Lloyd’s warns of $14.5trn economic risk from hypothetical geopolitical conflict

Lloyd’s has released a report noting that a hypothetical geopolitical conflict could disrupt global trade and supply chains, potentially leading to $14.5 trillion in losses for the global economy over a five-year period.

Produced in partnership with the Cambridge Centre for Risk Studies, Lloyd’s research explores eight “hypothetical but plausible” systemic risk scenarios.

Using global Gross Domestic Product as its central measurement, the Lloyd’s and Cambridge model calculates the global economic loss of a geopolitical conflict scenario. This global economic loss ranges from $7.8 trillion in the lowest severity scenario up to $50 trillion in the most extreme scenario.

“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,” Lloyd’s report said.

It continued, “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.”

As per Lloyd’s examples of the types of insurance designed to mitigate these economic impacts include political risk insurance, credit insurance, contingent business interruption insurance, and Marine & Aviation insurance.

Rebekah Clement, Lloyd’s Corporate Affairs Director, commented, “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.

“The value of insurance also extends to the compounding secondary impacts of geopolitical conflict, including downstream delays and interruptions by impacted trading partners and suppliers.

“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.”

This website states: The content on this site is sourced from the internet. If there is any infringement, please contact us and we will handle it promptly.