Five Big Geopolitical Risks for 2015

Just seven of 163 developing countries reduced their political risk last year

The map shows levels of geopolitical risk in developing nations. Yellow indicates medium risk, orange high, and red very high risk. Developed nations are not rated.

The map shows levels of geopolitical risk in developing nations. Yellow indicates medium risk, orange high, and red very high risk. Developed nations are not rated.

Aon Political Risk Map 2015

Critical events of early 2015—cheap oil and Middle East violence—will probably continue to take their toll as the year goes on, according to a new projection of geopolitical hot spots. Lower overall prices for commodities may hurt the economies of resource-rich nations. 

Aon Risk Solutions, a unit of Aon, today issued its annual Political Risk Map, intended to provide the British insurer's clients with answers to common questions about where it’s getting safer, and more dangerous, to do business. 

There isn't a lot of good news. Just seven of 163 developing countries reduced their political risk last year, and most of those, such as Zimbabwe and Laos, still have plenty of room for improvement. Twelve countries face greater strain this year, including Libya, Haiti, and Pakistan.

“The last 12 months have just been catastrophic country-risk-wise,” said Curtis Ingram, vice president of the political-risk practice. It’s almost as if “a vacuum has opened up and a lot of bad actors have moved in,” in Crimea and Eastern Ukraine, Nigeria, Iraq, and elsewhere. 

Aon and research partner Roubini Global Economics, founded by the economist Nouriel Roubini, evaluate each nation across nine categories of risk, such as foreign currency exchange and capital conditions, law and regulation, and political interference and violence. The report considers only developing nations; members of the Organization for Economic Co-Operation & Development (OECD) together form the baseline for the research and are therefore excluded.

Here are five of the things the report says we should keep an eye on in the months ahead.

Russia

Low oil prices and international sanctions stemming from the Ukraine conflict have taken their toll on the Russian economy. The murder last week of Boris Nemtsov, an opposition leader and Yeltsin-era deputy prime minister—not mentioned in the report but a dark omen—has exacerbated internal political tensions.

Russia’s instability will “continue to cast a shadow over the region,” according to the political risk report, which projects consequent hardships for trading partners Belarus and Kazakhstan. Researchers see “a possible frozen conflict and continued sanctions” in Ukraine, unlikely to be resolved in the months ahead.

Oil and other commodities

Russia, Venezuela, and Iran have drawn much of the attention, and punishment, from the oil glut. It’s also a problem for smaller powers, such as Uzbekistan and Turkmenistan, whose fragile foreign currency exchange and capital policies leave them vulnerable to trade shocks. Mining- and energy-heavy nations in Africa—Angola, Cameroon, Congo, and Nigeria—all face weaker incomes and likely spending cuts.

Conflict and violence

The horrors of Islamic State in Syria and Iraq and Boko Haram in Nigeria are top threats to regional stability. Porous borders and immature civic institutions in parts of the Middle East and Africa make nations there particularly sensitive to violence. 

Interest rates

Even modest interest-rate increases by the Fed will intensify the global competition for capital and make it costlier to service external debt.

The Middle East and North Africa

Such countries as Egypt, Tunisia, and Morocco should see a boost from the oil price drop, the report's authors suggest. Yet all three countries, rated either high or very high risks, face countervailing security risks from what the report calls power vacuums in Iraq, Libya, and Syria. 

There's also everywhere else. Private insurers have offered political risk coverage for several decades to help companies take some of the edge off doing business in new and emerging markets. But, like most of us, the problems of these places like to travel. Turkey and Mexico, for example, may be particularly politically or economically vulnerable to tumult in the Middle East and Latin America. But as OECD members, they pose risks that aren’t addressed in the report.

In other words, pessimists shouldn’t feel confined to the developing world.

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