These are challenging days for corporate risk teams. President Trump’s wide-ranging executive orders are creating jeopardy for multinationals all over the world. Possible tariff wars with Europe and China would probably require urgent supply chain mitigations. The suspension of USAID may destabilise certain emerging and frontier markets, necessitating crisis management contingencies.
Yet while Trump’s much-covered foreign policy interventions need to be monitored and assessed for their potential to hit business operations, they are by no means the only probable source of disruption over the coming months. Another, perhaps not as obvious or well-understood, is the growing potential for Grey Swan events to materialise. Many high-impact events that were once considered low probabilities, are now becoming more likely than ever before. There are several reasons for this, stemming from the breakdown of the rules-based international order and an expanding global democratic deficit.
Possible Grey Swan scenarios
The US administration’s withdrawal from its longstanding role as a global policeman is creating a security vacuum that is likely to be exploited by all manner of bad-faith state and non-state actors. Indeed, Russia’s hybrid war against European countries, aimed at undermining support for Ukraine and sanctions enforcement, could see an upsurge in sabotage activities, as US commitment to Europe diminishes. And the stuttering post-Covid recovery and creeping authoritarianism across the world has left many governments under pressure from disaffected publics, leaving them vulnerable to uprisings and coups.
Unlike Trump’s tariff threats, telegraphed long before his election victory, allowing corporates to begin to put in place contingencies, Grey Swan events are harder to forecast. Risk teams must identify and track indicators that point to their likelihood and employ scenario analysis techniques to access their potential impact on business operations. Yet better anticipation is not just about mitigating these risks, it lends companies a strategic advantage over competitors that might not be so well prepared.
Risk of devolving counter-terrorism
With Islamist insurgencies present across much of the Sahel, multinationals are acutely aware of the potential for terrorism and its associated disruption in the region and further afield. While counter-terrorism is likely to remain a priority for the US administration over the next few years, responsibility for its execution, especially in parts of Africa and the Middle East like Somalia and Syria, could be passed to less capable and often ill-equipped local and regional partners. This may in turn provide an opportunity for extremist groups to resurge in areas where they have been held in abeyance, while prompting other states like Russia to fill the security vacuum by increasing weapons sales to these regions.
So businesses with a footprint in these areas need to recognise that such a shift in US policy could compound the security challenges they already face in a number of countries –particularly the Horn of Africa and the Levant where Islamists may gain momentum and destabilise these whole regions. Senior executives alert to this possibility can make informed choices around their risk appetite for operating in these territories, and put in place mitigations to be able to ensure the continued safety of staff and assets.
New Russian threat – the hybrid menace
Russian sabotage of Baltic states’ undersea critical infrastructure and interference in the elections of Eastern European countries has been sowing discord and confusion in recent months. But now Putin may be emboldened to step up his hybrid war. This comes as the US signals that European security is no longer its primary focus, amid an evident rapprochement with Russia. With the US guardrails seemingly off, it is plausible that Putin will look to orchestrate a much higher impact event in northern Europe, such as an environmental disaster, which could take the form of a giant oil spill in a busy shipping lane or the contamination of national water supplies.
Such incidents may have seemed outlandish in the past, but they are now realistic possibilities and should be factored into crisis planning along with the other hybrid warfare tactics Russia has been deploying. Scenario planning and war-gaming exercises can help multinationals think through both the likely business disruption of an unprecedented Russian-instigated major incident and how it might be mitigated.
Authoritarian regimes vulnerable to coups
In recent years, multinationals will almost certainly have taken steps to reduce their exposure to coups in West and Central Africa. However, such political upheavals and their regional reverberations are now more likely in other parts of the world where the potential for business loss is far higher. This is especially so in South Asia, a commercial and supply chain hub. Here, the post-Covid economic downturn together with growing authoritarianism has left governments weak and vulnerable to sudden, unlawful seizures of power.
Last year saw the overthrow of the Bangladesh regime widely seen as corrupt and autocratic – the consequent political tremors reshaping the region’s geopolitical landscape. Bangladesh has moved closer to Pakistan and distanced itself from former ally India – where deposed Bangladeshi leader Sheikh Hasina fled. India is concerned by the possibility of a military alliance between its neighbours, and has bolstered security on its border with Bangladesh.
The development is illustrative of how in the post-Covid era of instability, regions of the Global South once deemed relatively low-risk locations for multinational operations can quickly become crisis-prone. In the wake of the pandemic, boards that switched their supply chains from China to South Asia now find themselves facing new risks: political and economic uncertainty in Bangladesh and the possibility of disruption to cross-border trade should tensions between India and Bangladesh mount. The situation is very fluid and combustible, requiring close monitoring of developments, identification of escalation triggers, and the planning of contingencies in the event of business conditions worsening.
Recognising the potential for Grey-Swan events not only helps to secure multinationals’ operational resilience, it can also give them a strategic advantage. They would be able to act sooner and with greater confidence, offering a commercial edge over rivals who may find themselves feeling overwhelmed and less assured because they have not incorporated potential Grey Swans into their crisis planning processes. It can mean the difference between staying in an impacted region, better informed and prepared for the challenges, and being caught off guard, with exit the only option to minimise losses.
