Geopolitical Risk

Understanding geopolitical risks in today's global landscape

Geopolitical events have become a dominant force in shaping the global landscape.

Several ongoing conflicts such as the Russia-Ukraine war and Israel's war with Hamas illustrate how regional conflicts can have far-reaching effects on international political stability, markets and supply chains.

Geopolitical risks are notoriously difficult to predict; conflicts can often arise with little warning. We're constantly monitoring the complexities of geopolitical risks, highlighting the interconnectedness of global events and their potential implications for your organization.

Case studies in geopolitical risk

The conflicts in Ukraine and the Middle East have escalated into significant geopolitical crises with implications felt globally, far beyond their geographies.

Both wars have led to tragic loss of life and displacement. They have also caused substantial disruptions in global supply chains and financial markets.

The Ukraine crisis has led to supply chain issues caused by the lack of agricultural goods and manufactured items from the region. The war has also complicated air travel in the area.

Meanwhile, the Israel-Hamas war has led to unforeseen consequences beyond the fighting. For example, Houthi terrorists in Yemen have curtailed shipping in the Red Sea in support of Hamas, impacting shipping and disrupting supply chains.

These crises have also increased the risk of cyberattacks and financial market volatility, prompting organizations to reassess their cybersecurity measures and financial strategies.

Understanding the multifaceted nature of these conflicts and future conflicts is crucial for businesses to mitigate geopolitical risk.

Future geopolitical risks

It is hard to forecast the next hot spot for conflict or crisis. There are perennially volatile areas such as the Middle East, where Israel and Iran have been fighting a proxy battle that escalated in April 2024. And in East Asia there are several examples including China invading Taiwan and North Korea attacking South Korea. Both could severely impact the global economy and even lead to wider conflicts across the globe. But there are also less kinetic conflicts in the region, including China and the Philippines dispute over the South China Sea.

Those aren’t the only hot spots across the globe that could destabilize global trade. Our 2024 Political Risk Survey highlights several scenarios involving India and its neighbors China and Pakistan. Other examples of geopolitical risk highlighted in the report include:

• Ukraine escalation and complications
• U.S.-China rivalry
• Uncertain climate policies
• Middle East escalation
• Institutional decay of liberal democracy in the West
• Gray zone action and aggression

Broader implications of geopolitical risks

Geopolitical risks extend beyond the immediate effects of conflicts, as illustrated by the Houthi attacks in the Red Sea. They encompass a range of issues that can destabilize regions and impact global operations, including:

• Political changes and volatility: Shifts in political power can lead to unpredictability in previously stable regions, affecting international business operations and investments.
• Economic policies and sanctions: Economic decisions and sanctions can disrupt trade and investment flows, posing challenges to global supply chains and financial markets.
• Cyber threats and security: In an increasingly digital world, geopolitical conflicts often extend into cyberspace, where cyber warfare and espionage present serious risks to national and corporate security.
• Environmental and health risks: Geopolitical decisions can also influence environmental policies and responses to global health challenges, affecting public and environmental health across borders.

Managing geopolitical risks

To navigate the complexities of geopolitical risks, organizations must adopt comprehensive risk management strategies such as:

• Risk assessment and monitoring: Continuously monitor geopolitical developments and assess the potential impact, and additional effects, on business operations and markets
• Diversification: Diversify supply chains and markets to reduce dependence on volatile regions
• Crisis management: Develop robust crisis management plans to respond effectively to immediate threats, such as political unrest, terrorism and war
• Strategic planning: Incorporate geopolitical risk planning into strategic decision making, ensuring that potential risks are understood and mitigated

Geopolitical risks require vigilant monitoring and proactive management. By understanding the broad spectrum of risks and implementing integrated strategies, you can protect your organization against the uncertainties of the global political and economic environment. The ongoing crises in Ukraine and the Middle East serve as critical reminders of the need for preparedness and adaptability in the face of geopolitical upheavals.

Our geopolitical risk expertise

WTW’s global team, which includes specialists in political risk analytics, crisis management, risk engineering and broking, has the knowledge and analytical tools to help you understand emerging global trends.

Our team offers a comprehensive range of consulting, risk transfer and crisis management services to help you mitigate your risks and minimize your exposures.