The global economy could be exposed to losses of $14.5 trillion USD over a five-year period from the threat of a hypothetical geopolitical conflict causing widespread disruption to global trade patterns and supply chains, Lloyd’s of London research revealed.
Geopolitical conflict is the fifth scenario 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.
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 depends on the region they are located in and its factors such as involvement in the conflict, 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 $3.4 trillion USD, Lloyd’s said.
Wars in Ukraine and Gaza have already disturbed shipping routes in the Black Sea and Red Sea.
“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” Rebekah Clement, Lloyd’s Corporate Affairs Director stated.
The UK-based insurer said it has also researched other potential systemic risks in partnership with the Cambridge Centre for Risk Studies, including cyber attacks and extreme weather events.