In a recent survey of large corporations, 100% of the companies made some enhancement to their political risk management. 54% increased political risk insurance. 
Political Risk is Everyone’s Risk
Please consider The Year Political Risk Became Everyone’s Risk.
This is how an insurance broker typically describes political risk: “low frequency, high severity.” Political risk is, in short, a catastrophe risk, or “cat risk,” much like many types of natural disaster.
We are going to have to rethink that description: this year, more than 9 in 10 of the companies we surveyed reported a political risk loss (up from 35% only a few years ago). This year, political risk became everyone’s risk.
The annual Political Risk Survey, carried out by Oxford Analytica on behalf of WTW, combines in-depth interviews with a broader survey of a larger sample of companies. There were 50 respondents to the survey; The survey sample is representative of globalized businesses, across geographic regions, industries, and company size.
Key Points
- 86% of Western European respondents reported a net negative financial impact of the conflict, while only 33% of North American firms did so.
- The shock of war on the European continent had triggered a “paradigm shift” said one member of our business panel; it is a “watershed moment,” said another.
- 100% of the companies we surveyed had made at least some enhancement to their political risk management capabilities since February 2022.
- The proportion who reported purchasing political risk insurance nearly trebled from 25% in 2019 to 68% this year.
- The proportion who predicted deglobalization would “greatly strengthen” was 16% last year; this year it was nearly 50%.
- The proportion who predicted decoupling from China would “greatly strengthen” was 12% in 2022, but 42% in 2023.
- Each year, the study study by asks the business panel about the top risks for the year ahead. This year, complications from the Ukraine conflict led the list, followed by decoupling with China. A surprise third place was taken by the European Union, which faces an energy crisis, but is also reshaping the rules and standards of global businesses with its willingness to regulate in areas such as technology, data, supply chains and climate.
When you confiscate reserves and place massive tariffs and sanctions on Russia and China, political risk blowback is the result.
Political risk from Ukraine was felt more heavily in Europe, but the US was not immune. 33% of North American firms reported a loss from Ukraine. Interestingly 42 percent of US companies reported a gain.
Oil companies, the weapons industry, and agricultural exporters were likely the big winners from the war in Ukraine. But were there any winners with big dependence on China?
You Might Not Be Able to Get Insurance
Although the need for insurance is soaring, Your Business in China May Be Uninsurable
Underwriters stopped writing new policies in Russia months ago, and in China they appear spooked by events ranging from raids on Western consulting firms to threats against Taiwan. Two years ago, after Chinese state media declared videogames “spiritual opium,” shares in the Chinese entertainment giant Tencent swiftly plunged by more than 10%. Not even food and apparel companies, which have been considered relatively safe from political risks, can now be certain they’ll get such coverage.
Of the 60 or so insurers that offer political-risk insurance, only four or five are still offering it for China, the insurance executive noted. Policies still being offered likely wouldn’t exceed $50 million coverage, down from around $2 billion a few years ago. Most large companies with operations in China have assets far above $50 million.
Political Risk Is Just Beginning
The Biden administration has escalated sanctions and tariffs on China.
In response, China placed export restrictions on rare earth minerals used in computer chips and weapons.
China’s Limits Germanium and Gallium Exports
On July 5, Reuters reported China’s rare earths dominance in focus after it limits germanium and gallium exports
China said on Monday it will impose export restrictions on gallium and germanium products used in computer chips and other components to protect national security interests.
The decision, widely seen as retaliation for U.S. curbs on sales of technologies to China, raised concerns that China might eventually limit exports of other materials, notably rare earths, whose production China dominates.
Mining: China accounted for 70% of world mine production of rare earths in 2022, followed by the United States, Australia, Myanmar and Thailand, United States Geological Survey (USGS) data shows.
Processing: China is home to at least 85% of the world’s capacity to process rare earth ores into material manufacturers can use, according to research firm Adamas Intelligence in 2019.
The chemical properties of rare earths make them difficult to separate from surrounding materials, and processing generates toxic waste.
Lax environmental standards enabled China to build its dominance in rare earths in recent decades as Western producers left the industry.
How China Cornered Rare Earths
How Long Does it Take to Start a Mine?
