The global economy could be exposed to losses of US$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, according to a scenario published by the world’s leading marketplace for insurance and reinsurance, Lloyd’s.
The “Geopolitical Conflict” scenario is the fifth in Lloyd’s systemic risk series, which aims to equip risk managers, governments, and insurers with data-driven impact assessments of the most significant global threats facing society today.
With more than 80% of the world’s imports and exports – around 11 billion tons of goods – at sea at any given 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, according to Lloyd’s.
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 would depend on the region where they are located and factors such as involvement in the conflict as well as 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 US$3.4 trillion, the report continued.
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.
She further explained the types of coverage available to businesses seeking protection from such risks: “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.”
