Author: Subhankar Roy

Geopolitical Uncertainty and Business- II

In the last article it was discussed how geopolitical uncertainties effect business companies. Let us now look how some business companies exploit geopolitical instabilities and make profits out of crisis. Corporations take advantage of armed conflicts, sanctions, regime changes etc to do deals that are not in accordance with the international norms and rake in profits.

In 2012, Iran was under the sanctions put by the US and the EU over its uranium enrichment program. It faced great difficulties to trade oil and natural gas, of which it is a major exporter. Due to the ban, Iran’s four biggest oil buyers – China, India, Japan and South Korea – had reduced their imports by at least a fifth to secure exemptions from the threat of U.S. financial sanctions on their companies.During that time Iran was helped by a company named Vitol group to trade its oil to Chinese traders. Vitol bought 2 million barrels of fuel oil, used for power generation and supplied them to the Chinese. Now who is this Vitol group? How did they manage to pull of something under the radar. Well Vitol group is the world’s largest independent energy trader. It is the biggest private company in the world by sales. It is the ninth largest corporation in the world by revenue. It controls roughly 6.5% of the world’s oil market. It has more than 200 supertankers to ferry oil across the globe. On a single day, it handles more than 5 million barrels of oil. The tale of the cargo of Iranian fuel oil involves tanker tracking systems being switched off, two ship-to-ship transfers, and blending of the oil with fuel from another source to alter the cargo’s physical specification. Well, it just sounds like a scene out of a Bond-movie, doesn’t it? Not only Iran, Vitol also had dealings with Kurdish Regional Government, which controls the semi-autonomous Kurdish region of Iraq. The Kurdish Regional Government(KRG)was facing a lot of financial crisis due to budge disputes with Baghdad. On top of that it needed money not only to pay its employees but also in its fight against the ISIS. So, in 2012, KRG with the assistance of Vitol bypassed Baghdad and sold oil independently in the global market. Vitol took delivery of a 12,000-tonne shipment of condensate, a light crude oil, worth more than $10m and helped its sale.

Other traders such as Glencore, Gunvor and Trafigura in oil and Louis Dreyfus and Bunge in grains use the chaos arising out of geopolitical uncertainties to their advantages and make profitable deals.

Geopolitical Uncertainty and Business

The end of Cold War saw opening up of a lot of emerging markets, where multi-national corporations found tremendous opportunities to expand their businesses and generate profits. A thought was born out of the view that free markets would see an increase in national growth which in turn would lead to stable governments. Yet, at the turn of century, events such as 9/11 terror attacks and the rise of governments in the nations across the globe with conflicting national and trade agendas led to a muddy geopolitical scenario where every state has both friendly as well as unfavorable views with one another. In today’s scenario, a “global business player” has not only to take into account the economic cycles but also the geopolitical situations that may arise in future which will affect its business. The large corporations having businesses across various nations slowly got incorporated into the foreign policies of different nations. The nations began to look after the interests of these corporations which sometimes led to geopolitical conflicts.

Let us look into the following examples. Today, the worst humanitarian crisis that the world is facing is the Syrian conflict. What started in 2011, as mere public protests slowly turned into a civil war and ultimately led to the rise of one of the most dreaded terror outfit, ISIS. But contrary to popular beliefs, the Syrian conflict has its roots in not only against the poor governance of the Assad family but also to control the energy supply(read oil and natural gas supply) to Europe. As of now, the main supplier of crude oil and natural gas to Europe is Gazprom, a state-controlled Russian company. But Gazprom has turned out to be an unreliable partner for the EU. The most recent case being the dispute between Ukrainian oil and gas company Naftohaz Ukrayiny and Gazprom during the Crimean crisis. As a result, the EU started to look for alternative options for its energy needs. Under the patronage of the US, in 2009, Qatar put forward a plan to supply gas to the EU by building a pipeline from the Persian Gulf via Saudi Arabia, Jordan, Syria and Turkey. At the same time, Iran, which has one of the largest proven gas reserves, formed its own plan to export gas to the EU via Iraq, Syria and then under the Mediterranean Sea to Greece. Russia, which traditionally has closer ties to Iran, pressurized the Assad government to reject the Qatari plan and sign the Iranian plan in 2012. The proposed pipeline was to be completed by 2016, which if completed would have given Gazprom and National Iranian Oil Company, a state-owned corporation under the Ministry of Petroleum of Iran, control of the whole of the European market. To counter this proposal and to safeguard the economic interests of their national companies, the Gulf countries along with the backing of Western powers, stirred trouble in the Syrian society by providing arms and financial assistance to the rival groups of the Syrian government with the main objective of toppling the Assad government and to place a friendlier “democratic” party in power, which would agree to the Qatari plan.

Let us look at another example. The United States had severed diplomatic relations with Taiwan under the “One China” policy of the People‚Äôs Republic of China. After winning the US presidential election, Donald J Trump shocked the Chinese government by becoming the first US president or president-elect to speak to a leader of Taiwan when he spoke to Tsai Ying-wen, the president of Taiwan. The call was first in more than 30 years. Naturally, China is rattled by this move. If Washington pursues to increase diplomatic relations with Taiwan, China can take a number of steps to prevent the island nation from declaring independence. One such move could be to restrict Chinese investments in Taiwan. Also, China accounts for 26% of overall Taiwan’s exports, which is the largest. If in future, there arises any geopolitical instability, Taiwanese companies would be badly hurt.

There are many such instances across the globe where geopolitical uncertainty and economic policies are intertwined such as the dispute in the South China Sea, political turmoil in Africa etc. As such, a truly global business corporation has to take into account the geopolitical scenarios which could play out in the near future to promote its business.

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