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While Russia’s invasion of Ukraine has seen ‘real and significant’ consequences, a conflict ‘involving actors with larger global trade interests’ could lead to even more severe consequences. That’s according to Lloyd’s, the London-based insurance market, which has published a scenario where the global economy could be exposed to losses of $14.5 trillion over a five-year period from the threat of a hypothetical geopolitical conflict causing widespread disruption to global trade patterns and supply chains.
Geopolitical Conflict is the fifth scenario in Lloyd’s systemic risk series. Its aims: to give risk managers, governments, and insurers data-driven impact assessments of the most significant global threats facing society.
With more than 80 per cent of the world’s imports and exports – around 11 billion tons of goods, whether food, electronics, critical medical supplies, cars or fuel – at sea at any time, the closure of major trade routes due to a geopolitical conflict is one of the greatest threats to the resources needed for a resilient economy, Lloyd’s says.
It adds that the economic impacts of this scenario stem primarily from severe damage to infrastructure in the conflict region and the need for realignment of global trade networks due to the enforcement of sanctions and the effects of compromised shipping lines.
The impact on businesses depends on the region; its involvement in the conflict, and reliance on international trade and the goods that would be delayed or lost due to the supply chain disruptions. Europe for example, which is heavily reliant upon other industrially advanced states for supplies like semiconductors for car and electronics manufacturing, could stand to lose up to $3.4 trillion.
Rebekah Clement, Lloyd’s Corporate Affairs Director, said: “Lloyd’s is supportive of public-private efforts to avoid global crises such as shortages of vital commodities and is committed to helping businesses remain resilient and prepare for the risks from widespread disruptions and financial loss from countless global risks, including geopolitical stability.
“The value of insurance also extends to the compounding secondary impacts of geopolitical conflict, including downstream delays and interruptions by impacted trading partners and suppliers. Examples of insurance covers which can help businesses protect themselves against these impacts include political risk insurance and contingent business interruption, as well as dedicated war risk insurance.”
For the scenario in full visit https://www.lloyds.com/news-and-insights/futureset/futureset-insights/systemic-risk-scenarios/geopolitical-conflict.