The Global Fallout from the Middle East Crisis: D&B

The Global Fallout from the Middle East Crisis: Dun and Bradstreet (D&B)

Risk Insights

• Political instability in the Middle East and North Africa is likely to affect companies that have a significant exposure to this area, such as European agri-food and textile businesses and Asian exporters.
• As a result, supply chain disruptions and increased payment risks are liable to impact on companies globally.
• In the long term, lenders and insurers are likely to re-price political risk in several emerging markets, thus leading to higher credit and insurance costs for foreign and local companies.
• Unrest in oil-exporting countries will also affect hydrocarbon prices and raise business costs.
• There are likely to be natural gas supply disruptions, particularly for companies in energy-dependent Southern Europe.
• As political risk rises, country risk information is set to become even more essential to companies dealing with foreign counterparties.

Recommendations

The wave of uprisings sweeping across the Middle East and North Africa (MENA) is set to have a major impact on the risk of doing business. As political instability rises in the region, companies around the world need to prepare for the knock-on effects on supply chains and business costs across most sectors.

1. In the short term, political instability and economic breakdown in affected countries are likely to impact on supply chains around the world; agri-food and textile companies in Europe and consumer goods producers in China and other Asian economies are most vulnerable to these shocks. Careful monitoring of political and economic trends, alternative sourcing and stockpiling are strategies that can reduce the impact of these disruptions.

2. In the longer term, heightened political risk could lead to deteriorating economic conditions and tighter access to credit, raising payment risks for companies dealing with MENA (and, potentially, other emerging markets). Adequate export and political risk insurance cover and safe trade terms, such as documentary credit, will be key to mitigating counterparty risk.

3. In the wake of the crisis in the MENA region, lenders and insurance companies are likely to upwardly re-price the risk premium attached to dealing with emerging markets, thus raising operating costs for exporters and investors.

4. Growing instability in oil-exporting economies is likely to cause disruptions in oil supply and boost prices both in the short and long term; as energy costs rise, companies should aim to shorten their supply chains and adopt less energy-intensive production processes, where possible, to minimise risks.

5. Moreover, the risk of disruptions in natural gas supply to Europe could negatively affect companies in energy-dependent Spain and Italy, potentially causing further supply chain dislocations and increasing payment uncertainty in these countries.

6. Escalating hydrocarbon prices will offer more opportunities to businesses operating in the renewables sector, as governments and companies are likely to step up energy-source diversification to mitigate supply risks.

7. In this context, country risk information and market intelligence will play an increasingly essential role for companies that aim to minimise costs and risks when dealing with foreign counterparties. Country Risk Services

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