Lloyd's of London has issued a stark warning that a potential geopolitical conflict could wreak havoc on the global economy, potentially triggering losses amounting to $14.5 trillion (£11.89 trillion) over the next five years and causing significant disruption to global trade.
The new scenario is part of Lloyd's systemic risk series, an initiative aimed at providing governments, insurers, and risk managers with vital insights into the most pressing global threats, as reported by .
The focus of this scenario is the severe economic consequences that could ensue if global trade patterns were disrupted by a major geopolitical conflict.
Given that over 80 per cent of the world's imports and exports, approximately 11bn tonnes of goods, are transported across oceans at any given time, the closure of key trade routes could have a crippling effect on economies.
The damage would be twofold: destruction of infrastructure in conflict zones and the realignment of global trade networks, which would be forced to reroute due to sanctions and compromised shipping lines.
The impact would vary depending on a country's involvement in the conflict and its reliance on international trade.
One example provided was Europe, a region heavily dependent on external suppliers for critical goods such as semiconductors used in car and electronics manufacturing. This region could face losses as high as $3.4 trillion.
In 2021, the Suez Canal, a crucial artery for global trade linking the East and West, experienced a significant blockage. Lloyd's of London at the time estimated that the obstruction was costing a staggering $9.6 billion worth of goods every day, which breaks down to around $400 million per hour.
Rebekah Clement, Lloyd's corporate affairs director, commented on the recent disruptions, highlighting the broader value of insurance: "The value of insurance also extends to the compounding secondary impacts of geopolitical conflict, including downstream delays and interruptions by impacted trading partners and suppliers."
She further explained the types of coverage available to businesses seeking protection from such risks: "Examples of insurance covers which can help businesses protect themselves against these impacts include political risk insurance and contingent business interruption, as well as dedicated war risk insurance."
