Lloyd's, the world's leading marketplace for insurance and reinsurance, has published a scenario which reveals the global economy could be exposed to losses of $14.5tn over a five-year period from the threat of a hypothetical geopolitical conflict causing widespread disruption to global trade patterns and supply chains.
With more than 80% of the world’s imports and exports – around 11bn 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 $3.4tn.
Lloyd’s corporate affairs director Rebekah Clement said that the value of insurance extends to the compounding secondary impacts of geopolitical conflict, including downstream delays and interruptions by impacted trading partners and suppliers.
Ms Clement said, “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.”