Geopolitical Risks Awaiting Us In 2023: How to Navigate? – Mehmet Öğütçü

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What’s in store for the global
economy and geopolitics this year? Well, it looks as if the year  will not be pretty. A raging war in
Europe, which can further expand, sky-high inflation engulfing the
whole world, an energy crisis, disruption in world trade, supply chain, and
investment flows, a looming worldwide recession, a cornered Iran,
and an unstable China will likely create strong headwinds for government,
business, military leaders as well as individuals. 

Never in recent history have geopolitical risks shaped
economies, energy flows, the water crisis, food supply security, financial
flows, and the position of countries in the world system more strongly than
they do now. That’s why companies, governments, banks, insurers, and generals
must take these risks more seriously. It is inevitable to take them into
account in business decisions and government policy choices. That’s why
opportunities abound to support leaders in risk mitigation and management who
will closely monitor and analyze geopolitical challenges, volatility, and
uncertainties.

The main geopolitical and economic challenges facing us all
in the coming year are:

1. Authoritarian states trying to gain
legitimacy through economic nationalism, technology war, sanctions, supply
chain relocations, fragmented geopolitics, global security issues, and the
increasingly politicized globalization process will accelerate. Global
inflation shock waves started in the USA in 2021 and affected the world in
2022. In 2023, its impact will be felt more with strong economic and political
fluctuations. The last two generations have seen global GDP triple, almost every
country get richer, and more than a billion people lifted out of extreme
poverty. We see this progress reversed with new shocks. Billions of people will
become more vulnerable due to the Covid-19 pandemic, the Russia-Ukraine war,
rising global inflation, energy shortages, and loss of economic, security, and
political gains. The global middle class will shrink, followed by more severe
political instability within and between countries. Worldwide social unrest,
the rise of the far right, racism, immigrants, refugees, Islamic
fundamentalism, and terrorist attacks (this time via more cyber-attacks) will
continue to haunt us in 2023.

2. The US-China rivalry is a strategic
challenge for all of us that will shape not only 2023 but the coming decades.
America is determined to do whatever it can to stop, or at least slow, the rise
of China. Where, how, and whether the rest of the world will position itself
alongside Beijing or Washington will become important. Countries, even
multinational firms, will be forced to make a fundamental choice. China’s poor
economic performance, the health catastrophe triggered by the abrupt end of the
“zero Covid” strategy in the country, Xi Jinping’s relationship with Putin,
whether the EU will lose its autonomy and come more obviously under the
American security umbrella, how China’s ties with Europe will evolve, the loss
of breath of the Belt and Road initiative, the inhibition of US-based
multinational companies from China’s strategic industries, and whether New
Delhi is truly ready to establish closer relations with Washington will remain
on the agenda as essential questions. We’ve (mostly) survived the pandemic, but
China’s relaxation of restrictions could pose a serious health risk to the rest
of the world in 2023, with millions of Chinese still at risk of Covid starting
to travel. 

3. The Russia-Ukraine war, sanctions on oil and
gas, disruption of traditional energy and investment flows that benefit China
and India, and the shift of Middle East oil and North African gas to Europe
will continue to be hot topics. Russia has no chance of winning the war in
Ukraine despite causing so much humanitarian and infrastructure damage. The
European Union is stronger than ever. NATO has rediscovered its raison d’etre.
The G7 is getting stronger. American hard power remains unrivaled globally – at
least for now. But a cornered Russia can transform from a global player to the
world’s most dangerous state. It could pose a serious and widespread danger not
only to the EU and the US but also to its surrounding neighbours. Stuck in
Ukraine, with little to lose from further isolation and Western retaliation,
and faced with intense domestic pressure to show power, Russia may turn to an
asymmetrical war against the West. Besides the nuclear threat,
Kremlin-affiliated hackers can accelerate increasingly sophisticated
cyberattacks against Western firms, governments, and infrastructure.

