This is an edited summary of a keynote fireside chat featuring General David Petraeus, Partner at KKR and Chairman of KKR Global Institute, and Liew Tzu Mi, GIC’s Chief Investment Officer for Fixed Income and Multi-Asset, at the GIC Partnership Forum held in March 2024 in London.

The past decade has seen a significant shift in the geopolitical landscape. A period when global trade1, capital flows2, and data flows3 were flourishing has given way to an era marked by the highest geopolitical tensions in decades4. Speaking at the GIC Partnership Forum 2024, General David Petraeus, Partner at KKR and Chairman of KKR Global Institute, repeated his stark warning from early 2023:

In addition to deteriorating relations among major economies, issues such as terrorism, cyber risks, climate change, and domestic populism pose significant challenges for business activity. In this environment, geopolitics now often dictates economic policy-making rather than the other way around, shared General Petraeus. Heightened great-power rivalries have increased the threat of further tariffs, economic sanctions, and cross-border investment restrictions. These risks drive many of the themes that investors and businesses must now consider, including increased friend- and near-shoring, export controls, and the redrawing of global supply chains, to name a few.

Incorporating geopolitical analysis into investment processes

Geopolitical considerations have become a much more integral part of the investment process in the past decade. As General Petraeus highlighted, while only a select few investments were previously perceived as exposed to geopolitical risks, today they are a focal point in investment decision-making. Investors should embed geopolitical analysis into their due diligence process for all prospective deals. Importantly, once the transaction has been completed, they must continue to monitor these risks as part of their ongoing engagement with portfolio companies.

Among the emerging economies most exposed to geopolitical risks, investors need to identify those that present compelling macro themes and manageable risks, while having a view on those that should be avoided. Striking a balance between mitigating geopolitical risks, which could involve foregoing an investment, and capturing opportunities with favourable risk-reward is crucial. However, the risk profile of countries can shift rapidly. Factors such as deteriorating governance and rule of law, escalating corruption or growing concerns over security and potential civil unrest can quickly render a country unattractive to overseas capital. Investors and businesses must have a contingency plan in place and be ready to withdraw from a particular market, or relocate operations to a safer, lower-risk location if required.

The economic impact of military conflicts

The threat of military conflict is arguably the biggest source of geopolitical risk today. Its impact on the global economy is multi-faceted, including potential disruptions to energy supplies, explained General Petraeus. For instance, the sudden cut-off of cheap natural gas from Russia during the early stages of the Russia-Ukraine war led to a surge in energy prices, particularly for European markets. While prices have since receded from their record highs, they remain elevated, with a knock-on effect on household and business finances and overall economic growth. More broadly, the conflict has reshaped trade patterns for oil and gas and has accelerated the transition to renewables as countries increasingly prioritise energy security5.

Conversely, the crisis in the Middle East has so far exerted a more limited impact on oil prices6. While sharp military escalation has kept energy markets on edge, physical supply has not yet been affected. Given the uncertainty over the conflict’s trajectory, the potential risks to the region’s oil flows and the subsequent implications for the wider economy warrant close monitoring, advised General Petraeus.

An evolving approach to leadership and crises

Leadership plays a pivotal role in navigating crises. The true mark of a leader is not how they handle success, but how they respond to adversity and General Petraeus’ four-stage approach to strategic leadership offers a framework to guide executives through both opportunities and challenges. The approach includes defining the big ideas; communicating these to all stakeholders; overseeing their implementation; and, most importantly, continuously refining and iterating this process as geopolitical and market dynamics evolve7.

In times of crisis, business leaders must gather as much information as possible, while being prepared to make decisions with less information than they would ideally have. Amidst such an information vacuum, they should also avoid relying excessively on past lessons – as General Petraeus put it, “history can obfuscate as well as illuminate”. Leaders must demonstrate positivity, resilience, and determination, but should balance a positive outlook with a realistic assessment of the situation.