Oil Heading Towards $90; 'Bearish' on Gold, UBS Says
Ray Dalio, the founder of hedge fund Bridgewater Associates, warned against transitioning away from fossil fuels too rapidly and said that cutting off the supply of finance to the industry would have a destabilizing effect as inflation soars.
“Thank God for the oil producers” because they are providing reliable supply, Dalio said Monday on a panel at the Abu Dhabi Sustainability Week summit.
Dalio is adding his voice to a chorus urging vigilance in how the world transitions toward greening the economy and the impact it could have on everything from the cost of fuel to food.
But the urgency of the climate crisis is growing, laying bare the need to slash emissions amid concern that governments won’t do enough. Ten of last year’s most destructive weather events cost a combined US$170 billion in damages, according to a study.
Dalio called for a “smart” shift to a green economy and warned that it’s dangerous to “cram” too much into the transition phase. “Inflation is an issue,” he said.
Brent oil extended gains on Tuesday to the highest level in seven years as geopolitical tensions stirred in the Middle East and concerns about the demand impact of the Omicron virus variant eased. OPEC is set to release its monthly report later in the day, providing a snapshot of the market.
Quickening inflation has moved to the center of political and economic debate around the world, with consumer price gains in the U.S. reaching the fastest in nearly four decades. Dalio has already warned that “raging” inflation was a threat to buying power and wealth.
European Central Bank Isabel Schnabel said this month the continent’s attempts to cut carbon emissions and transition to green energy could potentially be more inflationary than currently anticipated. Last year, Bank of England Governor Andrew Bailey warned the world’s effort to shift away from using fossil fuels could spark inflation if it’s done in a disorderly way.
Analysts at Goldman Sachs Group Inc. estimate the global push to achieve net zero carbon emissions may result in a meaningful boost to inflation, with the impact likely to be biggest in the U.S. and China.
Still, worries over climate-transition failures and extreme weather conditions are among the biggest concerns -- particularly in the next five to 10 years -- among respondents from government, civil society and commerce, the World Economic Forum said this month in its Global Risks Report for 2022.
Speaking on Monday, Dalio also sounded the alarm about “political fragmentation” and said it was possible neither the Democrat nor the Republican parties would accept a losing outcome as legitimate in the next U.S. election.
Energy costs have to come down because they contribute to inflation and threaten to “take food out of people’s mouths,” according to Dalio. In praising fossil-fuel producers, he said they help ensure supply that holds back costs.
Bridgewater, which manages about US$150 billion, was among the world’s top 20 hedge fund firms that generated US$65.4 billion in after-fees gains last year, according to estimates by LCH Investments. Bridgewater’s total gains since inception in 1975 have reached US$52.2 billion.