Geopolitical risk analysis: Understanding knowns, unknowns and unpredictability

ISJ hears from Peter Bäckman, CEO and Founding Partner, TEDCAP.

Evaluating political and geopolitical risks is a skill that can, and should be, developed by anyone who seeks to understand the economy they operate in, any changes on the rules of the game and potential dangers to themselves and their families.

This is particularly true for Latin America. For example, the recent electoral crisis in Ecuador highlights the importance of understanding geopolitical risks.

In 2021, the presidential election faced allegations of fraud and sparked widespread protests, ultimately resulting in the ousting and imprisonment of the sitting president and a hard-hitting judicial process.

With this in mind, we look at the upcoming election cycle across Latin America and it highlights the need for geopolitical risk awareness.

Assessing risk factors including political instability, populism and social divisions, is vital for anticipating potential outcomes and their impact on regional stability and economic prospects.

Indeed, one of the main challenges when trying to understand geopolitics is the apparent unpredictability that accompanies it.

Geopolitical events and regional dynamics are influenced by a complex interplay of factors and can change rapidly.

Particularly when assessing and attempting to prepare to face geopolitical risks, there is a strong need for predictability.

The ability to anticipate and understand potential challenges and their implications is crucial for organisations operating in a globalised and interconnected world.

Predictability enables effective decision-making, strategic planning and the implementation of proactive measures to mitigate risks.

Until the day we get an actual crystal ball, we need to use the tools at our disposal in order to reduce uncertainty, especially in such a broad risk and opportunities landscape as today’s world.

It is not enough for the C-Suite and decision makers across the private and public sector to read the news every morning, and having their twitter notifications on key media outlets; there are several analytic and logical tools that can help reduce uncertainty and enhance the understanding of complex global dynamics that can directly impact your corporate communities and bottom line.

Geopolitical risk analysis: The known knowns

First, don´t be afraid to use your imagination.

Engaging in scenario analysis is not only an interesting intellectual exercise, but by allowing our imagination to roam freely, we can explore various possibilities and prepare ourselves to respond effectively.

What we do is take into account the known knowns, considering various political, economic and social factors that can impact the region and the world as a whole and assess the potential likelihood and scope impact of each scenario.

For instance, let’s consider the ongoing worldwide energy crisis as a known known.

This crisis has multiple dimensions, including fluctuating oil prices, geopolitical tensions in key oil-producing regions, environmental concerns and shifts towards renewable energy sources.

First, we can assess the political factors involved, such as conflicts or tensions between oil-producing countries, changes in government policies related to energy, or international agreements on renewable energy targets.

Next, we can consider the economic aspects of the energy crisis.

This includes analysing the potential effects of rising oil prices on industries and sectors that heavily rely on energy, such as transportation, manufacturing and agriculture and its direct relation to economic inflation, deflation and stagnation.

Additionally, we can examine the economic consequences of shifting towards renewable energy sources and the opportunities it presents for economic renovation, investment, innovation and job creation.

By examining these factors and their interconnections, we can start to analyse the potential implications and risks associated with the energy crisis that can impact your life, your organisation and your corporate community.

Another known known with a direct impact on Latin America is the reorganisation of the world into a multipolar system.

The shifting dynamics between global powers, such as the US, China and Russia adds another layer of complexity to geopolitical risks and can influence the region’s political and economic landscape.

The known unknowns

Then, we have the known unknowns.

These are the factors that we are aware of their existence but cannot precisely predict when or how they will impact us.

These include climate events, sanitary crises and military conflicts, which demand careful consideration and preparedness.

As I write this, a tropical storm is forming in the Atlantic Ocean making its way to the Caribbean region with a large possibility of becoming a hurricane.

Climate events have the potential to cause widespread destruction, disrupt economies, displace populations and strain resources.

While we cannot predict the exact timing or magnitude of these events, we know they are inevitable.

Sanitary crises, as vividly experienced during the COVID-19 pandemic, exemplify known unknowns with profound global consequences.

The emergence of infectious diseases, pandemics and public health emergencies can disrupt economies, overwhelm healthcare systems and endanger lives.

The Dominican Republic, as a country first-hand affected by the COVID-19 pandemic, experienced the gravity of the impacts.

