Ukraine conflict reshaping business models and global economy

Published on Wed, 27/07/2022 - 14:38

The Russian invasion of Ukraine has changed the world, with highly interrelated risks presenting wide-ranging and long-term impacts on all sectors, according to a new report from Lloyd’s and Aon.

Exploring the knock on effect of the Ukraine crisis is the latest report on the Lloyd’s Futureset platform, which aims to build greater societal understanding and collaboration to find solutions and support greater preparedness, protection and resilience. Download the full report here.

"The conflict in Ukraine has caused devastating human costs and a whole range of interconnected risks across areas like energy, cyber and supply chains,” said John Neal, CEO of Lloyd’s.

“Just take the recent challenges of exporting grain, where geopolitics has in turn affected food security, market volatility and price inflation. A proactive and forward-thinking approach will therefore be key to building resilience against the fallout – and Lloyd’s will deploy its expertise, resources and risk solutions to support that goal.”

The key findings from the report include:

  • In all sectors, the ability of businesses to diversify and ‘hedge’ their portfolios and supply chains to reduce dependence on single suppliers will be key to minimising risk exposure.
  • The energy sector will likely be most impacted by the range of risks emerging from the conflict; however, energy security and reputational concerns will be a key factor for all sectors in building risk mitigation strategies to respond to the conflict.
  • As pertinent as the immediate inflationary impacts, there will be second order effects from reduced food and energy supplies (with Russia alone providing a fifth of the world’s wheat and 40% of Europe’s gas) and higher business costs associated with reshoring supply chains.
  • The conflict’s impacts are highly interrelated. For example, building on Lloyd’s Futureset’s recent ‘Shifting Powers’ report, it’s clear that escalating geopolitical tensions have triggered a spike in cyber attacks that could have knock-on impacts on inflation and market volatility.

“Over time, our world has become increasingly interconnected, and geopolitical events further highlight that a specific risk does not exist in isolation,” said Dominic Christian, Global Chairman of Reinsurance Solutions, Aon.

“Our ability to manage deeply related and increasingly volatile risks requires careful thought, detailed planning and effective execution. I hope the front-line perspectives contained in this report help businesses understand the universality of the challenges, the ways they may evolve and how they may best navigate them as they make better-informed decisions.”