In this in-depth two-part series, Acera Insurance’s Aliya Daya, Senior Client Executive, explores the different ways geopolitical risks are impacting Canadian businesses. Then, in part 2, she provides actionable insights into how Canadian businesses can protect themselves from geopolitical risks.
Canadian companies are facing an increasingly unpredictable world where geopolitical risks are evolving far beyond the traditional concerns of trade barriers and political instability. The landscape has grown more complex, with emerging threats linked to climate change, artificial intelligence, and the fierce geopolitical rivalry between global superpowers like the US, China and Russia.
Canadian businesses, which are heavily reliant on international trade and integrated into global supply chains, are finding themselves at the centre of a new geopolitical era that demands not just awareness but strategic, proactive risk management.
From disruptions in critical maritime trade routes to the weaponization of cyber technologies and the escalating costs of climate-related disasters (now costing Canadian companies more than $7 billion annually, according to CatIQ), the risks are intensifying. Looking ahead to 2025, these challenges are expected to grow as global decoupling in technology, the spread of AI regulation and environmental pressures push Canadian businesses to rethink their global strategies.
In this two-part series, we will dive into the key geopolitical risks shaping 2024 and 2025. In part two, we’ll explore the insurance and risk management strategies Canadian companies must adopt to navigate this turbulent and rapidly evolving environment.
The geopolitical landscape: What Canadian businesses are facing
Global tensions rising
One of the biggest challenges in 2024 is the intensifying geopolitical competition between major powers, particularly the US, China and Russia. This rivalry is causing significant instability, and Canadian companies are increasingly vulnerable to its consequences.
US-China strategic competition
The ongoing rivalry between the US and China is one of the most critical geopolitical issues today, affecting global trade, technology and military strategies. Canadian companies are particularly vulnerable to the economic fallout of this competition, especially as both countries vie for dominance in key sectors.
Economic decoupling
As the US seeks to reduce reliance on Chinese technology and manufacturing, companies are feeling the strain of economic decoupling. According to the Center for Strategic and International Studies (CSIS), this process could cost the global economy $3.5 trillion over the next few years, as countries are forced to choose between US and Chinese technology ecosystems.
Taiwan tensions
The ongoing tensions surrounding Taiwan, a crucial player in the global semiconductor industry, pose significant risks for businesses with supply chains connected to Taiwan’s tech sector. Any conflict in the region could disrupt global markets, especially in electronics and automotive industries.
Canadian impact
Canada exports approximately 6% of its goods to China and 75% to the United States, according to Global Affairs Canada. Any deterioration in US-China relations can have ripple effects on Canadian businesses, particularly those involved in manufacturing, technology and energy.
Prolonged conflicts: NATO-Russia
The conflict between Russia and NATO, primarily fuelled by the war in Ukraine, continues to destabilize Eastern Europe and strain global alliances. Canadian companies with interests in European energy markets or global operations are increasingly affected by this ongoing crisis.
Energy crisis
Europe’s reliance on Russian energy has left it particularly vulnerable, with the International Energy Agency (IEA) warning of a 25% shortfall in gas supply for winter 2024. This puts energy companies, especially those with operations in Europe, at increased risk of extortion, sabotage or cyberattacks.
Military escalation
The conflict raises fears of broader military escalations in regions like the Baltic states and Eastern Europe, putting Canadian businesses with operations or investments in these regions at risk of disruptions or damage from political or military conflict.
Canadian energy sector vulnerabilities
Canada is a major player in the global energy market, and disruptions in energy supply due to political unrest or sanctions could affect the stability of this sector. According to Natural Resources Canada, the energy sector contributes around 10% of Canada’s GDP, with significant international operations in politically unstable regions such as Latin America, Africa and the Middle East.
Conflict in Middle East and broader regional instability
The Israel-Gaza conflict and broader instability in the Middle East have become central geopolitical concerns in 2024 that are expected to continue into 2025, with significant global and regional implications. As violence escalates, it poses risk not only to businesses operating directly in the region but also to global markets, supply chains and energy prices.
