Greater reliance on overseas sourced goods, with increasingly tighter 'just-in-time' production demands, means that companies' global supply chains are also under threat from political and non-political trade disruption risks.

Risk complexity, nationalism and arbitrary regulation have emerged as significant threats to multinational corporations' balance sheets, according to the latest global analysis by Aon political risk experts.

Each year Aon's political risk and trade credit experts analyse the political and economic risk climate in more than 200 countries.

The latest edition, published in January, shows that of the 214 countries surveyed in 2006, 17 pose less of a risk in 2007 compared to 2006, contributing to a decrease in the overall level of global political risk for the first time in three years.

Despite this, 2006 did produce its fair share of political risk events. “There have been coups recently in Thailand and Fiji that seem to have passed relatively quietly so far, but which might yet have the potential to create problems for any companies dealing with those countries. The nuclear issues in Iran and North Korea create enormous political and diplomatic stress,” said Charles Keville, director of Aon Crisis Management in London. “The growth of nationalism is also becoming a major issue, especially for some of the world's multinational energy companies”.

Oil producing countries are seizing local resources that were once owned by or shared with international oil companies. This could be a blanket country action, such as Bolivia's outright nationalisation of the oil & gas industry as happened in May 2006, or more targeted action, possibly through arbitrarily imposed regulations and interference against individual projects, such as Russia's recent moves against Sakhalin II or BP's TNK-BP. “Such events, along with other geopolitical problems in other regions of the world, will likely keep oil prices high for at least the next year,” said Keville.

Venezuela announced its intention to target its power and telecoms industries for nationalisation. Those two sectors were privatised in the early 1990s.

Russia was in the headlines in January 2006, having turned off the gas supply taps to Ukraine unless they agreed to increase the prices paid for Russian gas. Ukraine will need to agree to pay even higher prices during 2007 to avoid that happening again, and the recent events between Russia and Belarus have served to highlight the increasing political and economic sensitivities of oil and gas supplies.

Greater reliance on overseas sourced goods, with increasingly tighter 'just-in-time' production demands, means that companies' global supply chains are also under threat from political and non-political trade disruption risks such as embargoes or even bird flu. “The magnitude and complexity of risk is increasing for companies around the world,” said Keville. “Companies need to carry out far more detailed and diverse analysis of the risks they face in foreign territories and these issues need to be constantly monitored, whether they be macro or micro in nature.

“In addition, companies are facing greater scrutiny from both internal and external bodies, including non-governmental organisations. There are severe corporate governance and reputational risks. Companies need to be aware that pressures from their own government or country might just as easily be the root of their problems. It is not always the foreign government or country that creates the risk,” Keville added. Other concerns are financial and credit risks. “A credit event or major correction in one market could have serious implications for other markets, for example a major insolvency or a hedge fund collapse, triggering others,” said Bernard de Haldevang, underwriter, financial and political risks, at Atrium Syndicate 609.

The level of debt in the corporate international bonding market currently stands at approximately $9 trillion, the highest ever total and if a group goes under there would be a cascade effect. “With interest rates and inflation creeping back up and growing budget deficits in a number of developed nations, from a cyclical point of view one could be forgiven for thinking that we are getting close to the top of the cycle. However, some analysts said that last year as well,” de Haldevang concluded.