It’s already been a troubled start to 2022 for the global economy, with the Omicron variant of Covid-19 disrupting a range of industries. In this article, Valkyrie looks ahead to what else might be in store for 2022.

Dysfunctional, unstable and vulnerable states:  The top security risk for 2022 comes from the rise of dysfunctional, vulnerable and fragile states. Globally, the Covid-19 pandemic reduced capacity to absorb and manage external shocks and internal challenges. Political and institutional fragility in the global south will continue to play out in conflict, state failure, coups and economic crises. In the prosperous north, social unrest, radical activism and rising criminality among traditionally stable economies will present a challenging security environment. With the US and China distracted by domestic priorities, and the EU, UK, and Japan unable to fill the resulting power vacuum, many countries and regions will be left with unmanaged crises. In Afghanistan, a disorganised and inexperienced Taliban will struggle to stop the Islamic State from drawing foreign militants into ungoverned expanses of the country. The risk of terrorism also remains high in the weakly governed Sahel. Civil wars will create new risks in Yemen, Myanmar and Ethiopia. Venezuela and Haiti risk growing refugee crises.

Climate change is an aggravating factor for terrorism:  The world’s environmental decline puts any unstable or combative region at greater risk of security threats. Climate change is the ultimate threat multiplier – global in nature, crossing not only geographic boundaries but impacting other geopolitical risks at the local, regional and international levels – and, despite significant focus at the highest levels at 2021’s Cop 26, neither public nor private sector policies have sufficiently evolved to meet the challenge.

Zero-Covid policy:  The zero-Covid policy is doomed to failure. In the developed world, the end of the pandemic is near: the highly transmissible Omicron variant is colliding with significantly vaccinated populations, which are bolstered by highly effective mRNA vaccines and Covid-19 treatments. Yet, even in the developed world, the economic hangover from the pandemic will endure this year, with disrupted supply chains and persistent inflation. China, the primary engine for global growth, will face highly transmissible Covid-19 variants without access to the most effective vaccines and, therefore, with far fewer people protected by previous infection. China’s policy will fail to contain infections, lead to larger outbreaks, and require more severe restrictions and lockdowns. This will result in greater economic disruptions, lower consumption, and a more dissatisfied population at odds with the triumphalist ‘China defeated Covid’ narrative of the state-run media. China’s problem will continue until it has rolled out domestically developed mRNA vaccines and boosters for the world’s largest population (end of 2022 at the earliest). In general, developing countries will be hit hardest, and political incumbents will bear the brunt of public anger. Demand for boosters in wealthier countries will prevent effective vaccines from becoming more widely available. New outbreaks will slow economic growth in emerging markets and leave poorer governments with more debt. In all these ways, Covid-19 will continue to drive political and economic instability.

China:  An increasingly onerous zero-COVID policy and President Xi Jinping’s reform plans will unsettle markets and businesses in 2022. Xi’s vision of technological self-sufficiency, economic security, and social harmony to make China strong will collide with intensifying pushback from the West, an exhausted growth model, an overleveraged and unbalanced economy, and a rapidly aging population all exasperated as COVID-19 variants continue to circulate.

Russia:  A build-up of Russian troops near Ukraine has opened a broader confrontation over Europe’s security architecture. Russian president Putin could send in troops and annex the occupied Donbas, but his current demand is for major NATO security concessions and a commitment to no further eastward expansion. A deal is unlikely, and close encounters between NATO and Russian ships/planes will become more frequent and more dangerous, increasing chances of an incident and possible escalation – particularly when considering ongoing concerns about Russian cyber-attacks and interference in US elections. Possible US sanctions that target the secondary market trading of Russian sovereign debt would end any hopes of more stable US/Russian relations. Russia is steadily expanding its military influence across Africa by increasing support to autocratic leaders through a combination of arms sales, security agreements, and training programs to pave the way for its commercial ambitions. The West must recognise the groundwork Russia is currently laying, and the threat it poses to both ownership of natural resources and relationship building, and respond effectively

Iran:  Iran’s nuclear program continues to advance. With diplomacy stalled, the US administration has few options. Israel will increasingly take matters into its own hands, which, once again, raises the prospect of Israeli air-strikes on Iranian nuclear facilities. These pressures will collide this year, leaving oil prices and regional states nervous and increasing the risk of conflict.

Turkey:  President Erdogan will drag Turkey’s economy and international standing to new lows in 2022 as he tries to reverse his plunging poll numbers ahead of elections in 2023. Unemployment and inflation are high, and the lira (currency) is weaker and more volatile, but Erdogan has rejected orthodox economic management. His foreign policy will grow more combative this year to distract voters from the economic crisis. In the unlikely event of early elections in 2022, all these risks will be intensified.