For Canadian companies, the ripple effects of these conflicts extend far beyond the Middle East, influencing trade routes, oil prices and global security.
Energy market disruptions
The Middle East is home to some of the world’s most crucial oil-producing nations. Disruptions in the region, whether due to the Israel-Gaza conflict or tensions involving other nations like Lebanon and Iran, can affect global oil prices and supply. Canada, as a significant energy producer, may see volatile shifts in oil prices, impacting its energy exports and domestic energy markets.
Trade route vulnerabilities
The Suez Canal and other vital maritime trade routes in the Middle East could become vulnerable to blockades or disruptions due to rising tensions. With 80% of global trade by volume transported by sea, according to UN Trade and Development (UNCTAD), any interruptions could delay shipments, increase transportation costs and disrupt supply chains for Canadian companies reliant on global trade routes.
Canadian business exposure
While Canada’s direct trade exposure to the Middle East is moderate, many Canadian companies have indirect exposure through global supply chains or investments in industries like energy, aerospace or agriculture that could be impacted by regional instability. Companies operating in sectors such as infrastructure, construction or financial services in the Middle East are at heightened risk of operational delays, asset loss or security threats.
Trade protectionism and economic nationalism
Trade protectionism and the rise of economic nationalism have led to increased tariffs, trade barriers and restrictions on global trade. The US-China trade war, for example, has caused supply chain disruptions and higher costs for many businesses. Canadian companies, especially in the manufacturing and agricultural sectors, are particularly vulnerable to these shifting trade dynamics.
USMCA and beyond
The US-Mexico-Canada Agreement (USMCA) has helped stabilize trade within North America, but disputes between the US and China continue to pose risks. For Canadian companies exporting to both nations, sudden changes in tariffs or trade policies can increase costs and delay shipments.
Geopolitical cyber threats
Cyberattacks have become a central tool in modern geopolitical conflict and warfare, and Canadian companies are increasingly being targeted. According to Statistics Canada, 21% of large Canadian businesses reported cyberattacks in 2021, many of which were linked to foreign actors. As geopolitical tensions rise, state-sponsored cyberattacks are expected to increase in frequency and sophistication.
How geopolitical cyber threats impact Canadian businesses
For companies operating in sensitive industries like energy, finance or technology, the threat of cyberattacks is a major concern. A successful cyberattack could lead to significant financial losses, reputational damage and even legal liabilities due to data breaches.
Emerging market vulnerabilities and supply chain risks
Canadian businesses are heavily integrated into emerging markets, which makes them susceptible to the political and economic instability in these regions. In 2024, regions such as Latin America, Sub-Saharan Africa and Southeast Asia are facing heightened risks due to inflation, debt crises and political unrest.
Supply chain disruptions
Global supply chains, particularly in industries like automotive, electronics and pharmaceuticals, are facing increased disruption risks. Nearly 80% of Canadian businesses reported supply chain disruptions over the past three years, with geopolitical risks cited as a major factor, according to a PwC Canada study.
Terrorism and political violence
Terrorism and political violence are growing concerns for Canadian companies operating internationally, especially in regions with a history of unrest or conflict. The Global Terrorism Index 2022 reports that terrorism-related economic losses reached $26.4 billion globally in 2021, underscoring the ongoing threat to businesses.
How terrorism and political violence impacts Canadian companies
Businesses with operations in regions prone to political violence or terrorism — such as Western Europe, the Middle East and Africa — are exposed to property damage, business interruption and potential loss of life. Canadian businesses, particularly in the energy and retail sectors, may find their operations at risk due to these threats.
Sovereign debt and currency risks
Emerging market economies are also increasingly vulnerable to sovereign debt crises. Rising inflation and interest rates have pushed some countries toward default, creating risks for Canadian businesses with investments in or exports to these nations. According to the World Bank, many emerging markets are facing a growing risk of currency devaluation and capital controls, especially in Latin America and Africa.
