Washington, DC – A new report from the Atlantic Council and Zurich Insurance Group examines best-, worst-, and base-case scenarios for three geopolitical trends and the potential impact for businesses and the world at large. It also highlights the risk mitigation solutions for each scenario.
The report, “Our World Transformed: Geopolitical Shocks and Risks,” concludes that a rise in global protectionism stemming from a backlash against free trade and globalization could have significant impact on economic growth, poverty levels, and the potential for military conflict. It also warns that companies that benefit from global trade may be forced to restructure their supply chains and develop business continuity plans that anticipate disruptions to their manufacturing and retail operations.
The report also looks at the risk of conflict in the Middle East and the likely impact on global energy markets and the implications of water and food scarcity globally and regionally.
“We are in a period of geopolitical uncertainty, which can create a volatile business environment for companies connected to global markets, whether it is as a multinational corporation with overseas manufacturing and retail facilities or a regional operation with global suppliers,” said Bryan Salvatore, head of Specialty Products for Zurich North America. “This report makes clear the consequences of allowing geopolitical risks to fester, but it also offers insights on how we might weather the storm.”
In addition, the report examines what would happen if Mideast tensions escalated to large-scale conflict and how that could disrupt global energy markets and force businesses to seek alternative energy sources. Again, global supply chains could be affected, as rising oil prices would increase transportation costs. In the worst-case scenario, 23 million more people would be living in extreme poverty.
Regarding water and food scarcity, the report addresses scenarios in which there is too little water (drought) and too much water (flooding from extreme weather events). Extended droughts can inflict the most damage on agriculture production and, therefore, result in food shortages, which can often lead to regional conflicts. In the base-case scenario, global water withdrawals are forecast to increase by 14 percent above current levels, and many of the most affected countries lack resources and good governance to implement solutions. Even in those countries with more means to cope with water shortages, economic growth is constrained, particularly in the manufacturing and agricultural sectors. The report suggests that companies should consider implementing a water-management and conservation plan to minimize water use and develop sustainable solutions.
“There’s no question that the world is facing an increasing number of interrelated global risks,” said Fred Kempe, president and CEO of the Atlantic Council. “From a potential trade war with China to an energy crisis from the Middle East, this report quantitatively models these uncertainties and helps decision-makers understand the risks so that they can do their best to effectively manage and, wherever possible, avoid them.”
David Anderson, head of Credit & Political Risk at Zurich North America, said that geopolitical risks are interrelated and, therefore, need to be looked at holistically in the context of other risks. Understanding the connections between different kinds of risks is a vital step in managing them and avoiding surprises, he added. “Those risks are, by their nature, difficult to shape, because they are driven by forces beyond the control of companies or single governments. Nevertheless, in view of the growing geopolitical volatility, companies need to examine the disruptions that could be mitigated.”
The report is a collaboration between Zurich, the Atlantic Council, and the Frederick S. Pardee Center for International Futures at the University of Denver. More information about geopolitical risk and the full report is available online at: https://www.zurichna.com/en/knowledge/topics/geopolitical-risk.
Read the full report here.
Compliments of the Atlantic Council Zurich American Life Insurance Company of New York