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Source: This post has been created based on the article “Ukraine war, Gaza conflict and Middle East strikes: It’s time businesses prepare for political risk” published in “Indian Express” on 5th February 2024.
UPSC Syllabus Topic: GS Paper 2 International Relations – Effect of policies and politics of developed and developing countries on India’s interests.
News: Impact of Global Geopolitics on Business, The article discusses the political risks for businesses due to the developments happening in international geopolitics.
Background:
The world is going through a period of political uncertainty. More than 50% of the world’s population is living in countries that will go to elections in 2024. 70 countries have already or will hold polls this year.
According to the author, businesses should incorporate scenario planning into their risk management processes for tackling political uncertainty and risks.
What are The Developments Happening in International Geopolitics?
1) Conflicts in the Middle East: US and UK are bombing the Iran-backed, Yemeni Houthis, as they were disrupting international trade through the Red Sea. This has led to rising freight costs and causing supply chain delays.
2) Ukraine Conflict: The Ukraine war is now in its second year.
3) US-China Cold War: There is a possibility of the “Cold War” between the US and China reigniting after the election of the separatist leader Lai Ching-Te as President of Taiwan.
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What Should be Done by Business Leaders in This Regard?
Detailed Conversations: Handling political risk through a detailed conversation on its impact should be undertaken. If a risk is not managed and/or mitigated, it can lead to companies shutting down.
Engage Political Risk Consultants: These include former civil servants, politicians, and academics. However, as per the author, it is not sufficient.
Scenario Planning: It involves studying trends and the translation of these reflections into quantifiable metrics (data).
For instance, the World Bank recently prepared three scenarios regarding the future trajectory of oil prices based on levels of supply disruption. For these scenarios, the Bank has provided an oil price range rather than a single line forecast.
For businesses, there is no one solution to managing political risks. However, scenario planning offers a methodological process for better preparing corporate leaders to respond to them.
Question for practice:
How should businesses tackle the political risks arising due to the developments happening in international geopolitics?
