How geopolitical conflicts induce global trade disruption and what businesses can do

Geopolitical conflicts are fuelling trade disruption and prompting businesses to delay overseas expansion plans

The World Economic Forum’s latest Global Risks Report identified interstate armed conflict as among the top five global short-term risks in 2024 (ranked 5th), along with misinformation and disinformation (ranked 1st) and social polarisation (ranked 3rd). These risks result in ripple effects, such as trade disruption or regulatory change, that can destabilise the global economy and political structure of markets in Asia and beyond. 

A broad spectrum of political risk perils

In addition to trade disruption, social and geopolitical tensions can also create an uncertain legal and regulatory environment. In particular, businesses with people, operations, assets, and investments in volatile markets can face heightened risks, including talent mobility, expropriation, currency inconvertibility or non-transfer, and licence cancellation:

• In 2016, the Thai government decided not to renew the mining licence held by one of the largest gold mines in Thailand, citing environmental and health concerns. This decision, which effectively led to the mine’s closure and expropriation, resulted in a legal and compensation claims dispute between the government and the mining company.¹
• In 2022, the Central Bank of Myanmar implemented regulations and restrictions on foreign currency flow and exchange requirements, which led to major financial losses for overseas investors.²

Facing global trade disruption, social and political instability, and various country risk exposures, businesses in Asia with global ambitions require tailored, data-driven solutions to protect their talent, balance sheet, and investment returns.

Taking the right steps to manage country risk exposures

To safeguard their multinational operations and expansion plans, businesses in Asia must take a proactive approach to:

• Assess the impact of country risks: Businesses that work with Marsh Asia’s Credit Specialties Team to identify their political risk exposures can gain exclusive access to the World Risk Review, a digital platform with credible, up-to-date country risk insights across 197 territories.
• Integrate political risk into their enterprise risk management (ERM) decisions.
• Adopt the right risk mitigation solutions to protect their assets, people, licences, and investments:
  
  • Political Risk Insurance covers against losses arising from policy decisions or actions by a government or political forces, and the consequences of such actions. It can also act as a safety net against political violence and riots.
  • Trade Credit Insurance covers payment delays or defaults from their buyers and enables businesses to mitigate the impact of bad debts on their balance sheets.