The concept of globalization that had been the driving force of the global economy for more than three decades is now under serious threat. According to Larry Fink, Blackrock CEO, Russia’s invasion of Ukraine is a sure sign of the end of globalization. The CEO of the world’s largest asset management company that manages assets worth more than $10 trillion has shared his views in a letter to shareholders. He reasons Russia’s detachment from the global economy due to its Ukraine invasion has forced governments to review their reliance on other countries.
Blackrock CEO’s Assessment of the Situation
Finks explains that the first signals about the possible end of globalization became visible during the Covid19 pandemic. And now, the ongoing conflict between Russia and Ukraine reaffirms that globalization is no longer viable for maintaining a strong economic order.
The Covid19 Effects
The massive disruptions of supply chains across the globe triggered by the Covid19 pandemic have prompted countries to rethink their global sourcing strategies. Globalization removed barriers, and trans-world goods supply and sourcing became the norm. The downsides of over-dependence on overseas supplies became exposed during the Covid19 pandemic. Countries struggled to procure personal protective equipment from China, the sole global supplier.
Global supply constraints weighed down heavily and impeded the fast economic recovery that everyone was expecting. For example, the acute chip shortage across the world has plagued almost all industries, from tech giants to car makers. The situation compelled countries to rethink their globalization strategies, emphasizing local manufacturing and supplies.
The Effects of War
Now, Russia’s war on Ukraine, which resulted in the mass imposition of sanctions on Russia by several countries, has wholly derailed the global supply channels with far-reaching effects. All Russia Ukraine news point to a prolonged war that can stretch indefinitely and make things worse for countries that heavily depended on supplies from other countries.
Due to the twin blow of the pandemic and the Ukraine war, governments and companies are rethinking their dependencies and re-analyzing their strategies for global manufacturing and assembly units. The emphasis on building domestic industries could benefit some countries as companies rearrange their logistics and manufacturing chains.
Shrinkage of Export Markets
If supply chain constraints due to the pandemic had rung the alarm bells, Russia’s war on Ukraine put globalization’s last nail in the coffin. As several companies exited Russia, the sanctions imposed on Russia by many countries disrupted the global export markets. During March, fear about the throttling of oil supplies sent shock waves and pushed the Brent crude price, the global benchmark, above $139. However, the oil prices have currently come down.
Blackrock CEO Larry Fink further observes that the world is entering a new phase by focusing on the dual goals of energy transition and security. As countries in Asia and Europe look for alternatives to Russian gas and oil, coal consumption would increase, and skyrocketing energy prices would make renewable energy more attractive.
