Political risk & trade credit

In this chapter of our Annual Insurance Review 2024, we look at the main developments in 2023 and expected issues in 2024 for Political risk & trade credit.

Key developments in 2023

It was apparent in last year's Political Risk and Trade Credit review that we could not predict how long the war in Ukraine would last. Sadly, this remains true. The Ukrainian counter offensive did not result in the desired territorial gain and, despite rhetoric from military leaders, positions appear entrenched. This will not be helped by wavering support from the West and continued Russian supply chain issues. For insurers this has provided another year without clarity as to the condition of assets, any prospects of retrieval, and developments in the sanctions regime,

As the Russia-Ukraine War continues, there have been further conflicts spiking across the globe which have applied pressure to War Risks books. The war in Sudan continues with widespread governmental and business shutdowns that makes advising or obtaining information from the country very difficult. More recently, the shocking events of 7 October 2023 have ignited the Israel-Hamas conflict and will likely make underwriting in the Middle East (more widely) less attractive due to instability.

The impact of these conflicts is felt not only in the war zone but also in the wider geopolitical landscape. Governments lend their support via the implementation of sanctions which has led to an increased degree of segregation across the Trade Credit market as more areas of the global economy become unviable. Eastern focused economic communities, such as BRICs, are rising to compete with the traditionally Western G7 bloc and thus further the economic divide. This exemplifies supply chain issues in global trade and makes previously widespread commodities more precious – not to mention the impact which climate change has on certain products. Olive oil and coffee, to name of a couple of common household examples, are both starting to experience price pressures. All of this in turn results in higher premiums.

A final note to add on household pressures arising from 2023 is the high level of inflation experienced in many economies. This has forced interest rates even higher and, accordingly, debt repayment by institutions and governments became a serious challenge. The Trade Credit market will have had to and will likely continue to, where possible, accommodate restructuring and potentially even defaults.

Looking forward to 2024

The conflicts across the globe will continue to be inflammatory. Tensions in the Middle East are growing and Western relations with the multiple interested parties in the region may cause further sanctions implementation - and potentially additional conflict. An example of this would be Iran who continue to provide varied support to Hamas and Houthi militants. Not only does this heighten the violence in the region but also applies pressure to global trade where, recently, Red Sea shipping has been disrupted.

Western and European countries will need to adapt to these growing tensions to ensure impacts are not felt too harshly in their economies. However, to do so, they need to ensure a cohesive approach. Fractures are showing as the support for Ukraine is experiencing a degree of 'fatigue' and Hungary, as part of the European Union, is vetoing further support measures. This is not to mention that US foreign policy will be determined by the outcome of the upcoming presidential election next year. This degree of polarity is conducive to protests both abroad and at home as interested parties try to influence policy decisions.

Foreign policy is not the only aggravating factor, we predict next year will see further growth in political violence arising from environmental protests. For example, groups such as Just Stop Oil (who have hit the headlines during various major events this year) will continue in their campaigns and potentially inspire others. This will be exemplified as mineral rich regions across the globe feel the strain of demand for crucial resources such as nickel which is increasingly relied upon to support the growth in electric cars.

Written by Gabriel Downey & Naomi Vary.