Geopolitical risk considers the potential impact of geopolitical instability, international conflict, policy shifts or diplomatic tensions on economies, societies, business operations and public services. This risk can materialise as political and economic instability or geopolitical tensions disrupt economic activity or cause human or financial harm and losses.
The consequences are wide-ranging, and flow through all societal and economic layers. One diplomatic decision thousands of kilometres away, can alter the price a mother pays for fuel at the petrol station in a remote village, when bringing her children to school.
When reviewing objectives against your threat landscape, geopolitical risk should be a core consideration. Geopolitical movements also shift the nature of insider risk; as the global landscape changes, so too do the ideological and economic motivations of individuals within an organisation or government agency. Geopolitical instability often increases prepositioning activity, a tactic of hybrid warfare that avoids leaving immediate footprints. This could include state actors embedding themselves inside critical infrastructure, in preparation for future engagements.
For organisations, priorities shift to navigate this turbulence. Across all sectors, leadership teams shift their focus towards resilience. Staff, clients, partners and stakeholder require calm and effective stewardship as boards scrutinise risk exposure. Managing heightened risk in a shifting geopolitical landscape requires operational leaders to re-evaluate whether existing frameworks are effective in the face of growing volatility.
Geopolitical disruptions can result in significant market movements and volatility, as market sentiment changes due to increased uncertainty - and investors reconsider positions. In particular, the defence and energy sector are sensitive to geopolitical movements and disruptions cause significant market movements. Our publication on how the Iranian conflict impacts Europe's energy security and increases the threat of insiders sabotaging critical infrastructure while retaining plausible deniability further explores this issue in more detail.
The sources of geopolitical risk can include threats brought about by political instability, policy shifts, conflicts or any other international events that could influence the prospects of the global economy. Conflicts may include wars and terrorism, while economic risk may include sanctions and macroeconomic policy shifts towards protectionism.
Political risks could include things like regime change, corruption or political instability. International events may include pandemics, climate change, and cyber security matters. These categories are all intertwined, and as one risk materialises the others are influenced. For example, regime change could result in a rapid shift to protectionist economic policy, which subsequently leads to volatile market movements disrupting business operations, increasing demand for facilitation payments and corruption.
There are many recent examples where geopolitical shifts had significant consequences across various fronts. The Russia-Ukraine conflict highlighted European dependence on Russian energy sources and ultimately resulted in significant diversification and a transition towards renewables. Increased tensions resulted in the expulsion of Russian political staff being expelled from the West. As a result, Russia became increasingly reliant on locally recruited individuals rather than deployed officers to engage in espionage and sabotage operations. This therefore changed the nature of insider risk, particularly for critical infrastructure. This dynamic is further explored in the following blogpost: Insider Risk Watch #1: A Russian Agent In A Haystack_).
Geopolitical tensions often result in conflict in various forms as hybrid warfare tactics become increasingly common. This includes attempts to disrupt economic advantages, as protecting critical knowledge and intellectual property becomes essential to national security, economic resilience and societal stability( Protecting Critical Knowledge in an Era of Hybrid Warfare). Critical infrastructure, like ports and airports become primary targets for subversion and influence – as security incentives start to outweigh profitability of operations. Ports: Securing from the Inside Out)
Tensions in the Middle East have brought another layer of geopolitical complexity to an already fragile global landscape (Managing heightened risk in a shifting geopolitical landscape) Energy markets have already responded sensitively to this regional instability, with oil revenue projections and pricing structures reflecting concerns of supply disruption and transport security. Market volatility continues as uncertainty around how geopolitical tensions will evolve remains. This dynamic represents a primary example of how political risk materialises and how the impacts are significant and sometimes result in permanent changes to the operating environment.
Geopolitical risk is now a primary consideration driving corporate restructures and business transitions to ensure a more resilient posture. These shifts manifest through severe supply chain disruptions or market access limitations, caused by export controls on critical shipping routes, and the weaponisation of existing supply chains as geopolitical decisions priority.
