Geopolitical conflict could expose the global economy to $14.5tn in losses over a five-year period, according to a hypothetical scenario produced by the Cambridge Centre for Risk Studies and Lloyd’s.
‘Geopolitical conflict’ is the fifth scenario in Lloyd’s systemic-risk series, which aims to provide data-driven impact assessments for the most significant global threats.
The report's estimates for global losses are based on various conflict scenarios, ranging from $7.8tn for the lowest-severity scenario to $50tn for the most extreme.
Among the scenarios, the disruption of international trade is a key concern.
“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 said.
“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.”
It cited Europe as an example. Being heavily reliant on other industrially advanced states for supplies, the continent could stand to lose up to $3.4tn, Lloyd’s said.
Rebekah Clement, Lloyd’s corporate affairs director, said: “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.”