Message of Greeting | The Visible Hand of Geopolitics

In the sphere of global finance, the term „geopo­li­tics“ has tran­si­tio­ned from rela­tive obscu­rity to occu­py­ing a promi­nent posi­tion within finan­cial discourse. Its emer­gence was nota­bly cata­ly­sed by the 2008 finan­cial crisis, which preci­pi­ta­ted an array of govern­ment regu­la­tory inter­ven­ti­ons, thus resha­ping the foun­da­ti­ons of the preexis­ting finan­cial order. These inter­ven­ti­ons, exem­pli­fied by the Dodd-Frank Act in the United States and the exten­sive regu­la­tory measu­res under­ta­ken by the Euro­pean Union – later conso­li­da­ted under the Banking Union (EBU) – along­side the advent of the Basel III regime, unders­cored the permeable boun­dary between the realms of poli­tics and finance. They signaled an epoch where poli­ti­cal forces acqui­red the capa­city to exert substan­tial influence over finan­cial markets.

When does poli­tics become geopo­li­tics? The finan­cial crisis of 2008 was a strong symptom of an empi­ri­cal trend in recent deca­des. There has discer­ni­bly been an increase in frequency and inten­sity of crises over recent deca­des. These crises are diverse in both origin and charac­te­ristics, encom­pas­sing pande­mics, extreme climate shifts, and armed conflicts, among others. Nevert­hel­ess, a common element is often shared, namely: geopo­li­ti­cal under­pin­nings. This trend seems poised to inten­sify in the coming years, ther­eby resha­ping rela­ti­ons, and defi­ning the decade ahead.

We are curr­ently expe­ri­en­cing a funda­men­tal stra­te­gic confron­ta­tion between Western demo­cra­cies and auto­cra­tic states, exem­pli­fied most nota­bly by China and Russia. This confron­ta­tion is syste­mic. At its core diffe­rent value systems clash that do not even allow for a common agree­ment on basic facts or the defi­ni­tion of truth. This has endan­ge­red the stabi­lity of our shared secu­rity archi­tec­ture that has persis­ted since 1990. China and Russia seek to exploit and abuse norma­tive rules under inter­na­tio­nal law to their own advan­tage, and so far, have emer­ged trium­phant over what some label as the Western “rules-based order”. Inves­tors and busi­nesses must reco­gnize that there will be no return to the pre-war ‘normalcy.’ On the contrary, this funda­men­tal conflict is likely to persist for an exten­ded period, with profound impli­ca­ti­ons for the global economy.

The rami­fi­ca­ti­ons of this stra­te­gic confron­ta­tion extend their influence across diverse domains, encom­pas­sing global rear­ma­ment, closer alli­ances among allied nati­ons, econo­mic protec­tion­ism, and the proli­fe­ra­tion of sanc­tions. Criti­cal tech­no­logy sectors, as well as the nebu­lous boun­dary between peace and war, charac­te­ri­sed by hybrid warfare stra­te­gies that include econo­mic coer­cion and cyber­at­tacks, have become inte­gral parts of this geopo­li­ti­cal contest. From sanc­tions and pipe­line sabo­tage, to embar­goes and tariffs, in light of these deve­lo­p­ments, the finan­cial sector finds itself confron­ted with multi­face­ted chal­lenges and opportunities.

What is the signi­fi­cance of geopo­li­tics in the realm of finance, and where do the inter­sec­tions between these two domains mani­fest? – The impact of these geopo­li­ti­cal dyna­mics on the finan­cial sector are profound and mani­fold. Invest­ment stra­te­gies must now incor­po­rate a compre­hen­sive “geopo­li­ti­cal check­list” to ascer­tain the resi­li­ence of enter­pri­ses within the domains of produc­tion, procu­re­ment, and sales. Under­ex­plo­red markets, nota­bly those in South America and Southe­ast Asia, assume heigh­tened signi­fi­cance. Simul­ta­neously, stra­te­gic atten­tion is neces­sary in the domains of criti­cal resour­ces and raw mate­ri­als, unders­cored by the compe­ti­tion for resource access and the conco­mi­tant scar­city of water and food. Moreo­ver, demo­gra­phic shifts, under­pin­ned by geopo­li­ti­cal trans­for­ma­ti­ons, spot­light the inter­play between geopo­li­tics and labour resour­ces. Trade routes and border tensi­ons, as exem­pli­fied by the Taiwan Strait or the Sino-Indian border, loom as poten­tial flash­points capa­ble of disrupt­ing the global economy. Busi­nesses and inves­tors must incor­po­rate geopo­li­ti­cal under­stan­ding as an essen­tial navi­ga­tio­nal tool in the growing quag­mire of heigh­tened volatility.

The criti­cal raw mate­ri­als needed in a wide range of indus­tries (i.e. nickel, cobalt, tin, niobium, tantalum, graphite, lithium, rare earths, vana­dium, copper and phos­phate) are largely extra­c­ted in Afri­can and Latin Ameri­can count­ries. Reco­g­nis­ing this, the People’s Repu­blic of China has stra­te­gi­cally secu­red access to raw mate­ri­als on the Afri­can and South Ameri­can conti­nents, ther­eby substan­ti­ally expan­ding its econo­mic influence over the past two decades.