How sovereign debt and currency risks impact Canadian Companies
Companies operating in countries facing sovereign debt issues or currency instability — such as Argentina or Turkey — are at risk of significant financial losses. Currency devaluation can erode the value of profits, while capital restrictions can prevent businesses from repatriating earnings.
Climate change and natural disasters
Environmental risks are increasingly intertwined with geopolitical instability, as climate change exacerbates the frequency and severity of natural disasters and intensifies political and economic stress globally. Canada is not immune to these challenges, with climate-related disasters becoming more frequent and costly.
Economic impact
According to the Insurance Bureau of Canada, climate-related disasters cost Canadian businesses nearly $5 billion annually, and these risks are only projected to grow as climate change accelerates. Floods, wildfires and severe storms not only disrupt local businesses but also affect global supply chains.
Geopolitical ties
Countries that are struggling to adapt to climate change are experiencing heightened social unrest, migration pressures and political instability. This can disrupt trade routes, production centres and resource availability, all of which affect Canadian companies with global operations or supply chains in vulnerable regions.
Innovation and AI regulation: A new geopolitical battleground
Artificial intelligence (AI) is transforming industries and reshaping global economies, but it also presents new geopolitical risks. As AI technology advances, countries are racing to regulate it, particularly regarding concerns over misuse, national security and data privacy.
AI-driven geopolitical impacts
AI-driven surveillance, cyberattacks and the potential weaponization of AI pose new threats to global stability. Governments, particularly in regions like China and the European Union, are working to develop stringent AI regulations, which can create complex environments for Canadian businesses operating in these markets.
Sociopolitical risks surrounding AI
Countries with weaker AI regulations are vulnerable to destabilization, as the technology can be exploited by authoritarian regimes or criminal groups. This increases the risk for Canadian companies operating in regions where AI-driven cyberattacks, identity-based kidnappings or surveillance may occur.
AI-driven exposure for directors and officers
With geopolitical instability and regulatory environments becoming more complex, especially in emerging markets and areas like AI regulation, company executives may face increased risks of legal action or personal liability for business decisions.
AI’s impact on the economy
The World Economic Forum estimates that AI could contribute $15.7 trillion to the global economy by 2030, but unchecked, AI deployment could lead to significant economic risks, particularly in industries like finance and technology.
The oceans: Geostrategic importance and maritime risks
The world’s oceans are not just transit routes — they are critical geopolitical assets that underpin global trade. With 80% of global trade by volume transported by sea, maritime transit corridors are becoming increasingly vulnerable to geopolitical tensions.
Maritime security
Chokepoints like the Strait of Hormuz, the Suez Canal and the South China Sea are geopolitical flashpoints where piracy and maritime terrorism are growing concerns. The International Maritime Bureau reported a 20% rise in piracy incidents in 2023, many involving hijackings for ransom.
Geostrategic competition
Nations such as China, through initiatives like the Belt and Road Initiative, are expanding their influence over maritime routes, further complicating the security landscape. This creates additional risks for Canadian companies involved in global shipping or reliant on maritime trade routes for energy or manufacturing materials.
The impact of 2024’s and 2025’s global elections on geopolitical stability
These two years will be pivotal for global politics, as multiple high-stakes elections are set to take place, with significant implications for international trade, foreign policy, regulatory frameworks and security, especially as political movements advocating for protectionism, nationalism or isolationism continue to gain traction.
US presidential election and North American relations
The US election in November 2024 will have far-reaching consequences. Shifts in US foreign policy could ease or escalate tensions with countries like China, Russia and Iran, directly impacting Canadian businesses operating in or trading with these regions.
