Geopolitics has emerged as a defining theme over the past decade, reshaping global dynamics and leaving a profound impact on economies and international relations. Geopolitical turbulence has created a landscape fraught with uncertainty for multinational corporations. As tensions escalate in regions like the Middle East and Ukraine, navigating the intricate interplay of economic, political, and security dynamics becomes increasingly challenging, requiring adept risk management strategies, says GlobalData, a leading data and analytics company.

GlobalData’s latest Thematic Intelligence report, “Geopolitics Executive Briefing,” the first in a series to be updated quarterly, offers a systematic analysis of the varying types of business exposure to geopolitical shocks as an aid to risk management and spotting associated opportunities.

According to the report, the economic and political outlook for the US and China is another essential driver of geopolitical risk. Some sectors – notably tech and energy – are exceptionally “geopoliticized” and liable to be weaponized.

Christopher Granville, Managing Director of Global Political Research at GlobalData, comments: “Geopolitical risk has historically tended to be remote from day-to-day business concerns. This is no longer the case. Businesses must now make delicate decisions on which suppliers to choose, where to set up operations, which markets to target, and where to invest. They must make contingency plans for geopolitical factors as they do for natural disasters. In the past, businesses and investors could largely ignore geopolitical events. That is no longer the case.”

Carolina Pinto, Thematic Intelligence Analyst at GlobalData, adds: “The tech and energy sectors are the predominant targets of the US-China trade war. But, even in the absence of trade restrictions, the trade war is forcing the decoupling of supply chains and companies must contend with the financial and reputational risks of operating across geopolitical fault lines.”

Active conflict regions pose the highest disruption risk

The risks for business arising from the Ukraine conflict may be categorized as “base-case risk” and “tail risk”. Both kinds of risks are pulled into sharp focus by the recent battlefield successes of the Russian army, and Ukraine’s shift towards a long-term defensive. With the stakes being so high, the path towards collapse is fraught, giving rise to the “tail risk” of the conflict expanding into a wider Russia-NATO conflict fraught with new global shocks.

Granville continues: “The economic shock of conflict has passed, but continued unprecedented sanctions are deepening global fragmentation in trade, investment, finance, and payments. Unwillingness to compromise will ensure a protracted conflict, but the ‘tail risk’ of a wider conflict could trigger another round of supply and price shocks.”

Similarly, the risk of regional contagion from an insoluble Israel-Palestine conflict is increasing the risk of commodity prices and broader inflation shock, globally.

Pinto adds: “Commodity price shocks will most severely impact oil importers, especially the European countries that have relied on the oil states to secure energy supplies once dominated by Russia. The Middle East’s oil-producing states may even benefit economically from conflict escalations.”

The US elections are the most anticipated elections of the year

It is an unprecedented year for democratic elections, with 40% of the world eligible to vote. The results of the US elections are the most anticipated of the year and will have significant ripple effects on the geopolitical landscape and the global economy. The next edition of GlobalData’s Geopolitics Executive Briefing will dive into the consequences of a Trump or Biden win on the tech, energy, and automotive sectors.

Pinto concludes: “A radical change in power can exponentially increase geopolitical uncertainty. But equally, radical change can also come from apparently unremarkable elections – think of David Cameron’s general election win in 2015 that eventually led to Brexit.

“Regardless of who wins the US election, there is a high probability of the Senate majority reverting from Democrat to Republican, which could have a detrimental impact on the level of military aid the US sends to armed conflicts in Ukraine and Israel.”