The world is becoming more interconnected and the ramifications of global events are felt on a local level. The impact of military conflicts or escalating trade disputes, for example, can have ripple effects in border regions and neighbouring economies. As such, geopolitical tensions are a significant influencer on sovereign risk and impact a wide range of economic indicators.
In the past, geopolitical tensions shaped international relations, with rivalries arising over territory, resources and ideologies influencing military engagements and political alliances. These issues contributed to the outbreak of World War I and World War II as emerging nations challenged empires. The rise of nationalism further exacerbated conflict as ethnic groups demanded sovereignty.
Today, these tensions continue to shape international affairs, with regional disputes often impacting the stability of global markets. For example, a rift in foreign relations between Taiwan and China can disrupt supply chains and heighten production costs. In turn, higher costs can lead to financial strain, which may prompt companies to seek alternatives for their business operations.
With the world being so connected, it is increasingly difficult for businesses to ignore these repercussions. As a result, the impact of geopolitical risks is felt by businesses across multiple sectors, from manufacturing and technology to agriculture and energy. As such, the risk of geopolitical threats affecting your company is significant and it’s important to understand the underlying factors and potential consequences to safeguard your interests. Legal and regulatory risk is the impact of changes in a country’s laws or policies that may have a direct effect on your business. These include changes to regulations, licensing requirements, taxes and tariffs.
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