The impact of recent conflicts and risks for 2025, by Alison Anglin, Associate Director, Terrorism and Political Violence, Willis
The political risks that shocked global supply chains over the past five years won’t abate in 2025. In addition to ongoing concerns around Russia’s invasion of Ukraine, Houthi rebel attacks in the Red Sea and the trade war with China during the first Trump term, organizations now face the prospect of extensive U.S. tariffs, an unstable Middle East and the outcome of the war in Ukraine.
Below, we consider the impacts of recent political events and conflicts on global trade, potential future disruptions and the trends global businesses need to understand to better manage supply chain risks looking ahead:
Russia’s 2022 invasion of Ukraine and ongoing conflict caused the greatest military-related disruption to global agricultural markets in at least a century. Both countries are key global sources of fertilizer, cooking oil and feed grains. Before the 2022 invasion, their combined wheat production made up roughly one third of global need. According to the Global Report on Food Crises, in 2022, an all-time high of 258 million people experienced acute food insecurity.
Since invading, Russia has taken advantage of food insecurity in low and middle-income countries. It’s sought to undermine Ukraine’s ability to supply food to these countries, and therefore its political influence on them, increasing their reliance on Russia. Since February 2022, Ukraine’s wheat and corn exports have fallen globally for every region except Europe, where Ukraine’s spike in exports has led to tensions with the EU due to over saturation of agricultural markets of other European countries.
Russia has also undermined Ukraine’s agricultural trade ties in Africa. In 2020, more than 50% of fifteen African countries’ imports of wheat came from Ukraine and Russia. Along with the sharp increase in the cost, the Russian invasion of Ukraine triggered a shortage of roughly 30 million tons of grains in African in 2022. To further inflict economic pain on Ukraine, with ramifications for global supply chains, Russia pulled out of the Black Sea Grain Initiative that had allowed Ukraine to export grain despite the conflict, then offering Africa free grain transport to increase the region’s reliance on Russian grain.
The invasion of Ukraine didn’t just derail agricultural supply chains. Ukraine is a top 10 global supplier of mineral resources, holding around 5% of the world’s total. Ukraine has the largest titanium reserves in Europe and makes up 7% of reserves. It’s one of the few countries that mine titanium ores, crucial for automotive and marine industries, among others.
Before February 2022, Ukraine was also a key titanium supplier for the military sector. Ukraine is also the world’s fifth largest gallium producer, essential for semiconductors, and has been a major producer of neon gas, supplying 90% of the semiconductor-grade neon for the U.S. chip industry.
Each year, thousands of ships transport more than $11.5 trillion in goods across the world, traversing established routes that converge at strategic chokepoints. Two such chokepoints are the Red Sea and Gulf of Aden.
Nearly one-third of global container traffic flows through the Red Sea. Starting at the end of 2023, Houthi rebels began attacking commercial shipments at these locations, attacking more than 100 times since, leading to increased shipping costs and a restructuring of trade routes, with many ships rerouting around the Cape of Good Hope.
Houthi attacks have effectively reshaped the global shipping map. By March 2024, the flow of trade through the Suez Canal and Bab El-Mandeb Strait fell by half, while ships traveling around the Cape of Good Hope doubled.
This reshaping indicates the threat to another key chokepoint for global shipping: the Taiwan Strait. A conduit for more than a fifth of the world’s trade by sea, in 2022, $2.45 trillion worth of goods traversed the strait. Furthermore, Taiwan produces more than 90% of the high-tech chips used in smartphones, military equipment and data centers.
How have trade relationships changed in response to these conflicts and other political developments? Since 2017, both the U.S. and China have reduced the amount of trade they engage in with geopolitically distant partners, while trade between the two nations is now 10% lower than in 2018. China’s trade has reoriented toward developing economies around the world and away from trade with Japan, South Korea and the U.S.
