The extreme volatility associated with the Ukraine war has “triggered significant changes” that will be felt worldwide with increased “global risks” across economies, according to a report by two leading insurers.
Lloyd's and Aon have highlighted a number of areas that have been dramatically affected following Russia’s invasion of Ukraine.
Their report suggests that with global networks so heavily interconnected in the modern world, Moscow’s actions are having a major far-reaching effect on geopolitics, inflation, economics and social transformation.
“The conflict in Ukraine has once again demonstrated the devastating toll that a systemic event can have on the global risk landscape,” the report states. “As quickly as the conflict began, our economic assumptions have been challenged, our energy mixes thrown into question and our geopolitical relationships redefined.”
The knock-on effects of the war “will last a lifetime” and already the damage caused by Russia's invasion has “left the world in a dramatically altered state”.
As a result, businesses and insurers need to work out how to “navigate the world it leaves behind”.
The report, Ukraine: A conflict that changed the world, said Russia’s actions meant that international norms and laws had been destabilised with many organisations adopting “hedging strategies” to protect their global interests, along with more protectionist trade policies.
“Countries and businesses are pivoting towards reshoring supply chains as a means to achieve self-sufficiency and more control on access to priority goods and services,” it said. This would make goods and services more expensive in the long term.
With Russia effectively cutting off energy supplies to the West, the energy sector had been the “most impacted by the range of risks emerging from the conflict” which would require companies to build “risk mitigation strategies.”
Inflation, which is creeping towards 10 per cent in Britain, will be significant, and while it would increase profits in some sectors, higher costs passed onto consumers would further exacerbate the situation.
The report warned that businesses seeking to absorb growing costs “may face a struggle to stay afloat.”
Russia’s exclusion from international trade was also having “significant economic ramifications,” particularly in European food and energy business.
Any further depreciation of the rouble would negatively affect Russia’s productivity which would in turn damage global agriculture and manufacturing sectors.
The conflict had also led to increased defence expenditure across Europe, the US and China, making changes in the world order.
With more than three million refugees flowing into Europe, exceeding the number from Syria in 2015, there would be social transformation and the displacement would also contribute to labour shortages.
This would require organisations “to reconfigure their labour pools,” in particular in transport and logistics, to “meet the rising demand on products and services.”
“The Ukraine conflict touches us all, both as individuals and businesses,” said Aon chairman Dominic Christian. “Specific risk does not exist in isolation and our ability to manage deeply related and increasingly volatile risks requires careful thought, detailed planning and effective execution.”