Political environment

The "Swiss Re SONAR 2018, New emerging risk insights" report aims to get us talking about what tomorrow's risk landscape could look like.


A brave new world? – Emerging geopolitical risk

A new paradigm is evolving in the geopolitical landscape as power drifts to Asia, democratic influences decline and the relevance of global governance institutions erodes. This coincides with new forms of diplomacy and business attitudes. If you add the emergence of populism as a political force to this mix, the geopolitical risk landscape has become far more unpredictable and difficult to navigate.

After World War II, the global key powers were the US and the Soviet Union. Accompanied by its Western allies, the US exerted dominance over its bilateral relationships and various multilateral institutions (including IMF/ World Bank, GATT/WTO, or NATO). Today, the international system has become multi-polar with the emergence of new power centres in populous nations including China and India and the resurgence of a more active Russia. Latin America, Africa and Europe are challenged to find their role.

These new powers are either vying for influence in hitherto Western dominated multilateral institutions, or creating new institutions to enable them to act on more equal terms (the Asian Infrastructure Investment Bank would be a case in point). China’s One Belt One Road Initiative indicate even greater ambitions.

The willingness of the US to shape and enforce global rules by projecting its economic and military power abroad is either in decline or shifting towards unilateralism. The latter trends are exemplified in military, trade and regulation, particularly under the impact of domestic developments. The fact the US media is referring to the so-called “culture war” between segments of the country’s population highlights this shift.

If today’s global institutions are bypassed when conflicts and tensions arise, they will lose their global influence as mitigating forces. In an extreme case, tensions could spiral out of control. Military conflict, even between major powers, may become inevitable. New forms of conflict, such as periodic and escalating cyber-attacks, are already becoming a regular occurrence.

In addition, ambitions and rivalry between major powers are bluring the lines between diplomacy, covert intelligence action, and open aggression. Such operations, sometimes dubbed “hybrid wars,” feature aggressive propaganda, espionage, cyber-attacks and other actions. This triggers uncertainty for businesses and disables efforts to handle challenges which require international cooperation, such as combating climate change.

Potential impact:

  • Heightened geopolitical tensions between the major powers: these could lead to conflict and, in an extreme case, trigger a major war.
  • Even if not directly invested in the conflict locations, insurance will be impacted through turmoil in financial markets and in operational spheres.
  • Global multilateral institutions become less and less relevant: established sets of legal rules, norms, and practices may no longer be applicable. The uncertainty fundamentally hurts the ability to run a global business.

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