Gray-zones, tariffs and internal unrest: How companies are rethinking political risk in 2026

But I'll just summarize it by saying he's the author of WTW's annual political risk survey. And it's always interesting. But this year it's even more interesting. So Sam, I will let you introduce yourself and then I will say what particular stands out this year among the many risks that companies worry about.

SAM WILKIN: All right. It sounds like a good approach. So my name is Sam Wilkin. It's lovely to see you again, Elizabeth. I have worked in geopolitical research for about 25 or 30 years now the last six or seven at WTW, obviously, the best years of my career.

And my role is political risk analytics and also producing insights like the survey report you just mentioned.

ELIZABETH BRAW: And I have read religiously the survey every year it has been published. And it is really the best source that I know that quantifies political risks facing companies. We can talk about political risks, but this survey quantifies them and as a result, provides some really fascinating and troubling figures that really put in black and white, how the geopolitical climate is changing and how that is affecting companies.

So one thing that I'd like to start with, Sam, flagging up from this year's report, is something that really stood out to me, the political development that the largest percentage of companies are concerned about, that doesn't concern Iran, Russia, China or any of the other usual suspects. It concerns the United States. 49% of companies surveyed are concerned about U.S. internal unrest or political violence. And that's, as I said, the largest percentage of any risk included in this report.

And after that, the second highest percentage among their concerns is continued conflict in the Middle East. So this really puts things into perspective. And Sam, I guess, what I would like to hear from you is how surprised you were by that result.

SAM WILKIN: I think I'm extremely surprised, not least because the headlines are dominated every day by the conflict in Iran. As you and I speak, we've just had a peace deal announcement. But it goes back and forth a lot. So dear listener, let us know what's happening when you hear this podcast.

It's really shocking given how much Iran is in the news and how much of a wake up call for a lot of companies in the U.S.. I think that Europe had its wake up call with the escalation of conflict in Ukraine. And this, I think, has been a similar wake up call for U.S. companies, just how exposed they are to geopolitical risk.

Each year, we ask people about the risks they're worried about in the year ahead as well in the years to come. And there were, again, like Iran was up near the top. And U.S. as a global disrupter, was up there. But there were also things that people wouldn't expect, I think.

One was U.S.-Europe strategic divergence. So there's this underlying strategic divergence where the U.S. is fundamentally concerned about China. And Europe is fundamentally concerned about Russia. And I think that outlasts the current administration.

Another issue tariff complications. So I think everyone breathed a sigh of relief when the only countries to retaliate against the Trump tariffs were China and Canada, and everyone else just accepted them. So them. So we didn't end up in this retaliatory tariff war.

But now what we're seeing is that all those goods that were mainly made in China or Asia that were going into the U.S. market are now still being made. And they're just not going to the U.S. market anymore. So they're going everywhere else.

And so we're seeing the EU and other countries having to put up their own tariff barriers against China. So I wonder if everyone's side prematurely at that we're going to have this tariff cascade where even though we didn't see initial direct retaliation, we're going to see tariffs going up around the world as a more subtle vicious cycle.

And the last thing I'll mention is erosion of traditional mitigation channels. That was also in the top 10 for the years to come. And that was about something very important in the insurance world. A lot of the claims recovery that makes our products, insurance products, work relies on being able to recover some losses via international arbitration or international legal action. And as the rules-based order has gotten weaker, that's been big news for everyone dealing with violent conflicts in Ukraine and in the Middle East.

But the other element of the rules-based order weakening is you're seeing international law really being eroded. And these traditional mitigation channels that companies used to deal with political risk, have used in the past to deal with political risk are becoming a lot less reliable. So you're seeing if the violent conflict takes all the headlines, then you're seeing things below the headlines that are just underpinning or they're messing with the underpinnings of globalization.

ELIZABETH BRAW: And I just like to return to the U.S. finding for one moment before we look at some of your other fascinating findings. But the fact that companies are concerned about internal unrest in the United States, this is as far as I know, it's unheard of in Western countries. It's something that companies typically worry about in less stable countries, in countries that are not democracies. But for this to be taken so seriously by companies that it ranks as the number 1 concern is, I think, something that-- well, it's certainly alarming from a U.S. perspective. I don't know what you think, Sam.

SAM WILKIN: I mean, I agree. And that was driven not just by U.S. respondents. It was also driven by a lot of European companies expressing that concern as well. I mean, I do think there was a bit of a perfect storm over the past few months where the administration was putting in place policies that were not very popular in major cities.

