Asset AllocationMay 3, 2024

Irony: BlackRock, Shunned by U.S. Energy-Producing States, Teams Up With Oil-Rich Saudi Arabia

The kingdom, one of the top producers of carbon-based fuel, and the asset management kingpin form an investment partnership.

Reported by Larry Light

BlackRock Inc., cast out by as many as 17 red states, many of them oil producers, is joining forces with the ultimate petro-state, Saudi Arabia. The world’s largest asset manager ($10.5 trillion under management) has formed an investment partnership with the kingdom’s sovereign wealth pool, the Public Investment Fund.

BlackRock Riyadh Investment Management, funded with an initial $5 billion commitment from the PIF, is aimed at helping Saudi Arabia move beyond its long-time focus on fossil fuels. Saudi leaders are planning a major shift into technology, tourism, manufacturing and renewable energy, an effort it calls Vision 2030.

The irony here is that BlackRock incurred the ire of Republican officeholders in Texas, Oklahoma, Kentucky and West Virginia, along with other GOP-led states, because of BlackRock CEO Larry Fink’s advocacy for using environmental, social and governance precepts in investing.

The states withdrew more than $13 billion in investments from BlackRock, in retaliation for what their officials termed its boycott of energy companies. Fink argued that BlackRock still invests in fossil fuel companies, but the officials brushed that aside.

To be sure, the Saudi leadership has none of the qualms about ESG that some U.S. politicians do—witness its embrace of renewable energy as part of its future. Still, the kingdom acknowledges that fossil fuels will remain a key part of its economy for a long time.

At a March conference in Houston, Amin Nasser, the CEO of Saudi Aramco, its oil company, said the world should “abandon the fantasy” that demand for oil and gas will peak in 2030, as many environmentally oriented policymakers believe.

The BlackRock-Saudi partnership intends to invest in public equities, bonds, private credit and infrastructure in Saudi Arabia and other nations in the Middle East and North Africa. The enterprise also seeks to enhance the education of investment professionals there. BlackRock will manage the project and use the firm’s worldwide reach to find investment targets.

“To transform the economy, Saudi Arabia will need to draw in outside financing, which creates significant investment opportunities,” BlackRock’s Fink wrote in a LinkedIn post. Estimates of the total cost of the shift of the Saudi economy are above $3 trillion. In March, Saudi Arabia transferred an 8% stake in Aramco (worth $168 billion) to the PIF, in aid of the effort.