The US and G-7 Allies Are Torn Over Dependence on China
Please consider my April post The US and G-7 Allies Are Torn Over Dependence on China
Three Conflicting Goals
- Reduce dependence on China
- Avoid protectionism
- Appease the Greens
Impossible Requirements
1 + 2 is difficult if not impossible. 2 + 3 is difficult if not impossible. 1 + 3 is difficult if not impossible.
1 + 2 + 3 is 100% guaranteed impossible.
Damn the Inflation, Full Speed Ahead
Biden’s and California’s energy policy can easily be summed up in meme phrases.
- Damn the Inflation, Full Speed Ahead
- What, Me Worry?
- The world will end in 12 years if we don’t address climate change.
On March 22, 2022, I commented Biden Doing Everything Possible to Drive Up the Price of Oil, Some of It’s Illegal
On November 30, 2022, I commented The EU is Very Worried About Biden’s Inflation Reduction Act (IRA)
On December 3, 2022, I commented Damn That Wind, It’s Not Listening to Biden or AOC
On February 7, 2023, I commented Biden Gives a Well-Delivered SOTU Speech Begging for More Inflation and Tax Hikes
On January 16, 2023, I commented “America First”, Biden and Trump Both Guilty of Sponsoring Inflation
Biden’s Energy Policy Mandates Cause Severe Shortage of Electrical Steel and Transformers
In case you missed it, please see Biden’s Energy Policy Mandates Cause Severe Shortage of Electrical Steel and Transformers
Lesson of the Day
Finally, please consider my July 20, 2023 post, Lesson of the Day: If You Weaponize the Dollar and Confiscate Assets, Expect Retaliation
Meanwhile, someone please tell me how we are going to reduce dependence on China, avoid protectionism, and appease the Greens with their untenable demands to eliminate gasoline-powered vehicles by 2035.
You can’t because it’s impossible. So, yeah, the need for political risk insurance is soaring everywhere.
Environmental risks are much worse everywhere. Things that are forecast to happen in 25 or 50 years will start happening this decade.
Or concealed by the corporate suite for the last 50 years, as in the case of PFAS.
Looks like it. Was hoping to shift off this mortal coil before the SHTF, but it looks like I get to take the ride.
I take comfort in having been alive when civilization peaked for this cycle, and the fact that I’m a lot better off than the poor bastards that came after.
Yep. If the peak years of your life were after WW2 until 2019, you had it pretty good. We go downhill bigtime from here.
The poor bastards will have you for lunch when the food runs out. But yeah, the day after will be still hungry.
I still got a bit of treachery and fight in me, and they’re still young and tender…
Treachery is no match for a mob that has the numbers, and cohesion of the like-minded on their side.
Are we talking “overweight to obese” fresh mob, or “half starved” seasoned mob? I have a plan for the former, but don’t expect effective cohesion from the hungry ones.
You are forecasting a forecast? Sounds a bit circular.
QQQ closed July 11/12 gap.
But the ruble is going down, down, down… like real state in China.
Venezuela anybody?
“In a recent survey of large corporations, 100% of the companies made some enhancement to their political risk management. 54% increased political risk insurance.”
Is that inflationary?
A 50 year supply of phosphate is being developed in Norway. https://news.yahoo.com/mining-company-makes-significant-discovery-110000418.html
Infinite supplies of everything is always being developed. From cold fusion on down. “Being developed” being the key phrase. As specifically opposed to “have been developed.”
What the Norwegians have developed, is oil, gas and hydro. And fish. Oil may be in decline, but gas and hydro is seemingly alive and kicking.
Of course, Norwegians, like the rest of the West, being cardcarrying members of the Western Gullibility Cult, requires that the genuinely competent people who managed to actually develop something valuable over there, are downplayed and poo-pooed. In favor of dilettante children of incompetents. Who, as everywhere, can’t actually develop anything. So they do what those who can’t, will always do in financialized dystopias: They “invest” in it instead. “It” being one childish pipedream more pathetically stupid than the next. After all, when one is too incompetent to do anything of real productive value, one can also be counted on to be completely incapable of discerning any such value from pure, silly waste in the first place. So: Preening around feeling all important about “investing” the loot that central banks stole from their productive and intellectual superiors and handed them in nonsensical hype, is what Gulliblians of all nationalities do.