As the virus spread, the country’s tourism industry, a significant contributor to its economy, faced a severe blow.

Military conflicts are another category of known unknowns with significant geopolitical ramifications.

While the direct impact of the Ukraine-Russia war on Latin America may be indirect or nuanced, there are many factors to take into account.

Energy and food security are a critical concern.

The conflict has highlighted the vulnerability of energy supply chains, particularly in relation to natural gas and oil flows.

Latin American nations heavily rely on energy exports and any disruptions in global energy markets can have profound repercussions on their economies and stability.

Ukraine is also a significant exporter of agricultural commodities, including wheat and corn.

Any disruptions to its production and export capacity can lead to market volatility and potential food supply challenges globally, including Latin America.

While it is true that the likelihood of military conflicts between Latin American countries is low, the region faces numerous armed conflicts that have significant social, political and economic impacts.

Conflicts like gang violence, the war against drug trafficking and the potential for both violent and non-violent civil wars resulting from long standing social strife, deep rooted inequalities, ethnic or racial divisions, political disenfranchisement and ideological disputes.

In each case, it is important to adopt a proactive approach to these known unknowns.

Organisations and governments should engage in scenario planning exercises, conduct risk assessments and develop response strategies that account for potential impacts.

This involves collaborating with experts, monitoring relevant indicators, and staying informed about evolving situations.

By acknowledging the existence of known unknowns, organisations can cultivate a culture of preparedness and resilience.

This entails building flexible structures, diversifying supply chains, investing in research and development, fostering partnerships and prioritising early warning systems.

It also involves allocating resources to enhance infrastructure, healthcare systems, disaster response capabilities and diplomatic channels.

While known unknowns inherently involve uncertainty, being aware of their existence and potential consequences empowers organisations and governments to take proactive measures.

This involves doing constant trend analysis, stakeholder analysis, network analysis, applying risk assessment tools, strong intelligence gathering mechanisms and collaboration are essential components of a comprehensive approach to reducing uncertainty when assessing geopolitical risks.

Reducing uncertainty in geopolitical risk analysis enhances decision making, improves risk mitigation, enables early warning and preparedness, optimises resource allocation, boosts stakeholder confidence and provides a competitive advantage.

It allows organisations to make informed decisions, develop targeted risk mitigation strategies, identify emerging risks, allocate resources efficiently, build stakeholder trust and stay ahead of competitors.

This fosters resilience, adaptability and operational continuity, positioning organisations favourably in the market.

The unknown unknowns

Being that life is a wild tapestry woven between violence and luck, we also need to take into account the unknown unknowns.

In a world where billions of individuals constantly interact, each decision made reverberates across the fabric of society.

The intricate web of human actions weaves a tapestry that is both beautiful and unpredictable.

Within this tapestry, the unknown unknowns reside, silently shaping the course of events.

They are the unexpected outcomes that arise from the convergence of countless variables and the interplay of countless lives.

These are the unforeseen factors, lurking in the shadows, that hold the potential to disrupt our carefully laid plans and strategies.

It is in these unexplored realms that risks can materialise with sudden force, catching us off guard.

Yet, by acknowledging their presence, we adopt a mindset of humility and preparedness.

We embrace the idea that there are limits to our foresight and that uncertainty is an inherent part of life.

Latin America, like any other region, faces a multitude of risks and security challenges.

To effectively tackle these challenges, a comprehensive approach is needed.

With the recent recognition of the importance of being prepared for the unexpected, it is imperative that we build resilience, adaptability and contingency plans in Latin America.

This requires a proactive approach to identifying emerging threats and vulnerabilities, even those that may lie beyond our current understanding.

By expanding our risk assessments to include the unknown unknowns, we can enhance our ability to mitigate and respond to unforeseen events.

This approach widens our scope of preparedness and strengthens our security posture in Latin America.

Peter Bäckman

Peter is an author, speaker, award winning and highly influential security professional backed by more than 30 years of experience working in Europe, the Caribbean and Latin America.

Peter has managed international executive protection strategies and operations throughout Latin America for executives for annual board meetings, diplomat missions and others.

He has held various leadership positions within ASIS International, including President of the Dominican Republic chapter, Regional Assistant to the Vice President for the Caribbean region and a member of the Latin America Mentoring Committee.