Marsh reveals what will drive political risk

Marsh reveals what will drive political risk | Insurance Business Canada

Marsh reveals what will drive political risk

Rising competition for dominance over “sea, space and soil” will drive future global geopolitical tensions as nations seek to stake claims on sea-based borders, untapped mineral resources, and the almost totally unregulated frontier of outer space, according to a new report from Marsh.

The Political Risk Report 2022, published by Marsh Specialty, noted that while land borders between countries remain key drivers of political risk – as exemplified by the current war between Russia and Ukraine – competition for ocean territory, minerals and space will increasingly influence relations between countries.

“The conflict between Russia and Ukraine is a stark reminder of how quickly geopolitical risks can escalate and have a terrible local humanitarian impact as well as affect businesses and investors around the world,” said Nick Robson, head of credit specialties at Marsh Specialty. “The appalling consequences of this conflict on the Ukrainian people will remain at the center of our thoughts for the foreseeable future. However, this is also a moment for businesses and investors to consider how developments in the environments of sea, space and soil could influence future geopolitical tensions between countries and regions. We are working with clients to help understand the political impact of current and emerging political risks, together with the need for strategic risk and insurance plans, which will enable them to be more resilient to future political and economic crises.”

More than 80% of the ocean is unexplored, with immense potential for exploration and investment to meet demand for food and raw materials, Marsh said. However, this “blue exploration” raises the risk of heightened geopolitical tension, as the challenge of climate change is significantly dependent upon care of the oceans. Another issue is that most potential resources are located in exclusive economic zones, which cover territorial rights offshore that may be contested, especially when they overlap.

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Demand and competition for minerals such as cobalt, copper, lithium, manganese, thorium, titanium, uranium, and vanadium – which are crucial to the energy transition – will also drive future geopolitical risk, the report said. Only a small number of countries – often with autocratic regimes – produce these minerals. Therefore, alternatives such as mining the sea beds are being investigated. However, that exploration could cause irreversible harm to underwater ecosystems, disrupting already delicate global food and supply chains.

The growth of the space economy, combined with the increased militarization of the final frontier, could also drive an escalation of geopolitical tensions, Marsh said. This could be exacerbated if there is a failure to collaborate on a robust governance framework as more countries reach into space for intelligence gathering, navigation, and military communications. Within the next decade, there could be as many as 100,000 satellites in low-Earth orbit, increasing orbital debris. The impact of even a small piece of space junk could seriously damage orbiting equipment and risk triggering conflict, Marsh said.

“Understanding these challenges and building them into risk and insurance planning will make business more resilient and help to secure growth, even as we adapt to our changed geopolitical realities,” Robson said.