Some of the worst business disruptions in 2020 will come not from trade wars or terrorist attacks, but from the consequences of climate change as they intersect with other geopolitical risks.
The effects that climate change is having on natural resources must be factored in to any analysis of global geopolitical risks. Rising sea levels, increases in the frequency and severity of extreme weather events, and temperature changes invariably place added stress on the very resources that play critical roles in the security and stability of states — water, food, transportation, and energy systems, to name a few. When left unmanaged, disruption to any one of these resources can catalyze population displacement, migration, political unrest, and domestic or regional conflict, all of which can potentially lead to state collapse.
The geopolitical risk inherent in climate change comes not from actual changes in weather, sea levels, or resource availability but rather, from the ability or inability of governments to effectively anticipate and manage the coming changes in ways that preserve or create security and prosperity for their citizens. Countries in which state resources are used to secure the loyalty of the population, oil-rich states like Sudan, South Sudan, and even Nigeria, that are not well integrated into the global economy, and in general, less developed states, are far more likely to experience this type of conflict.
The True Roots of Political Conflict
On the surface, many local, regional, or even international conflicts may seem political, as it is human nature to create narratives to justify actions, but ideology is often a superficial justification for conflict. Beneath the surface, resource conflict is almost always at the root of the discord. Inadequate availability and unreliable access to water directly impact inequality, food security, and poverty. Water scarcity often leads to internal migration, due to unemployment and intense competition for jobs. One example of water stress leading to the destabilization and eventual near-collapse of a country is in Syria, where water scarcity was an underlying factor in the conflict. After years of flawed agricultural policies, overuse of land and groundwater resources, a sudden removal of fuel subsidies and simultaneous increases in global food prices, several years of severe drought and crop failures prompted a large-scale internal migration to the country’s urban centers, which exacerbated the unemployment problem.
We need only look to Somalia for another example of what happens when states fail and water becomes so scarce that it’s used as a weapon by a nefarious actor. In 2011, Somalia experienced severe regional droughts that have been linked to climate change. During this time, jihadist fundamentalist group al Shabaab shifted away from its traditional guerilla tactics and began controlling the water sources of cities where they could not militarily hold power. In combination with limited access by international aid organizations, al Shabaab’s effort to demonstrate their power and presence by controlling resources led to more than a quarter million deaths and hundreds of thousands of newly displaced persons.
In this sense, climate change will remain the largest variable in geopolitical risk and security calculations for the foreseeable future, especially in areas with poor governance. In fact, in the coming years, impacts are expected to fall disproportionately on the Asia Pacific region. With two thirds of the world’s poor, half the world’s intra-state conflicts, and populations more likely to experience natural disasters than those in any other region of the world, Asia Pacific countries are extremely vulnerable to political upheaval stemming from resource conflict.
However, other regions are already grappling with the geopolitical effects of resource conflict. Food and water shortages are contributing to global migration flows, reshaping politics in North America, Europe, and other parts of the world. While political violence is often cited as a primary driver of the sizable increase in arrivals at the US southern border, the reality is much more complex, as the consequences of climate change often act as a tipping point. Between 2010 and 2015, the number of migrants arriving from Central American countries like El Salvador, Guatemala, and Honduras increased five-fold. This period of time also coincided with a dry spell in the region that left many without enough food. Last year, the World Bank predicted that climate change could result in 1.4 million people fleeing their homes in Mexico and Central America during the next three decades.
Water Stress: the Biggest Geopolitical Risk that No One is Talking About
Water stress, technically lack of water resources for daily human consumption, as well as agricultural and industrial needs, is arguably the biggest geopolitical risk that no one is talking about. From India to Iran to Botswana, 17 countries are currently experiencing extremely high water stress, meaning they are using almost all the water they have, according to data published by the World Resources Institute in early August.
The second and third order effects of water stress are easily observable: food insecurity, conflict, migration, and financial instability. All of these challenges are now plaguing Chennai, India, one of the world’s most water stressed cities and home to around 10 million people. What makes Chennai worth mentioning is that the current water crisis was predicted years ago, but actions to address the issue and better manage water resources were few and far between. This summer, events came to a head. For much of the month of June, Chennai had only been meeting about two thirds of its water needs, the result of years of drought and decades of poor governance.
