Lloyd's outlines $14.5 trillion risk from trade disruption scenario

Lloyd’s outlines $14.5 trillion risk from trade disruption scenario | Insurance Business Canada

Insurance News

Lloyd’s outlines $14.5 trillion risk from trade disruption scenario

Hypothetical conflict scenario underscores need for risk mitigation strategies

Insurance News

By
Kenneth Araullo

Lloyd’s has released a scenario outlining potential economic losses of $14.5 trillion over five years due to a hypothetical geopolitical conflict that disrupts global trade patterns and supply chains.

The “Geopolitical Conflict” scenario is the fifth installment in Lloyd’s systemic risk series, which provides data-driven assessments aimed at helping risk managers, governments, and insurers understand major global threats. The series seeks to offer insights into significant risks impacting society today.

The scenario highlights the risk posed by the closure of major trade routes due to conflict, with more than 80% of the world’s imports and exports, or around 11 billion tons of goods, transported by sea at any given time.

Disruptions to shipping routes and sanctions enforcement could lead to substantial economic impacts, driven by infrastructure damage in the conflict region and the resulting need to realign global trade networks.

The effect on businesses would vary based on their geographic location, involvement in the conflict, and reliance on international trade. The scenario notes that regions heavily dependent on imports, such as Europe, could face significant losses.

Europe, which relies on other industrialized nations for essential supplies like semiconductors used in car and electronics manufacturing, could experience losses of up to $3.4 trillion.

Rebekah Clement (pictured above), Lloyd’s corporate affairs director, stated that Lloyd’s supports public-private initiatives aimed at preventing global crises, including commodity shortages.