Conflict in Ukraine has violently upended long-held perceptions about global geopolitical risks, providing financial managers with a sharp reminder that nothing can be taken for granted when it comes to assessing future perils.
Since the conflict began in late February, international tensions have reached levels not seen since the depths of the Cold War, prompting recalculations of international security arrangements, trade and diplomatic relations with China and the roles of Japan and Germany on the world stage.
This outlook was detailed by Richard Haass, former State Department Director of Planning, and president of the Council on Foreign Relations in a webinar conversation with Bloomberg’s Tom Keene. The new global order portends tough times ahead for financial institutions trying to assess their exposures, Haass said.
Risk managers must include in their calculations the potential for events considered unthinkable just a couple of years ago. It was “hard to imagine a more difficult and more worrisome period in international relations than the one we have now… and are likely to have for years, if not decades,” Haass said.
(22:58) Richard Haass details the tough times ahead for financial institutions trying to assess their exposures.
Global reverberations
The Ukraine invasion has brought a major land war to Europe for the first time since World War II, with concern it could escalate beyond the present field of battle. That’s mirrored in thinking about China, too, which has long sought to project its power beyond its territorial borders and seeks to reunify self-governing Taiwan with the communist mainland. Diplomats and risk managers are making the same calculations in relation to China’s geopolitical posture as they are with a “revisionist Russia”, Haass said. Haass suggested that today’s global diplomatic situation may have been avoidable if countries had worked harder to maintain the post-Cold War peace.
His message was a telling one for financial risk managers. Potential perils lay around every corner and planning ahead to mitigate or hedge against sudden changes will be ever more important in the future.
The Ukraine crisis follows hot on the heels of the Covid 19 pandemic, and the surge in global inflation, supply-chain disruptions and wealth inequality that plague global economies now show that the impacts of sudden events aren’t always felt in isolation.
With a climate crisis raising the possibility that severe weather and geological events will almost certainly become more common in the future, we are unlikely to ever be in the same relatively benign risk-related situation we were in just two years ago. That will affect everything from the credit risks posed by companies located in climate-vulnerable areas to market risks as droughts and floods damage crops and industries. It’s vital that risk managers have controls in place – and that they carefully review them regularly – so that they are capable of responding to the next crises.