Eugene Chausovsky presented how institutional investors can identify, assess, and mitigate the impact of geopolitical events on businesses and investments made by institutional investors in the existing risk management framework.
What is geopolitics? Geo = geography, politics = people. Geopolitics studies how personal and impersonal forces intersect with each other to shape the strategy of particular actors (i.e. Putin) in particular contexts (i.e. Russia/Ukraine conflict) . Impersonal forces are geography, demographics, resources, culture, or technology. Personal forces are background and worldview, incentives/pressures, network of decision-making.
Geopolitical imperatives are the primary objectives of a state, regardless of who is in power. These imperatives are domestic political/security consolidation; protection from neighbors/external powers; expansion of regional/global influence and countering challengers.Strategy is the approach of specific government/leader to pursue strategic objectives while mitigating against constraints.
Examples of adverse geopolitical developments are disruption of the international trade such as the bombing attacks in Madrid and London in 2004 and 2005, and increasingly, trade limitations due to tariffs. The largest international trade flow is between the US and China with an annual value of USD 338 billion. This will decline due to tariffs. This decline affects businesses. Another example is the international supply chain of goods. Shipping routes are diverted due to conflicts, The shippings costs of the route Shanghai-Rotterdam have gone up by 339%. Another example is the the energy transition, which means big dependancy of China that processes 80% of the worldwide supply of minerals suchs as cobalt, lithium and nickel, which are used for electrification and diversifying from fossil fuels.
If businesses and sectors are impacted by geopolitical developments, the investments into these businesses and sectors are impacted as well. Some of these risks are reflected into the market price but an automated, quantified geopolitical risk model that creates scenarios with a fairly accurate chance of geopolitical developments occurring, does not yet exist.