Closer to home, shifts in US foreign policy may potentially impact international relations and trade agreements, such as the United States-Mexico-Canada Agreement (USMCA). The USMCA has been instrumental in strengthening economic integration between the US, Canada and Mexico, but its continuity relies heavily on the policies of the incoming administration. Any move towards protectionism could strain the partnership, especially affecting Canadian industries dependent on cross-border trade and supply chains. A change in administration might also bring new priorities to the USMCA’s environmental or labour provisions, potentially leading to renegotiations or adjustments in trade practices.
As the US election could redefine its stance on global and North American affairs, Canadian businesses may find themselves navigating a period of uncertainty. The impact of the election will extend beyond economics; a renewed focus on border security, immigration and bilateral energy agreements could arise depending on the next administration’s policy agenda. Given the interconnected nature of the US and Canadian economies, any change in USMCA terms or its enforcement will have immediate and significant implications for Canadian industries, especially in manufacturing, agriculture and technology.
Emerging markets
In emerging democracies, over 60 national elections are expected in 2024 and 2025, according to the Institute for Democracy and Electoral Assistance (IDEA). These elections could trigger political unrest, protests and violence, increasing the risk for Canadian companies operating in or trading with countries like Brazil or India.
Global technology decoupling
The world is seeing a rapid move toward technology decoupling, particularly in critical sectors like 5G, AI and semiconductors. Countries are increasingly building independent tech ecosystems to reduce reliance on foreign technologies, creating new regulatory and logistical challenges and leading to more fragmented global markets.
Supply chain risks
The decoupling of US and Chinese tech supply chains is particularly challenging for Canadian businesses, especially those in sectors like consumer electronics and automotive, where semiconductors play a vital role.
Investment shifts
A 2024 McKinsey report revealed that 45% of global companies with operations in both China and the US are already shifting parts of their supply chains to mitigate decoupling risks.
How exposed are Canadian companies to geopolitical risks?
Canadian companies are deeply integrated into the global economy, making them particularly susceptible to a range of geopolitical risks, from trade disputes and sanctions to political instability and cyber threats.
The interconnected nature of Canada’s key industries means that external shocks can have significant ripple effects, affecting everything from production to profitability. Some of the most vulnerable sectors include energy, mining, manufacturing, financial services and technology.
Canadian energy and mining sector
As one of the world’s largest energy producers and a leading player in global mining, Canada’s resource sector is heavily reliant on international markets. Canadian energy and mining companies frequently operate in politically unstable regions, such as Latin America, Africa and the Middle East, where the risk of expropriation, civil unrest and regulatory challenges is high.
Canadian mining sector exposure
The mining sector alone contributes approximately 5% to the country’s GDP, with Canadian mining companies operating in over 100 countries worldwide. These operations are often exposed to significant geopolitical risks due to volatile regulatory environments or political instability.
Energy sector vulnerabilities
Similarly, the Canadian energy sector is exposed to disruptions in politically unstable regions. Energy companies with operations in the Middle East or Africa must contend with the possibility of supply interruptions, government interference or asset seizure, or even sabotage due to regional conflicts.
For example: A Canadian mining firm operating in Peru could face nationalization or asset seizures if the local political landscape changes. Political instability or protests over resource extraction could lead to delays or shutdowns, directly impacting profitability.
Manufacturing and import-export companies in Canada
The Canadian manufacturing sector is heavily export-oriented, with the US and China being two of its largest trading partners. Canadian companies are thus highly vulnerable to trade disruptions caused by tariffs, trade barriers and geopolitical tensions.
USMCA and trade tensions
While the US-Mexico-Canada Agreement (USMCA) has helped stabilize trade within North America, the lingering trade disputes between the US and China remain a concern for Canadian exporters. Even companies not directly trading with China can feel the knock-on effects of these tensions through increased costs or delayed shipments.
For example: A Canadian automotive parts manufacturer that exports heavily to both the U.S. and China could face unexpected tariffs or trade restrictions, leading to higher operational costs and reduced profitability. Additionally, sanctions or disruptions in global supply chains could delay production or delivery, resulting in missed deadlines, contractual penalties and revenue losses.