Qatar:  Qatar has emerged as the Gulf country to watch in 2022. Though its role in some regional affairs – including its relationship with Palestinian militant group Hamas – will remain controversial, strategic developments in the West and the East have merged in a manner that has elevated Qatar’s global influence in unprecedented ways. While this evolution is beneficial to Qatar, its ascendance highlights the degree to which US influence has declined, leaving the US and other allied nations dependent upon Qatar like never before. The challenge for Western policy makers will be to continue leveraging Qatar’s unique position as the ‘Switzerland of the Middle East’, while also incentivising actions that promote long-term regional stability and shared security interests.

Cyber risk:  In 2022, escalating global cyber threats will become a matter of survival for organisations. For businesses, ownership of the defence against these threats is clear – fend for yourself. States are failing to deter aggressive behaviour as offensive cyber capabilities thrive among growing numbers of state and non-state actors. Added to this is the rapidly advancing trend of collaboration between certain states and cybercriminals. With insurers questioning the viability of covering disruptive cyber events, businesses are looking at a world where ownership of cyber risk is unclear. Organisations that fail to adopt an agile and holistic approach to cyber risks will become prime targets for cyber threat actors, and struggle to stay afloat when an attack occurs.

The evolving geopolitics of energy:  The end of oil is still many years away. However, 2022 will see the geostrategic map that has dictated alliances for much of the past century continue to crumble, fraying old partnerships and spurring the formation of new ones in locales on the front lines of the energy transition. Countries leading the way on green energy will find themselves increasingly empowered to make foreign policy decisions based solely on their national interests, unconstrained by energy concerns ­– a reality that may throw many low- and middle-income energy exporters into economic and social free fall. Simultaneously, countries that have relied on oil, both historically (the Gulf), and prospectively (Mozambique), will find themselves caught up in new conflicts driven by a race against the clock to get traditional energy resources to market. Climate change will continue to act as the foremost threat multiplier in 2022, spurring geopolitical upheaval in the energy sector and further complicating daily life for billions of people globally, many of whom are already facing increased economic struggles and marginalisation due to the pandemic. Continued upward pressure on energy costs will force governments to favour policies that lower energy costs but delay climate action. Rising energy prices will raise anxiety levels for both voters and elected officials even as climate pressures on government increase.

The Climate Crisis:  Climate change and associated impacts are the leading operational risk for businesses in 2022. While Covid-19 continues to pressure business operations globally, extreme weather events and natural disasters will take centre stage by disproportionally influencing politics, economic policy, urbanisation, infrastructure and capital investments as well as compounding impacts on business continuity and global supply chains. Planning for climate-related risks must therefore now sit at the centre of any effective, long-term risk mitigation strategy for global business. Some organisations will adapt, use it as a competitive advantage, survive and even thrive. Others will choose to ignore it and suffer the consequences. Businesses that choose to tackle the challenge need to prioritise and implement risk management plans to address climate-related risks to their operations. These should be self-sufficient but should consider and integrate external resources that might assist, including the private sector and government disaster management programmes. The reality is that businesses will need to be self-reliant in preparing for their climate future.

Tech company influence:  2021 saw no shortage of geopolitical flash points in the tech world. Technology giants continue to put company over country, ignoring national and international security concerns, and risk destroying the liberal democracy that enabled their rise in the first place. The world’s biggest tech firms now decide much of what we see and hear, determining our economic opportunities and influencing our opinions on important subjects. Legislative and regulatory bodies in liberal democratic nations finally began to recognise that tech companies, operating within their jurisdiction but conceptually and practically outside of their reach, had irreversibly altered society, with potentially destructive effects. EU, US, and Chinese policymakers will all tighten tech regulation this year, but they won’t limit their ability to invest in the digital sphere where they, not governments, remain the primary architects, actors and enforcers.

Elections to keep an eye on:  There are several important elections coming up in 2022. France will dominate (will Macron survive?), as will Australia’s federal elections and the US midterms – will the Democrats hold onto their slim Congress majority? There will also be important elections in a host of other countries, including Kenya, Philippines, South Korea, Brazil and Colombia. These are all important economies in their respective regions, and the outcome of their politics will have an impact on the geopolitical landscape far beyond their borders.

In summary: Fasten your seatbelts.  2022 will be another tough year for democracies worldwide, and the countries that thrive will be those that are able to promote their own national security interests by focusing on energy independence and countering nefarious foreign influence, both in technological and financial realms. Simultaneously, international private sector actors must recognise that each of the risks identified will impact their operations, even if overt upheaval seems remote. As geopolitical fault lines deepen, mitigation in the form of long-term strategic planning, not commercial insurance, remains the name of the game.