Regularly monitoring, evaluating, and enhancing risk management procedures is crucial for business continuity. There are many risk assessment frameworks and risk indices that can be applied to provide a structured overview for consideration. However, fostering strong relationships with local stakeholders and governments can provide critical insight and support when significant shifts take place. Leveraging existing data analytics and geopolitical intelligence tools can enable companies to monitor and evaluate risks in real-time, directly informing decision-making. Incorporating geopolitical risk assessments into existing governance frameworks ensures that risk management is embedded into strategic planning and operational processes.
Businesses are increasingly deploying comprehensive geopolitical risk management strategies that seek to anticipate and mitigate geopolitical risk. A useful framework may provide an overview that considers continuing operations under acceptable risk levels, hedging risks (e.g. insurance), adaptation (e.g. changing operational methods) and diversification (e.g. adding markets or supply chains).
An important element of managing geopolitical risk involves diversifying customer bases, supply chains and operational hubs. For example, companies are increasingly pivoting away from China or supplementing their Chinese operations with facilities in other countries. This builds resilience into their supply chains by reducing their dependency on a single market. By establishing alternative routes, business can guarantee continuity when geopolitical shifts disrupt one part of their supply chain.
Market diversification is another strategy that reduces reliance on a single market and spreads risk enhancing continuity and resilience. For example, by testing demand in new markets to gauge viability. A commonly cited example for this is European companies diversifying their energy sources away from Russian energy towards renewables to build resilience against future sanctions or conflicts effecting energy markets. Simultaneously, the increased reliance on domestic physical critical infrastructure locations through the shift towards renewables, heightens the risk of insider activity in these locations as they become of increasing importance to national security.
Beyond diversification, scenario planning and stress testing is another useful risk management tool. This involves developing hypothetical scenarios that enable organisations to evaluate how they would be impacted by geopolitical events. The focus should be on how certain geopolitical events, could impact key risk areas like supply chains, revenue and market access. Building out these scenarios and their impact, enables an organisation to plan accordingly and develop mitigation strategies should these scenarios become a reality. Scenario generation and contingency planning are critical steps when undertaking business continuity planning.
Risk is inherently uncertain – yet speculating on future trends influencing geopolitical risk remains an essential step for strategic planning. The global operating environment is now a place where disparate threats such as cyberwarfare, resource nationalism, and shifting power dynamics no longer occur in isolation. Instead, geopolitical shifts amplify one another resulting in systemic instability and effecting decision making in all sectors. The impacts of these events are so significant, that organisations must plan to ensure they can absorb these shocks.
Strategically, the era of globalisation has shifted towards economic fragmentation. As multilateral cooperation declines, governments will increasingly intervene in private markets. As supply chains and business operations become increasingly critical for national security, regulatory postures within these sectors will need to shift to prioritise resilience and national security. Businesses will face pressure to relocate supply chains to politically aligned regions and subsidies will seek to facilitate decision making aligned with national interests. For risk managers, understanding regulatory shifts of this nature, and regional political development will become absolutely critical.
From an insider risk perspective, geopolitical tensions are increasingly manifesting on the work floor. Employees become more vulnerable to external pressures, including state-sponsored coercion or exploitation. The risk of insiders exploiting access to sensitive data, physical locations and operations should be a core consideration in risk management. Resilience must also be built at the individual level, where employee resilience is built through awareness raising. Through trainings, employees can learn to identify signals of infiltration and coercion and report these early before malicious actors become structurally embedded within the organisation.
Building resilience requires a proactive approach that integrates geopolitical intelligence and awareness of insider risk into the core of an organisations risk management framework. Monitoring threats is not sufficient. Instead, businesses must be prepared to adapt to sudden geopolitical shifts and build resilience to absorb inevitable future shocks.
To help you navigate these challenges this SignPost Six has a comprehensive portfolio of custom-made products:
To respond to signals or incidents, we recommend involving some of our expert investigators to contain and identify any related risks.