• By: Noorulain Manzoor Hussian, IMSciences Peshawar

Geopolitical risks like elections, political divisions, conflicts, and international tensions have big effects on the global economy.

Here’s how these risks impact economic stability and growth:

The Russia-Ukraine war caused significant market volatility, with stock markets dropping sharply due to uncertainty about the conflict’s length and severity. This made investors hesitant, affecting global investment decisions. Sanctions on Russia and the disruption of Ukrainian grain exports led to major supply chain issues, raising global food prices and causing shortages. Europe, which relies heavily on Russian energy, faced serious supply problems and higher costs. The war disrupted global energy markets since Russia is a key oil and gas supplier, causing energy prices to rise and creating insecurity, especially in Europe, which had to find new energy sources.

Sanctions have isolated Russia from global financial systems, impacting trade and investment. Russia’s retaliatory actions, like cutting off gas supplies to Europe, had significant economic impacts. While sanctions in other conflicts are not as extensive, international responses like boycotts can still affect economic conditions and investments. The war initially caused the Russian ruble to drop sharply, leading to inflation in Russia. Globally, disrupted grain and energy supplies contributed to inflation, especially in Europe.

Tourism and foreign investments in Russia and Ukraine have decreased significantly due to the heightened risks and sanctions. The conflict created a massive humanitarian crisis with millions of refugees, putting economic and social pressures on neighboring countries and international aid organizations. The unpredictable nature of the war makes long-term economic planning difficult for businesses and governments, leading European countries to reconsider their energy policies and reliance on Russian resources.

Tensions in the region can impact energy prices, especially if conflicts threaten the broader Middle Eastern area, which is crucial for the global oil supply. These conflicts cause localized economic instability and can affect the strength of regional currencies. For instance, during periods of conflict, tourism declines, which weakens the currency and contributes to inflation in affected areas.

Recurring violence deters tourists and investors, which hurts economies that depend heavily on tourism and foreign investment. This has long-term negative effects on economic stability and growth in the region. The conflict also leads to significant humanitarian issues like displacement, casualties, and economic hardship, further straining social services and infrastructure.Continuous instability hampers long-term economic development and planning. Efforts to attract sustained investment and develop infrastructure are often disrupted by recurring violence, making it difficult for the region to achieve economic growth and stability.

Geopolitical risks, exemplified by the Russia-Ukraine war and the Israel-Palestine conflict, significantly affect the global economy through market volatility, trade disruptions, energy market impacts, sanctions, inflation, reduced tourism and investment, humanitarian costs, and challenges in long-term planning. Managing these risks and promoting stability are crucial for sustaining global economic growth and stability.

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