Home Business Insights & Advice How have geopolitical events been affecting business this year?

How have geopolitical events been affecting business this year?

by Sarah Dunsby
16th Jan 24 1:38 pm

With all of the conflicts shaping the news recently, businesspeople are understandably concerned about the effects of these geopolitical problems on international business. So what are some of the things that are affecting the world’s economies? And how concerned should we really be?

Let’s take a look at the top geopolitical factors potentially affecting the global economy, international trade, and the local economies of major players on the global scene. For more information on global conflicts and their potential implications for the world, you can look at Military News, which will provide much greater insight. In the meantime, it pays to think about the particular implications of global crises and how each of these issues separately affects national economies, and consequently the businesses that function within them.

Oil price changes

Arguably, the biggest driver of the global economy is the price of oil. And its price is far from being a matter of simply supply and demand. The price of oil is a complex matter that is dependent upon many different factors and ultimately decided upon by OPEC. Recent events in the Middle East have caused commodity prices as a whole to go up – by 5 percent in Q3 of 2023 alone – and this is largely driven by the price of oil.

Let’s not forget that it was similar conflicts in the 1970s that caused a major restriction in oil supply, and consequently wreaked havoc on the British economy (among others) during that decade, and the trickle-down effect was felt throughout the business world. The effects of this are just starting to be seen, but they could be just as grave. Governments around the world are already tightening their belts in preparation for another global energy crisis.

Things had already started changing last year with Europe’s shift away from Russian energy. After the beginning of the war in Ukraine, oil prices shot up by 20% in the subsequent five months. Now, with a second major global conflict at hand, the consequences could be even greater. As governments tighten their policies in response to global oil shocks, investors become skittish, and ultimately companies of all levels can be thrown off kilter.

Commodities disruption

Oil is considered the greatest of all commodities, but it certainly isn’t the only one. Food supplies and prices are also a serious issue in recent times. Perhaps the most well-known among them is the Black Sea Grain Initiative. Because of the blockage of grain exports from Ukraine, global prices skyrocketed more than 100% last year, and the price still hasn’t returned to normal. Like the price of oil, this has had a major effect on both the world’s economies and businesses’ ability to maintain their clientele.

And grain isn’t the only commodity that is suffering. Corn, edible oils, and other major categories of foodstuffs are similarly suffering. Until these prices normalise, the business world won’t return to normal. What’s more troubling is that commodities fluctuation is never an isolated incident. When these prices go awry, inflation starts to increase wherever the changes occur, and the larger effect ripples throughout whole economies. This in turn affects people’s ability to afford many items, and businesses suffer as a result.

Sanctions and their secondary effects

The imposition of sanctions on rogue countries might seem to be something that primarily affects the countries being punished. This is hardly the case, though. Companies hoping to do business with countries even somehow connected to sanctioned countries could face problems.

For example, mass-produced products containing multiple parts often get their components from different places. If even one of the countries that contributes to a popular product does business with a sanctioned entity, it could spell disaster for everyone involved.

Philip Morris, Pepsico, and McDonald’s are just a few of the companies that suffered as their share prices dropped following the onset of the war in Ukraine. Altogether, it is estimated that over 1000 companies were forced out of Russia because of sanctions, and although this represented varying degrees of market share for different companies, the larger effects have definitely rippled through the business world.

Less obvious conflicts

There is also the factor of lesser-known conflicts. While many people in the West might not have heard of the conflict in Sudan, for example, becoming familiarised with it and the effect that it has had on other countries – particularly those that produce and export commodities – can be a tremendous help in businesses’ preparing themselves for future global economic shocks.

Think about a country like Venezuela. Although many people in Europe especially consider the domestic events of a place like South America to be none of their business, this is hardly the case in reality. Venezuela is a major oil producer and a member of OPEC, and domestic strife there can ultimately have a serious impact on oil prices.

And conflicts get even more obscure yet, but the domino effect can be surprising in scale. Therefore, keeping an eye out for even small-scale news is a good idea.

What is to be done?

The answer, of course, is never totally clear. There are companies that have bravely defied global and national pressure to maintain operations in less popular places. One can foresee changing energy and other essential stock prices, but only to a certain degree.

Overall, the best that many businesses can do is follow general and military news as closely as business news, and try to better understand the factors that lead to global economic downturns. With a better understanding of the patterns involved and who the major players are outside the business world, companies can be better prepared for events that might threaten their ability to grow.

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