Financial services and foreign investment
Canada’s financial services sector, including its banks and investment firms, has substantial exposure to international markets, particularly in emerging economies like Latin America and Southeast Asia. These markets, while offering opportunities for growth, also carry high political and economic risks.
Currency and sovereign risk
Canadian banks and financial institutions are particularly vulnerable to currency devaluation, changes in local regulations and political instability in these regions. For example, sovereign debt crises or capital restrictions can negatively impact the value of foreign investments, while currency fluctuations may erode profitability.
For example: A major Canadian bank with investments in countries like Mexico or Argentina could face losses if local currencies devalue or if the host government imposes restrictions on repatriating profits. In some cases, political instability or nationalization of key assets could lead to significant financial losses.
Technology and telecommunications companies in Canada
The Canadian technology and telecommunications sectors are not immune to geopolitical risks, particularly given the global competition over semiconductors, 5G networks and AI technologies. Canada’s tech industry relies heavily on international supply chains for critical components, and it faces challenges due to US-China tech decoupling and potential disruptions in the Taiwan Strait — a major semiconductor manufacturing hub.
Cybersecurity threats
Additionally, Canadian tech companies are increasingly targeted by cyberattacks, particularly those sponsored by foreign states. With 21% of large Canadian companies reporting cyberattacks in 2021, this risk is particularly relevant for businesses that handle sensitive data or operate in critical sectors.
For example: A Canadian electronics company dependent on semiconductor imports from Taiwan could experience significant delays or shortages if tensions between China and Taiwan escalate. These disruptions could impact the company’s ability to produce and deliver products on time, leading to lost sales and contractual penalties.
Agriculture and Agribusiness
Canada’s agriculture sector is another key industry that is highly exposed to geopolitical risks, given its dependence on exports and global markets. Canadian farmers and agribusinesses face potential disruptions due to trade barriers, sanctions or environmental policies imposed by other nations.
Agriculture trade vulnerabilities
Agricultural exports to countries like the US, China, and European Union face uncertainty due to shifting trade policies and regulatory standards. Canadian exporters could find themselves squeezed by tariffs, quotas or retaliatory sanctions, especially in the context of broader US-China trade tensions.
For example: A Canadian wheat exporter that relies on sales to China could face delays or price reductions if new tariffs or restrictions are imposed due to geopolitical tensions between the US and China, affecting global markets.
Canadian infrastructure and construction
Canadian infrastructure and construction companies that operate internationally, particularly in developing markets, are also at high risk due to political instability, local regulatory changes and labour unrest. These firms often undertake large-scale projects in countries with weak governance and high levels of corruption or political volatility.
For example: A Canadian infrastructure company working on a major construction project in the Middle East could face delays or cost overruns if political unrest escalates or if the local government changes regulations mid-project. This could lead to penalties, operational losses and reputational damage.
Developing resiliency amid global uncertainty
In an increasingly volatile world, Canadian companies must recognize that geopolitical risks have moved beyond traditional issues to encompass a wide array of complex, interconnected challenges. From cyber threats and economic decoupling to energy disruptions and environmental pressures, the risks Canadian businesses face are unprecedented in their scope and impact.
By understanding the broader implications of geopolitical shifts and actively incorporating risk management practices, Canadian companies can position themselves to navigate this turbulent environment more effectively.
Read part two of this series to learn about strategies that can help businesses develop resilient frameworks to mitigate risks, leverage opportunities and ultimately thrive amidst global uncertainty.
Aliya Daya, Senior Client Executive, serves as a Cyber Technical Specialist and National Mixed Specialties Practice Team Lead at Acera Insurance. With more than 25 years of experience in the insurance industry, Aliya specializes in innovation, technology, cyber insurance and privacy breach, political risk, manufacturing/fabrication/wholesale/distribution, hospitality, non-profit and faith-based organizations, as well as disruptive and emerging industries.
You can reach Aliya at 403.717.5895 or aliya.daya@acera.ca.