China’s share of U.S.-manufactured goods imports fell from 24% to 15% between 2017 and 2023, with the electronics sector seeing the largest decline, from nearly 50% to about 30%. Conversely, Vietnam experienced a marked increase in its share of U.S. electronics imports. Some of this can be attributed to increased tariffs on Chinese imports, but not entirely. For example, laptops and cell phones are not subject to tariffs, but China’s share of U.S. imports of these products still fell in 2022 and 2023. In addition to diversifying away its imports from China to Vietnam, the U.S. has also increased trade with the EU and Mexico, with Mexico becoming a top trading partner to the U.S. in 2023.
More broadly, new trade restrictions have more than tripled since 2019. The World Trade Organization has warned an outright division of global trade into two blocs would shrink the global economy by 5%. Extreme realignment could lead to multilateral trade agreements being abandoned and a bipolar trade war.
Thus far, the impacts of this decoupling between the U.S. and China have been mitigated by rerouting some trade through third-party countries. As a result, supply chains may be longer but still reliant on China. For example, between 2017 and 2022, U.S. imports of laptops from Vietnam more than doubled, rising by about $800 million. In the same period, Vietnam’s imports from China of laptop parts also doubled, also rising by about $800 million.
While the emergence of these ‘connector’ countries, such as Mexico and Vietnam, may have reduced the economic impact of direct decoupling between the U.S. and China, it’s unclear whether such players will lead to true diversification.
In some areas of trade, decoupling isn’t possible. Overall, about 20% of global goods trade occurs between geopolitically distant economies. However, this number jumps to 40% for globally concentrated products. For example, three or fewer economies comprise at least 90% of global exports of laptops and iron ore.
2024 was billed as the ‘year of elections,’ with more than four billion people living in countries where elections took place. It may also be remembered as a year in which incumbent parties, both right and left, were ousted across the globe. These widespread shifts have contributed to uncertainty around the future of global trade.
There are questions surrounding how the second Trump administration will approach international relations. For example, a U.S.-led settlement regarding Ukraine that emboldens Russia to push into other territories could lead to knock-on trade disruptions.
The fear of Putin expanding his sights on other areas of Eastern Europe has been present since the 2014 annexation of Crimea but has grown since the 2022 full-scale invasion. Taiwan’s stability and security is also of concern, particularly given contradictory comments made by President Trump in the months following his re-election to office.
In the Middle East, uncertainty and instability persist, augmented by the December 2024 ousting of the Assad regime in Syria after ruling the country since 1971. It’s unclear, for example, what will become of the U.S.-backed Kurdish coalition that currently controls about a third of Syria. This coalition formed to fight Islamic State (IS), which once controlled swaths of northern Syria. And while the group is significantly weakened, the threat IS poses has never fully disappeared. In fact, IS has conducted nearly 700 attacks in Syria since January 2023, nearly triple the number in the previous year.
The situation in the Red Sea remains tenuous. While an Israel-Hamas hostage deal and ceasefire was implemented beginning in mid-January, it is extremely fragile. Major shipping companies have stated that they will not send vessels back to the Red Sea despite claims by the Houthis that they will refrain from attacks on non-Israeli vessels while the agreement holds. In the past, the Houthis have attacked ships with limited or no ties to Israel that they claimed to be Israeli vessels. On January 22nd, the Trump administration re-designated the group as a Foreign Terrorist Organization, enabling the U.S. to impose harsher penalties on the group. Additionally, further escalation between Israel and Iran could result in more Houthi attacks.
Trump has threatened to take the prior trade war with China to new heights through more tariffs, threatening to impose an additional 10% tax on imports from China. Now in office, Trump has also reiterated intentions to implement 25% tariffs on Mexico and Canada.
Such actions could simultaneously weaken U.S. trade relationships with both China and the North American market alternatives to China if implemented. Furthermore, this approach would undermine the tenets of the United States-Mexico-Canada-Agreement (USMCA) and could make other trading partners suspicious of the protections of their respective U.S. trade agreements. Many materials produced within Mexico and Canada cross borders multiple times, making imposing tariffs at each crossing even more harmful.
Overall, the past few years have seen monumental instances of political violence that have significantly impacted the shape of global commerce. Much uncertainty lies ahead across the world, as even just one of the hypothetical events described above could have resounding global trade repercussions. This means that those organizations able to quickly identify and rapidly respond to changes in political risks to their global supply chains are likely to have competitive advantage over their peers.
