Lloyd’s has released a scenario outlining potential economic losses of $14.5 trillion over five years due to a hypothetical geopolitical conflict that disrupts global trade patterns and supply chains.
The "Geopolitical Conflict" scenario is the fifth installment in Lloyd’s systemic risk series, which provides data-driven assessments aimed at helping risk managers, governments, and insurers understand major global threats. The series seeks to offer insights into significant risks impacting society today.
The scenario highlights the risk posed by the closure of major trade routes due to conflict, with more than 80% of the world’s imports and exports, or around 11 billion tons of goods, transported by sea at any given time.
Disruptions to shipping routes and sanctions enforcement could lead to substantial economic impacts, driven by infrastructure damage in the conflict region and the resulting need to realign global trade networks.
The effect on businesses would vary based on their geographic location, involvement in the conflict, and reliance on international trade. The scenario notes that regions heavily dependent on imports, such as Europe, could face significant losses.
Europe, which relies on other industrialized nations for essential supplies like semiconductors used in car and electronics manufacturing, could experience losses of up to $3.4 trillion.
Rebekah Clement (pictured above), Lloyd’s corporate affairs director, stated that Lloyd's supports public-private initiatives aimed at preventing global crises, including commodity shortages.
She emphasized the company's commitment to helping businesses prepare for the risks associated with disruptions and financial losses stemming from various global threats, including geopolitical instability.
“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,” Clement said.
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