Lloyd’s/Aon: energy sector to be ‘most impacted’ by Ukraine risks

A joint report from  Lloyd’s and  Aon on the highly interrelated risks of the Ukraine conflict has said the energy sector is likely to be most impacted by risks emerging from the war.

The research looked at how Russia’s invasion of Ukraine is reshaping business models and the global economy.

In all sectors, “the ability of businesses to diversify and ‘hedge’ their portfolios and supply chains to reduce dependence on single suppliers will be key to minimising risk exposure”, it said

Report authors highlighted energy as the sector likely to be most impacted. However, energy security and reputational concerns will be a key factor for all sectors in building risk mitigation strategies to respond to the conflict, it said.

There will also be second order effects from reduced food and energy supplies, as Russia provides a fifth of the world’s wheat and 40 percent of Europe’s gas, and higher business costs associated with reshoring supply chains. These issues will be “as pertinent as the immediate inflationary impacts", it added.

Escalating geopolitical tensions are behind the spike in cyber attacks, with potential "knock on impacts" for inflation and market volatility, it added.

The joint report makes clear the need for insurance, as a key risk transfer mechanism, to help businesses mitigate these interrelated risks and build organisational resilience.

John Neal (pictured), chief executive officer of  Lloyd’s, said: “The conflict in Ukraine has caused devastating human costs and a whole range of interconnected risks across areas like energy, cyber and supply chains. Just take the recent challenges of exporting grain, where geopolitics has in turn affected food security, market volatility and price inflation. A proactive and forward-thinking approach will therefore be key to building resilience against the fallout – and  Lloyd’s will deploy its expertise, resources, and risk solutions to support that goal.”

Dominic Christian, global chairman of Reinsurance Solutions at  Aon, said: “The Ukraine conflict touches us all, both as individuals and businesses. Over time, our world has become increasingly interconnected, and geopolitical events further highlight that a specific risk does not exist in isolation.

“Our ability to manage deeply related and increasingly volatile risks requires careful thought, detailed planning and effective execution. I hope the front-line perspectives contained in this report help businesses understand the universality of the challenges, the ways they may evolve and how they may best navigate them as they make better-informed decisions.”

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