russian energy is in the spotlight, companies and governments will also be looking more broadly at their dependencies on other nations. This may lead companies to onshore or nearshore more of their operations, resulting in a faster pull back from some countries."
New York-listed BlackRock is the world’s biggest asset manager, with total assets of $10 trillion. Its client base includes institutional investors, banks, sovereign wealth funds, family offices and private investors.
Warning the war will exacerbate existing inflationary pressures, Mr Fink said that with salaries not keeping pace, consumers are "feeling the burden as they are confronted by lower real wages, rising energy bills and higher costs".
The conflict is also prompting to re-evaluate their currency dependencies.
"Even before the war, several governments were looking to play a more active role in digital currencies and define the regulatory frameworks under which they operate. A global digital payment system, thoughtfully designed, can enhance the settlement of international transactions while reducing the risk of money laundering and corruption," Mr Fink wrote.
"Digital currencies can also help bring down costs of cross-border payments, for example when expatriate workers send earnings back to their families. As we see increasing interest from our clients, BlackRock is studying digital currencies, stablecoins and the underlying technologies."
Impact on energy transition
The current crisis will “inevitably slow the world’s progress toward net zero in the near term”, as the US focuses on boosting oil and gas supply and countries in Europe and Asia consider increasing consumption of coal amid higher oil prices, Mr Fink said.
In the longer term, however, it will “actually accelerate the shift toward greener sources of energy in many parts of the world", he wrote.
“We’ve already seen European policymakers promoting investment in renewables as an important component of energy security.
“More than ever, countries that don’t have their own energy sources will need to fund and develop them — which for many will mean investing in wind and solar power," he said.
Russia, the world's second-largest energy exporter, supplies about 40 per cent of Europe's gas, while its crude accounts for about 3 per cent of US oil imports, equal to about 200,000 barrels a day.
Earlier this month, the International Energy Agency proposed a 10-point plan for the EU to reduce its reliance on Russian natural gas.
The proposals include halting new gas supply contracts with Moscow, replacing Russian supplies with gas from alternative sources, accelerating the deployment of renewable energy and increasing power generation from bio-energy and nuclear plants, among others.
As an example of this shift, Germany is accelerating its use of renewable energy and plans to reach 100 per cent clean power by 2035, “15 years ahead of its previous pre-war target”, Mr Fink said.
“Higher energy prices will also meaningfully reduce the green premium for clean technologies and enable renewables, EVs [electric vehicles] and other clean technologies to be much more competitive economically.”
Oil prices have rallied this year mainly due to the Ukraine conflict, with Russia facing energy sanctions from the US and the EU also mulling similar steps.
Brent, the global benchmark for two thirds of the world’s oil, was trading at $122.01 per barrel at 1.46pm on Thursday, while West Texas Intermediate was at $114.73 per barrel.
Mr Fink stressed the need to accelerate infrastructure investments to support the greater use of clean energy and technology.
About $60tn of capex investment is needed in low-carbon technology and infrastructure, mining commodities and abated fossil fuels to achieve net zero by 2050, Wood Mackenzie said in a report this week.
But to ensure the continuity of affordable energy prices during the shift, fossil fuels like natural gas will be important as a transition fuel, he stressed.
"BlackRock’s investments - including one late last year - on behalf of our clients in natural gas pipelines in the Middle East are a great example of helping countries go from dark brown to lighter brown," he said.
BlackRock is part of a global consortium that acquired a 49 per cent stake in Aramco Gas Pipelines Company, a unit of the world’s biggest oil exporter. The deal valued at $15.5 billion was closed last month.
"In the transition to net zero we will need to pass through many shades of brown to shades of green. I remain optimistic for the future and continue to believe that our collective actions today can make a meaningful difference in the years to come," Mr Fink said.
