Whether sparked by territorial disputes, ideological differences or regional power struggles, geopolitical tensions often have profound economic implications. They can lead to escalating trade wars that disrupt supply chains and impose new operational uncertainty. They can also have a direct impact on businesses by raising production costs, forcing reshoring and increasing the risk of retaliatory trade measures that could affect global markets.
In the global economy, we are more connected than ever before – so what happens on one side of the world can quickly have an effect on other regions. For example, a conflict involving vital trade routes like the Red Sea, Strait of Hormuz or South China Sea can have significant reverberations for neighbouring economies. The same is true for conflict-related geopolitical risks that affect commodity prices and food supplies.
Several geopolitical threats are currently on the rise. From terrorism and civil unrest to rising climate change, these threats can have an outsized influence on the lives of individuals and businesses across the globe. This is particularly true when the threat combines multiple aspects, creating a complex web of interconnected impacts. For example, the COVID outbreak was a major health risk, but it also created a massive disruption in global trade and travel and affected financial markets. As a result, we’re entering an era in which companies must rethink their market strategies and supply chains to ensure resilience in this turbulent global marketplace.