Mean­while, the EU is imple­men­ting major policy packa­ges such as the Raw Mate­ri­als Act, empha­si­zing sove­reig­nty, inno­va­tion, and sustaina­bi­lity projects. Despite these efforts, the EU still faces poten­ti­ally cripp­ling disad­van­ta­ges, nota­bly exem­pli­fied by the Chinese domi­nant role in the secon­dary produc­tion and refi­ne­ment of seve­ral criti­cal raw mate­ri­als (holding a stag­ge­ring 60 percent market share in global cobalt refi­ning). This situa­tion has led to extreme asym­me­tries, with Europe now more reli­ant on raw mate­ri­als sources or those proces­sed in China than it ever was on Russian gas.

The contest for resour­ces is further exacer­ba­ted by the tangi­ble scar­city of essen­tial commo­di­ties. Russia’s war in Ukraine, coupled with resul­tant global grain shorta­ges, unders­cores the important geopo­li­ti­cal impli­ca­ti­ons of food secu­rity, even in regi­ons seemingly distant from the initial conflicts. For instance, the shortage of grain and the subse­quent surge in food prices led Tuni­sia peri­lously close to natio­nal bank­ruptcy – only aver­ted by an addi­tio­nal loan from the Inter­na­tio­nal Mone­tary Fund. Simul­ta­neously, the shortage of grain has ampli­fied the geostra­te­gic importance of South America in the global supply chain. Nati­ons such as Brazil and its neigh­bours are well posi­tio­ned to meet the growing demand for maize, beef, poul­try, sugar, soybe­ans, and coffee. Projec­tions suggest that the region’s food exports are poised for a remar­kable 17 per cent growth, reaching 100 billion US dollars within the next decade. This scar­city of essen­tial commo­di­ties will wield considera­ble influence over future poli­ti­cal decis­i­ons, inclu­ding actions such as India’s wheat export ban, and signi­fi­cantly impact migration.

Within the context of resource compe­ti­tion, the role of demo­gra­phy emer­ges as a pivo­tal geopo­li­ti­cal driver, expan­ding the scope of resour­ces to encom­pass labour. Indus­tria­li­zed nati­ons world­wide are grap­pling with decli­ning popu­la­ti­ons and the chal­lenges posed by aging socie­ties. Concurr­ently, migra­tion is on the rise, with Africa expec­ted to be the sole conti­nent sustai­ning a ferti­lity rate above 2.1 by 2030, ther­eby single-handedly propel­ling global popu­la­tion growth. Demo­gra­phic shifts and geopo­li­tics are intri­ca­tely intert­wi­ned, where age distri­bu­tion shapes a nation’s mili­tary and econo­mic strength, while geopo­li­ti­cal trans­for­ma­ti­ons concurr­ently influence demo­gra­phics through crisis-indu­­ced migra­tion and refu­gee flows.

Undoubta­bly, geopo­li­ti­cal drivers and evolu­ti­ons bear immense signi­fi­cance for the econo­mic fortu­nes of compa­nies. Within this intri­cate web of geopo­li­tics, oppor­tu­ni­ties and risks intert­wine. A sudden shift in policy, the emer­gence of conflicts in regi­ons criti­cal to speci­fic commo­di­ties, or realignments in poli­ti­cal alli­ances possess the poten­tial to decisi­vely shape the outco­mes of econo­mic endea­vours. Ther­e­fore, for busi­nesses and inves­tors navi­ga­ting the conti­nu­ally evol­ving terrain of commerce and invest­ment, posses­sing a compre­hen­sive and profound grasp of geopo­li­tics assu­mes para­mount importance. Geopo­li­tics has indis­pu­ta­bly emer­ged as an inte­gral dimen­sion of econo­mic acti­vity, where resour­ces are wiel­ded as instru­ments of geopo­li­ti­cal influence, and markets undergo substan­tial trans­for­ma­ti­ons, ampli­fied by the heigh­tened role of sanc­tions, parti­cu­larly secon­dary sanctions.

In conclu­sion, courage is the currency of today’s world. The geopo­li­ti­cal land­scape of Germany and the Euro­pean Union, along­side their inter­na­tio­nal part­ners, has under­gone profound trans­for­ma­ti­ons in recent years. These shifts ripple across all sectors of busi­ness, leaving no sphere untouched. The impact of geopo­li­ti­cal events on the global stage has reached an unpre­ce­den­ted zenith. Varia­bles such as regio­nal conflicts, trade dispu­tes, sanc­tions, demo­gra­phic tran­si­ti­ons, and envi­ron­men­tal impe­ra­ti­ves exert substan­tial sway over the perfor­mance of indi­vi­dual enter­pri­ses. Thri­ving in this dyna­mic envi­ron­ment neces­si­ta­tes an unwa­ve­ring commit­ment to inte­gra­ting the geopo­li­ti­cal dimen­sion into project plan­ning and stra­te­gic decis­­ion-making. Compa­nies and inves­tors must possess the agility to navi­gate a terrain marked by heigh­tened vola­ti­lity and rapid tran­si­ti­ons. Simul­ta­neously, a nuan­ced under­stan­ding of geopo­li­ti­cal dyna­mics, coupled with a readi­ness to adapt, unveils a realm brim­ming with oppor­tu­ni­ties for successful invest­ments. Busi­ness leaders, decis­­ion-makers, and inves­tors stand chal­len­ged to proac­tively anti­ci­pate and seam­lessly incor­po­rate the evol­ving geopo­li­ti­cal landscape’s reper­cus­sions into their busi­ness stra­te­gies and invest­ment portfolios.

Dr Timo Blenk