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Five Considerations for Political Risk in the Energy Sector

Posted by Neera Kumar 15 August 2016

Taking recent terrorist attacks and political unrest across the globe into consideration, it is not surprising that political violence has risen up the list of key concerns for energy companies.

If a facility were to be the target of a terrorist attack or political violence, the impact could be catastrophic. Terrorist attacks, in particular, are also becoming less predictable, and more globally widespread, presenting challenges in predicting and mitigating risks.

Meanwhile, the likelihood of being affected by a political violence incident is high within the oil and gas industry, which, in 2015, experienced 214 attacks on facilities around the world.

Protecting high-value assets, particularly in higher-risk countries, requires careful planning and intelligence gathering to understand the political situation in a particular region you are operating in.

This should include professional, corroborated security information that enables the assessment of geopolitical risk and the implementation of effective business continuity plans in the immediate aftermath of an incident.

At Marsh’s National Oil Company conference in Dubai in March this year, I hosted a panel discussing the impact of political risk and terrorism on the energy sector, in which five key areas you should consider to more effectively prepare for this risk were identified:

  • Building resilient supply: With businesses becoming increasingly international, a crisis in one country can disrupt your global supply chain. You need to have response plans in place to allow for any type of political and economic risk in the world.
  • Business continuity planning: Ensure the threat of terrorism is taken into account when making business continuity plans.
  • Protecting people: Safety procedures, such as evacuation plans and security protocols, are essential for protecting your employees.
  • Insurance: You should make sure adequate political violence cover is in place to help your business recover quickly in the event of a loss.
  • Third-party specialists or consultants: You may consider involving these to help you manage different scenarios that could impact your business.

Considering Insurance Coverage

From an insurance perspective, oil, electricity (including operational and construction), and key infrastructure assets represent key areas of risk in terms of political violence.  Fortunately, the capital available in the market for these risks has been growing in recent years and remains favourable for buyers.

Coverage available in the market ranges in scope from specifically defined terrorist attacks to wider political violence coverage.  As global risks continue to grow, now is the time to review the type of cover you need and make sure it fully protects against the risks to which your business may be exposed.

Neera Kumar