Geopolitical Risks and Subtopics: Understanding Global Challenges

Geopolitical Risks and Subtopics: Country Risk Assessment, Trade Policy and Tariffs, Regime Change, Terrorism and Insurgency, and Cybersecurity Threats

Geopolitical risks, as defined by S&P Global, refer to the risks arising from interactions between countries, including trade relationships, security partnerships, alliances, multinational climate initiatives, supply chains, and territorial disputes. Although the term geopolitics encompasses a broad analytical framework in international relations, this article will focus on the subtopics of country risk assessment, trade policy and tariffs, regime change, terrorism and insurgency, and cybersecurity threats.

Country Risk Assessment

Country risk assessment is crucial for understanding the potential risks and challenges associated with investing or operating in a specific country. These risks can include political instability, economic volatility, and legal and regulatory uncertainty. In 2024, some of the major risks facing the global economy include elections, polarization, and conflicts within and between states, particularly in the United States, the Middle East, and the Ukraine.

Trade Policy and Tariffs

Trade policy and tariffs are another significant aspect of geopolitical risk. Tensions between countries can lead to the imposition of trade restrictions, which can disrupt trade flows and cause supply chain problems. For example, the Russia-Ukraine conflict has led to supply chain disruptions and increased costs for businesses. Additionally, countries can implement protectionist trade policies that can disrupt global trade flows, increase market volatility, and hinder long-term growth.

Regime Change

Regime change, whether through elections or other means, can significantly impact geopolitical risk. New governments may implement policies that are unfavorable to foreign investors or disrupt established trade relationships. For example, the election of a populist government can lead to policies that favor domestic industries over foreign competitors, potentially disrupting global trade flows.

Terrorism and Insurgency

Terrorism and insurgency pose a significant threat to global security and can have economic consequences. The 9/11 attacks, for instance, led to a significant drop in investment and employment and were associated with higher disaster probability and larger downside risks. The ongoing conflict in the Middle East, particularly between Israel and Hamas, has the potential to escalate into a wider conflagration, with economic and financial implications.

Cybersecurity Threats

Cybersecurity threats are a growing concern in the era of digital transformation. Geopolitical tensions between countries can lead to cyberattacks as a means of economic and political retaliation. For example, disinformation and cyberattacks can have significant impacts on global security and stability.

Managing Geopolitical Risk

To manage geopolitical risk, organizations can implement advanced warning systems that consider timing, likelihood, and impact. This involves crafting intelligence collection plans that are bottom-up, integrated, data-grounded, and forward-looking, with a commercial lens. Companies can also partner with organizations like S&P Global Market Intelligence to navigate the impact of geopolitics on their business.

In conclusion, geopolitical risks can have significant economic and financial consequences. By understanding these risks and their potential impact, organizations can make informed decisions about their investments, operations, and strategies and take the steps necessary to mitigate these risks.