Aon: likelihood of interstate conflict is at the highest point since the end of the Cold War
The main findings of the 2018 issue of the annual Aon study are:
- Political Violence: The likelihood of interstate conflict, even involving major powers, is at the highest point since the end of the Cold War. Growing geopolitical competition and weak leadership in international diplomacy have contributed to increased risks of armed conflict over the last year.
- Terrorism: The number of terrorist attacks in Western countries in 2017 (204) doubled - up from 96 in 2016, though casualties remained at similar levels. A number of war zones internationally continue to serve as incubators for international terrorism, although the global threat from Islamic State seems to be waning somewhat.
- Political Risk: Last year saw political risk increase in 11 countries, with climate change and commodity shocks weakening fiscal positions, which are still struggling to recover from the commodity shock, and exacerbating rising levels of political violence and supply chain disruption.
Terrorism and Political Violence
Political violence risks are rising globally, due to geopolitical tensions, a weakening of liberal democratic governance, and the repercussive effects of chronic conflicts around the globe.
For the third successive year, more country risk ratings have increased (17) than decreased (6). This year:
- 40% of countries are listed as being exposed to terrorism and sabotage risk;
- 60% to civil unrest risk, and
- 33% to insurrection, war or coup risk.
The likelihood of interstate conflict, even involving major powers, is at the highest point since the end of the Cold War. Growing geopolitical competition and weak leadership in international diplomacy have contributed to sustained or increased risks of armed conflict over the last year. Growing rates of polarization over political, economic and social issues in mature democracies, and divisions between Western powers in the face of complex threats and risks, has also contributed to worsening global security and greater strategic uncertainty.
The number of terrorist attacks in Western countries in 2017 (204) was roughly double that of 2016 (96) but the total number of casualties in both years was broadly the same (1,092 in 2017), meaning that the lethality of attacks has fallen.
Notably, the threat posed by Islamic State has stopped spreading - but has not yet receded. IS mounted terrorist attacks in 29 countries on five continents in 2017, the same number of countries as in 2016 and up from 19 countries in 2015, but the global reach of IS appears to have peaked, and it seems likely that the number of countries where it is able to mount attacks, or inspire others to do so, will fall in 2018.
In particular, the tourism sector is having to manage the risks posed by increased terrorism, with the sector a highly attractive target for some terrorist organisations. In 2017, there were at least 35 attacks worldwide that directly targeted commercial sectors that are critical components of the tourism industry, such as hotels and resorts, nightclubs, civil aviation and visitor attractions.
Last year political risk increased in eleven countries, compared to only two countries that saw reduced risk, showing the persistence of political risk across the globe, highlighted by increases in political violence and supply chain disruption. Many countries' risks of supply chain disruption have risen due to both climate shocks and weakening fiscal positions.
Notably, over the last year, Asian countries' trade linkages have been shifting away from the US and toward China. This is due to China's economic development, and its rise as a trade giant. Amid China's rise, Asia's exports to the US have edged down from around 23% of total exports in 2000 to stabilize at around 12% in recent years. By the same token, Asia'sexports to China have more than doubled over the past decade to around 23% currently.
Elsewhere, political risks in Latin America are increasing ahead of a busy election season, delaying major reforms in Brazil and stoking fears of reform reversal in Mexico. Major countries are at risk of electing populist governments, and smaller countries are experiencing their share of political noise.
More broadly, the region experiencing most downgrades is Africa. Ongoing conflicts within countries, the erosion of democratic governance and increasingly frequent corruption scandals have led to more political violence. Groups such as IS and Boko Haram are taking advantage of fragile institutions and weak borders. Elsewhere, the Middle East contains some of the highest-risk countries in the world: Iraq, Syria, Yemen and Egypt. Instability and violence in the region have spilled over to neighboring countries, undermining trade and tourism.
Notes to editors
The Aon Political Risk Map captures changing risks for businesses and countries across emerging and frontier markets (non OECD countries).
For more information and to access the interactive maps and full report please visit the Aon website.