4. Iran, one of Russia’s most important military
allies, is experiencing the most tremendousinternal unrest since the 1979
revolution that brought the Islamic Republic to power. Tehran is also faced
with an extremely hostile geopolitical environment. Since the death of
22-year-old Mahsa Amini, who died after being arrested by the Iranian ‘morality
police’, Iran has faced a great deal of internal turmoil and protests. At the
same time, Tehran dramatically escalated its nuclear program and almost
completely ended its chances of reviving the nuclear deal. And now it supplies
deadly weapons to Putin’s army. New conflicts and further Western sanctions can
be expected in 2023. As a result, Tehran may advance its “regionalism”
strategy, seeking wider cooperation with Asian countries, particularly Russia
and China. The activities of Kurdish and Azeri separatist movements against the
central government may increase. Iran has become a permanent member of the
Shanghai Co-operation Organization, which strengthens its role on the Eurasian
chessboard and the Moscow-Beijing-Tehran axis. It will cooperate with Moscow in
the Caspian Sea, the epicenter of various energy pipelines and projects connecting
the Central Asian and Caucasian oil and gas fields to Europe. The far-right and
religious government in Israel may attempt unexpected moves against Iran.

5. The energy crisis, which marked the last year,
will, unfortunately, create much more difficult market conditions and increase
costs for households and businesses, especially in the second half of 2023,
with the combination of geopolitics, economy, and production factors. The
financial burden on energy-importing countries will increase and further widen
the gap between OPEC+ and mainstream consumers. Of course, investments in
renewable resources, which are getting cheaper, will step up, and efforts
against climate change will intensify. Water
shortages will become a global and systemic problem this year, and efforts
to transition from water crisis to water risk management will accelerate. Food
supply security will be more of a concern. Governments, international
organizations, investors, insurers, and private companies will work
hard to strike the food-water-energy equation and how to deal with these
challenges on their own. 

6. Asian risks. Higher interest rates will
ensure a challenging economic environment in Asia. Growth in economies with
high levels of household debt, such as Australia and South Korea, is set to
slow sharply, even as a systemic crisis is avoided.  Political
uncertainty in Southeast Asia, as elections take place in Thailand and loom in
Indonesia, will encourage manufacturers to look to India as they seek to reduce
reliance on China. Improvements in India’s business environment and progress in
bilateral trade deals make it an increasingly viable investment
destination. China’s domestic challenges, as it seeks an exit from
zero-covid policies, will probably lead it to adopt a less confrontational
approach in international affairs. North Korea remains a risk. Japan to
continue building stronger military capabilities. The Taiwan-China-US standoff
to continue. A reduction in geopolitical risk would be welcomed by markets
after the turbulence of 2020-22. 

7. Generation Z, born between the mid-1990s and
the early 2010s, is the first generation who cannot do without the internet.
Digital devices and social media have managed to connect them across borders to
create the first truly global generation. This makes them a new political and
geopolitical actor, especially in the US and Europe. Generation Z, with the
ability and motivation to organize online to reshape corporate and public
policy, can turn politics upside down at the click of a button, complicating
companies’ business. That’s why we all must understand the expectations,
priorities, and concerns of this generation.

8. We may not be fully aware of it, but who will emerge from
the presidential and parliamentary ballot boxes in Turkey next
summer is eagerly awaited by the international community as much as many Turks
are. The election results are seen as an important geopolitical risk or
opportunity. The debates on whether Russian geopolitical revisionism will bring
Turkey closer to the West or shift it to the Beijing-Moscow-Tehran axis will
not be concluded in 2023 either. Efforts such as reconciliation with Gulf
countries, Egypt and Israel, normalization of relations with Syria, and easing
the tension in Libya are expected to continue.

In a nutshell, 2023 will be fraught with so many
geopolitical risks that will intensely engage the insurance industry and with
less good news. Let’s prepare well in advance to manage them effectively if we
do not want to fall victim to, and pay dearly for, these risks.

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To cite this work: Mehmet Öğütçü, “Geopolitical risks awaiting us in 2023: How to navigate?”, Panorama, Online, 20 January 2023, https://www.uikpanorama.com/blog/2023/01/20/mo

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