The Russian invasion of Ukraine represents a watershed moment, a substantial shift in the geopolitical landscape and one of biggest humanitarian crisis in Europe for many years. The war in Ukraine could also be viewed as a complete end to normal relations between the industrialized Western democracies and Russia. Efforts to delink Russia from the global financial and trade system, meaning the separation of the world's 11th largest economy and the dislocation of key energy and commodity sources, have been causing enormous disruption to the world economy.

Corporate boards should now be considering the effects of the war as a standalone crisis and a direct threat to business growth and continuity, and not simply leaving it to corporate risk teams. The war in Ukraine is accelerating a substantive slowdown of globalization and helping to reshape the speed, scope and direction of global trade along geopolitical divides rather than economic imperatives.

We believe that more than ever before, it is fundamental that business leaders monitor and plan for major geopolitical events so that they can survive and thrive in a rapidly changing world. One current macro trend is a move away from the universalist liberal economic world order that has underpinned the global economy since the end of the Cold War, to one where countries look inward to “build resilience”.

Challenges and opportunities

In our view, policies that build national resilience, help to achieve self-sufficiency, and reduce reliance on foreign sources will translate in the partial unravelling of global markets and global mobility as well as a continuous upward pressure on inflation. Understanding how political interests will reshape trade and supply chains is fundamental for businesses that want to know where to invest next.

One of the bigger questions is whether the new, multipolar global order will ultimately lead to further or even a complete decoupling between the industrialized democracies in the West and China. If that occurs, it will be important to see where future investments will be and what the world and the global economy could look like without reliance on China for manufacturing and Russia for energy.

Geopolitical competition does and will very likely continue to influence the infrastructure sector, including the West's “Build Back Better” platform, which counteracts China's efforts to exert influence through the Belt and Road Initiative. Those countries that are poised to receive major infrastructure investment, and businesses that will have to deliver such projects, could be caught up in this geopolitical saber-rattling and might be forced to pick sides with consequent market opportunity trade-offs and reputational headaches being the result. 

In conclusion, given the lack of standout global political leadership across the dominant markets, we expect ongoing challenges for governments to agree on positive and collective solutions to global problems such as climate change, conflict resolution, poverty and inequality reduction and debt relief. Against this backdrop, businesses are still looking to invest monies and resources as they look to navigate political, environmental, cultural and social issues. 

If agreed, these major policy initiatives have the potential to generate considerable opportunities for domestic economic operators, particularly those that are strategically positioned to support domestic priorities.