When the annual monsoon arrived, a streak of 200 days without rainfall was broken, but one third less rain than the 50-year average fell, making it the driest June in five years. By July, the acute water shortage saw residents waiting overnight for government water trucks or paying exorbitant fees to private companies for deliveries. Some hospitality businesses closed down because they didn’t have enough water to meet the needs of paying guests. The scarcity even led to clashes between neighbors.
Chennai is merely the tip of the iceberg in India, reflecting a larger water crisis across the country. About 600 million people, half of India’s population, live in areas where water resources are strained. A study commissioned by NITI Aayog, an Indian government policy think tank, found that by 2020, 100 million Indians living in the country’s 21 largest cities, are expected to run out of groundwater. By 2030, the study predicts, demand for water will be double the country’s supply.
While it may seem that increasing urbanization is the primary driver of the world’s water stress (and other forms of resource strain), the situation in India illustrates why this is not the case. Most of the rural poor in the world are small farmers whose livelihoods depend on access to water. In India, agriculture is responsible for around 15 percent of the annual GDP, but accounts for 80 percent of all water use. NITI Aayog has rated 70 percent of Indian states as less than 50 percent effective for managing water in farming. In fact, most states have achieved a score of less than 50 percent in augmentation of groundwater resources overall, shining a giant spotlight on a growing national crisis.
The Other Side of Climate Change: New Resources, New Markets, New Competition
While much of India grapples with water scarcity, changes in Arctic sea ice have created a different kind of opportunity for resource-driven conflict — one that is being played out at the national level and that will intensify in the coming decade. The Arctic Ocean is expected to become essentially ice free in summer before the middle of the 21st century, facilitating unprecedented access to natural resources within the Arctic region. This melting and the discovery of energy deposits — along with the development of the technology needed to access those resources — are quickly elevating the geostrategic importance of the Arctic region.
The Arctic is estimated to contain around 1,670 trillion cubic feet of natural gas, 44 billion barrels of liquid natural gas, and 90 billion barrels of oil — the vast majority of which are recoverable and thought to have potential for petroleum development. New reserves of gold, zinc, nickel, and iron, already found in parts of the Arctic, may be discovered as more of the region becomes accessible. Additionally, the Arctic is home to two major sea routes, the Northern Sea Route and the Northwest Passage, that permit ships to pass through in the summer months. While there are a number of challenges to address before either of these routes could displace the Suez Canal as the main shipping lane connecting Europe to East Asia, taking the Northern Sea Route would reduce transit time from 48 days to somewhere between 33 and 38 days.
The Arctic Council is comprised of the eight countries with terrain above the Arctic Circle — Norway, Sweden, Finland, Russia, the United States, Canada, Denmark and Iceland, and includes representatives of the indigenous peoples of the region. While only states with territory in the Arctic can be members with voting rights, the Council also offers observer status to non-Arctic states who are approved by the Council. As of May 2019, 13 states have observer status, including Germany, Netherlands, Poland, UK, France, Spain, China, India, Italy, Japan, South Korea, Singapore, and Switzerland. The Council is designed to promote “cooperative governance” while deliberately not engaging with military issues. In reality, however, the race for the Arctic is underway, as Russia, China, and to some degree, the United States vie for power in the region.
The Cost of Climate Change in 2020
Ultimately, when compared to other drivers of geopolitical risk, climate change can be predicted with a relatively high degree of certainty. What are substantially less predictable are the consequences of climate change, as they have a cascading effect, and particularly, as they intersect with other risks. As such, extreme weather and the resulting consequences have never been more significant as a business risk.
The impact of global insured losses from natural catastrophes alone reached $219 billion in 2017 and 2018 combined, a record high over a two-year period. The effects of climate change vary significantly from region to region, but the level of geopolitical risk can be disproportionately elevated as the consequences of climate change interact with other potential risks like terrorist attacks or a contracting economy. For this reason, governments and businesses alike must be prepared for a wide range of possible scenarios that could disrupt operations.
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Originally published at www.luminaegroup.com on September 9, 2019.