From food, electronics and critical medical supplies to automobiles, oil and gas, the global economy depends on a resilient supply chain. Yet, threats that impede or even interrupt the flow of goods and materials are multiplying. The era of exponential risk is changing how organizations and governments view and manage geopolitical risks.
As tensions continue to escalate in key regions of the world, trade routes are becoming more and more dangerous. Conflicts arising from territorial disputes, ideological differences and regional power struggles have the ability to transcend borders and impact neighbouring economies as well. Escalating tensions can disrupt cross-border investments and capital flows, foreign exchange rates, financial stability and impose heightened economic uncertainty. These negative effects are especially pronounced in border and neighbour countries, where they can have profound impacts on sovereign risk.
With so much of the world’s economy dependent on globalization, business leaders are more and more concerned about the growing impact of geopolitical risks. Whether it’s an increase in sanctions, regulatory changes or political unrest, geopolitical instability can lead to lower revenue opportunities and higher compliance costs for companies operating across geographies.
And when conflict escalates, it can cause severe supply chain disruption. For example, if an invasion of a country in the Middle East impacted oil production and led to price spikes, this would affect businesses that depend on refined fuels, like airlines and manufacturers of cars or electronics. Other industries would also be affected, depending on the availability of rare and strategic minerals. For instance, a lack of these materials could impact semiconductors and automotive technology, while food shortages would threaten the health and well-being of people in vulnerable states.