Lloyd’s of London warns that a potential geopolitical conflict could devastate the global economy, triggering $14.5 trillion (£11.89 trillion) in losses over the next five years and upending global trade.
Lloyd’s new scenario is part of its systemic risk series, designed to provide governments, insurers, and risk managers with crucial insights into the most pressing global threats.
This scenario was focused on the severe economic consequences that could arise if global trade patterns were disrupted by a major geopolitical conflict.
As over 80 per cent of the world’s imports and exports, approximately 11bn tonnes of good, move across oceans at any given time, the closure of vital trade routes could cripple economies.
The resulting damage would be twofold, namely the 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 extent of the impact would vary depending on a country’s involvement in the conflict and its dependence on international trade.
Its example was based on Europe, which is heavily reliant on external suppliers for critical goods like semiconductors used in car and electronics manufacturing. This region could face losses as high as $3.4 trillion.
Back in 2021, there was a blockage on the Suez Canal, the vital trade route that connects the East and West. At the time, Lloyds estimated the blockage cost $9.6bn in goods per day, or $400m per hour.
Commenting on the latest scenario, Rebekah Clement, Lloyd’s corporate affairs director said: “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 added: “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.”