There are fundamental challenges to international manufacturing – and the underlying supply chains – that industrial companies are having to work to rapidly manage and overcome. ‘Just in time’ has been replaced by ‘just in case’, with resilience favoured over efficiency.
The most obvious of these challenges, the conflict in Ukraine, has had widespread impacts on supply chains, extending far beyond the energy sphere in which Russia has most obviously deployed its leverage. Companies globally have woken up to the threat from geopolitics. As the war enters its second year, informed companies are closely monitoring the situation to understand possible scenarios and their second- and third-order effects.
The manner in which the war in Ukraine concludes will redefine European security. The resultant security architecture will shape regional geopolitics for decades. As the war continues, neither Russia nor Ukraine looks able to force a military breakthrough: this stalemate is unlikely to encourage a negotiated settlement. But endgames other than a “frozen conflict” remain plausible: wider escalation involving (tactical) WMDs or more explicit Chinese support (and the secondary sanctions it would trigger) are distinct scenarios. Surprising battlefield success for either side could rapidly reshape assumptions, whilst internal political dynamics and the health and popularity of both leaders may yet prove critical.
The war in Ukraine has also redefined thinking on energy security. There is a renewed emphasis on the policy trade-offs between reliability, affordability and decarbonisation – the ‘energy trilemma’. Until recently, a decarbonisation strategy and accompanying ESG policies could ensure that a company was ahead of the pack. But that’s no longer adequate: companies now need to answer to scrutiny from governments, investors and the wider public across all three dimensions.
Capital flows have been reshaped accordingly, with governments playing an increasingly active role. Industrial policy has reasserted itself with the US Inflation Reduction Act (IRA) and European Green Deal Industrial Plan. Clear and resilient decarbonisation strategies are no longer a ‘tick box’ exercise but a vital part of successful business leadership and action.
The cost of capital is rising globally but the world needs huge investments to build a resilient, affordable and decarbonised energy system. Good corporate leadership will be an important catalyst for driving change.
Miramar has been pleased to partner with Gatehouse Advisory Partners, a boutique geostrategic advisory firm in London, to enhance its clients’ awareness and understanding of the most business-critical geopolitical trends.