Political, credit, and liquidity risk
The Threat of intervention
In May 2026, Indonesia unveiled a sweeping plan to centralise exports of key commodities, beginning with palm oil, coal and ferro-alloys, with the objective of increasing government revenue through tighter control over the sale and pricing of its abundant natural resources. The government also indicated that additional commodities may be brought under the scheme at three-month intervals.
As the example of Indonesia shows, actions by a government and the associated consequences of geopolitical disruption can extend far beyond usual physical and operational impacts, often reshaping the financial frameworks that underpin global business activity. During periods of instability, governments, regulators and financial institutions can intervene in markets in ways that alter capital flows and affect how contracts are executed and performed. This creates a distinct category of risk which, although often less visible than physical loss, can be equally damaging.
Political risk arises from actions taken by governments or regimes, including revolution, coup d'état, expropriation, nationalisation, licence cancellation, and forced abandonment. Such events frequently emerge against a backdrop of political instability, with exposure generally greatest in jurisdictions where institutional and governance frameworks are weaker. In parts of Sub-Saharan Africa, for example, ongoing conflict and limited regulatory oversight have contributed to elevated levels of fraud, contractual uncertainty, and reduced legal enforceability.
When political threats materialise, however, their impact on businesses can be immediate. Physical assets may be seized or repurposed, particularly those in strategically important sectors such as energy, mining, and critical infrastructure. Governments may seek to cancel, renegotiate or reprice contracts, especially where agreements are perceived as unfavourable or are associated with previous administrations. Foreign investors are often particularly vulnerable in these circumstances, as they may be viewed as economically extractive and politically expendable. Opportunities for recovery are typically limited, uncertain, and often protracted.
Sanctions introduce an additional, and often equally disruptive, layer of risk. By restricting access to international banking systems, limiting transactions with designated entities, or prohibiting activity within targeted sectors, sanctions can undermine otherwise viable commercial operations. In practice, these effects are rarely confined to the intended target. Financial institutions frequently adopt a conservative approach to compliance, restricting activity that may remain legally permissible in order to reduce their own regulatory exposure. This can result in a broader chilling effect on trade, financing and investment.
Credit and liquidity risks
Even where assets remain intact, restrictions on the movement of capital can quickly impair an organisation's ability to operate. This is particularly evident in commodity-linked sectors, where trade often relies on prepayment structures to finance production and secure long-term supply arrangements. Disruption within the financial system, or changes in the regulatory environment, can increase the likelihood that counterparties fail to meet their financial or contractual obligations. Losses may arise through non-payment for delivered goods, non-delivery against prepayments, or the unilateral termination or renegotiation of contracts. Exposure may also extend beyond customers and suppliers to include financial counterparties, particularly where access to credit facilities depends upon institutions operating in geopolitically sensitive jurisdictions.
These failures are rarely isolated. Credit risks can rapidly propagate through supply chains, amplifying their impact on both operations and financial performance. The longer the duration of a trade or investment agreement, the greater the exposure to changing political and economic conditions, particularly where contracts span election cycles or periods of political transition. Recovery of losses often requires recourse to arbitration, litigation, or treaty-based mechanisms. Such processes are frequently slow and costly, with enforcement outcomes varying significantly from one country to another.
Insuring uncertainty
Political Risk Insurance (PRI) and Credit Risk Insurance provide an important, although not absolute, line of defence against many forms of financial loss. By protecting both equity investments and receivables, these products can help organisations preserve cash flow and maintain commercial continuity in jurisdictions where traditional legal remedies may be limited or ineffective. Coverage, however, is subject to important limitations. Not all losses are insurable, and policies commonly exclude matters such as nuclear events, insolvency of the insured, or material contractual default by the insured party. Equally important is the requirement for policyholders to provide a fair presentation of risk and avoid any material misrepresentation.
In addition, successful claims can be difficult to establish under PRI policies. Policyholders must demonstrate that a defined insured event occurred, that it directly caused the loss, and that the loss falls outside the scope of normal commercial or operational risk. In many cases, governments are entitled to introduce non-discriminatory legislative changes, even where those changes adversely affect foreign investors. Establishing causation is also difficult, as financial losses are frequently influenced by a combination of political decisions, market conditions and counterparty behaviour, rather than a single proximate cause.
Market access presents a further challenge. Insurers remain highly selective, particularly in the current environment, with capacity generally focused on organisations that can demonstrate a strong track record and balance sheet, robust governance, and a sophisticated understanding of their risk exposures. This includes an ability to respond to changing conditions, with a preference for renegotiating or restructuring exposures rather than pursuing claims in the first instance. New entrants, or those seeking cover in higher-risk jurisdictions, may face limited capacity and or more restrictive and expensive underwriting terms.
Insurers also pay close attention to the insured’s rationale for purchasing coverage, favouring organisations that view risk transfer as part of a structured risk management strategy rather than a short-term response to market volatility. Businesses that seek insurance only after geopolitical concerns have emerged may be perceived as reacting to events after the fact. As a result, while insurance remains a critical component of geopolitical risk management, organisations are most likely to secure meaningful and sustainable support when they engage with insurers as long-term partners in managing global risk exposure.
KEY COVERAGES
Political Risk Insurance (PRI)
Covers organisations against losses arising from government intervention, including expropriation, currency inconvertibility, forced abandonment, and the seizure of assets or bank accounts.
Credit Risk Insurance
Protects against losses arising from counterparty failure, including non‑payment for delivered goods, non‑delivery against prepayments, or default under contractual agreements.