In absolute terms, the Norwegians will be OK. Some oil, lots of gas and Hydro and fish and whatnot, and almost no population, will see to that. The future’s a lot less sanguine for fellow Gulliblians in less fortunate locales.
In my life I have seen lots of things that were in development that were subsequently put in use when they were ready. There will always be things that don’t pan out but a lot of things do. Everything you use was in development at one time or another. Even starting a fire took time to figure it out but they did and now I can warm my feet while drinking a glass of whisky.
USA oil production will set records in 2023 and 2024, how does that fit into the Biden narrative? https://www.eia.gov/todayinenergy/detail.php?id=55299
Biden can’t control production on private land and by far oil and gas production comes from private land.
Public land production may surpass all records this year, definitely next year if there isn’t a recession. Biden isn’t as anti-oil as some would suggest.
US oil companies can increase production by a few hundred thousand barrels per day, but will only do so if it is economically profitable. With oil back over $80, I would expect a modest production increase. Only to be offset by further OPEC or Saudi cuts in production, in order to keep prices above $80. World oil demand is over 100 million barrels per day . OPEC produces 40 mbpd and the US 12 mbpd.
In January,2021 we produced 11.13m barrels a day. In May, 2023 we produced 12.66 barrels, a 13.7% increase of 1.55m barrels per day.
Kook Insurance
WTW, like their 2 bigger competitors 21 years ago in NYC, prefer to have their risk management experts housed in 100 story buildings in big cities.
Next thing you know Illinois will be taking health tips from a 400 pound blob.
What’s Green about shipping LNG from Texas and Louisiana to the effete politically-correct Europeans?
Insurance underwriters should decline on account of Climate Change, ESG, DIE and Vlad’s apparent propensity for blowing up pipelines, bridges, dams and nuclear power plants. Like Scooby- Doo, he just puts on a Nuland, Blinken and Sullivan mask to pull off these capers.
Europeans have decidedly become less Green these last two years and the trend will certainly continue.
There is a cobalt mine in the US that recently opened but actually re-opened. It closed in 1982 for environmental damage. It’s suppose to supply 10% of our needs but won’t be refined here. It goes to Brazil:
https://www.opb.org/article/2022/10/08/in-idaho-america-s-first-and-only-cobalt-mine-in-decades-is-opening/
Mish is correct, the mining of rare earth materials is fine as long as you don’t mind environmental destruction on a mass scale. The Chinese don’t. They don’t have to care about the population living close to these mines. They don’t get a say.
The problem in the West is everyone becomes a Green when its their property and health being put at risk just to make low-value stuff that can just be as easily imported. I’d much rather just keep decent relations with the ChinComs.
Also, I always wondered why American corps were comfortable moving their production to a Communist country that can just take your stuff on a whim. Who knew that it was the insurance companies enabling this stuff?
Chinese, or any country can go to Congo, pay off locals and have kids mine cobalt and other metals for near nothing. We are doing it in Niger. Nuland just went there to tell the nationalist Junta to back down and reinstall US and West friendly government. So we can benefit from the horrible mining that happens outside of progressive liberal eyeshot
As it takes 12 years to develop a new mine and the world will end in 12 years then why bother trying to open mines outside China?
I hope a sarc tag isn’t needed.
And they knew years ago that these were strategic commodities so the should have been stockpiling the stuff and putting a Manhattan Project level of commitment to both developing new mines and developing cleaner ways to process the stuff.
In Germany to build an LNG terminal was estimated to take five years minimum. Russia invades Ukraine. Germany fears gas will be cut off. Ecological groups ready to tie it up in court for years and then Lo and Behold a miracle happens. Judge throws out ecologist lawyers suits in about a day, German construction groups immediately start building and within one year and a couple of months three new LNG terminals are built and handling shipments of gas.
To build anything big the number one bottleneck is not money or labor. It’s permits and that depends on lawyers and the law.
That’s true. Australia has a mining-friendly bureaucracy that sees mines open in a lot less than 12 years. (This is changing for coal mines…)
What about woke risk? Such as Anheuser-Busch is experiencing. Is there insurance for that?
No, but that problem’s easy to avoid so insurance isn’t needed.
You can’t get butt-stupid management insurance either.