Risk complexity, nationalism and arbitrary regulation

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.

"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.

He added: "The magnitude and complexity of risk is increasing for companies around the world. 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."