“Russia’s invasion of Ukraine will reshape the world economy and further drive up inflation by prompting companies to pull back from their global supply chains,” BlackRock CEO Larry Fink has warned, reports The Financial Times (March 25, 2022). “The Russian invasion of Ukraine has put an end to the globalization we have experienced over the last three decades.”
While the immediate result had been Russia’s total isolation from capital markets, Fink predicted “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. A large-scale reorientation of supply chains will inherently be inflationary.” He stated that “Mexico, Brazil, the U.S., or manufacturing hubs in Southeast Asia could stand to benefit.”
He further predicted that the Russian invasion would affect the transition to cleaner energy. Initially, the search for alternatives to Russian oil and natural gas “will inevitably slow the world’s progress toward net zero [emissions] in the near term.”
“Longer-term, I believe that recent events will actually accelerate the shift toward greener sources of energy” because higher prices for fossil fuels would make a broader range of renewables financially competitive. Though climate activists want investors to shun fossil fuels entirely, Fink rejected this approach. “BlackRock remains committed to helping clients navigate the energy transition. This includes continuing to work with hydrocarbon companies,” he stated. “To ensure the continuity of affordable energy prices during the transition, fossil fuels like natural gas will be important as a transition fuel.”
In one of his first comments on cryptocurrencies, Fink drew attention to the Ukraine war’s “potential impact on accelerating digital currencies . . . A global digital payment system, thoughtfully designed, can enhance the settlement of international transactions while reducing the risk of money laundering and corruption.”
Classroom discussion questions:
- Why would the U.S. benefit from a global supply chain reorientation?
- What has been the impact on global supply chains from the invasion?