And so we saw these huge protest movements erupt, particularly in Minneapolis but in other cities as well. And these cities are places where you have a lot of well-educated, politically aware people where they're in an urban area. So it's very easy for them to gather.

They are people who have political-- they have people power, as we say, the ability to mobilize very effectively. And so if you're putting in place policies that those people don't like in these urban areas, you're going to get protest movements.

And so I think that really did alarm people, the sight of what was happening in Minneapolis and caused people to think about, well, what if there is a social unrest situation in multiple cities at the same time? What If it gets worse? It's mostly peaceful. What if it turns violent? People started to do these what if scenarios in their head and worry about their insurance cover and as well as their safety of their people.

ELIZABETH BRAW: Yeah, I can see how that would be a troubling scenario or prospect from many companies perspective. Another area that has really taken off, if I may use that word in this survey, is gray zone aggression. It's obviously something that I work on extensively myself.

But I remember distinctly a decade ago it was just not something that companies were concerned about. They might be looking at boosting their cyber protection, that kind of thing. But gray zone aggression more widely was just not on their radar, in their vocabulary, whatever terminology you want to use.

And now, as I saw myself in this report, which is available to everybody, it is something that companies are now massively concerned about. And Sam, what is your assessment of the trajectory that this concern or not just concern, the reality of gray zone aggression targeting companies has taken over the past few years?

SAM WILKIN: Well, first let me put in a plug. We did a great podcast around gray zone aggression not too long ago. So if this is a topic of interest to you, please listen to that episode. So it's used to-- I remember, I occasionally called gray zone aggression a geopolitical gaslighting. And I think that was done-- I think you mentioned that in happier days before it became less of an extreme.

You were ahead of this issue, a long way ahead of this issue compared to a lot of other analysts. And at the time, we were worried about it. But it wasn't the nuts and bolts major problem that it is today. And so maybe the term is a little flip.

But I really liked it in some ways because gaslighting implies that you are doing something and then you're just blatantly denying what you're doing. You're just making it really ambiguous, what's actually happening. And the person who's the victim of gaslighting, as I am with my friends all the time, the victim of gaslighting is like, what's going on here? You just don't know.

You start to question your own reality as to what's really happening. And this is a big problem for the insurance world because the insurance is a contract. Contracts thrive on black and white. And if someone's gaslighting you, then it's really hard to write that into the contract and to make sure that the insurance coverage that you have is going to work.

ELIZABETH BRAW: Exactly. And it's almost impossible to prove that there was state involvement in whatever the harmful activity is.

SAM WILKIN: And that's the strategy. Right?

ELIZABETH BRAW: Yes. And so it's very difficult from a government perspective but also from a corporate perspective to know how to handle these incidents because this is not just common crime. It's not like all of a sudden all criminals like targeting companies for no reason. You can see in cumulation that it is linked to geopolitical aggression. But yet it's almost impossible, or I shouldn't say almost impossible. It is often impossible to prove that connection.

But incidentally, as we speak, the BBC has just reported that an arson attack against the home of Keir Starmer was commissioned by Russia. So a Russian official commissioned a British criminal to carry it out. This is the new reality, whether it concerns a house belonging to Keir Starmer or a manufacturing plant or any other facility, installation, piece of infrastructure, what have you. So this is something that really stood out to me in the report that companies are taking it seriously.

Then a third thing I wanted to flag up is the effect of home government's foreign policy on companies operations. So in other words, if the government in let's say, the UK pursues a certain foreign policy objective, then certain countries, hostile countries, may voice their objection to it by targeting companies based in the UK. Sam, this seems to me a new development. Or it's not a new development but a new key concern for companies.

SAM WILKIN: Yeah, certainly over here in the U.S., as well. One of the interviewees we quoted in the report commented wryly that the number 1 downloaded app in Denmark was for boycotting U.S. products. It's definitely a challenge for consumer products businesses. I mean, the relationship between companies and governments is clearly shifting. And it's very awkward at the moment. I mean, we're going through this transition.

The finding that I found most striking was one that you wrote about in your Times of London piece, was about how companies are seeing themselves as having national security obligations. Companies are still determinedly multinational. Governments are increasingly national in their outlook, nationalist, I might say, in their outlook in many countries.

But still, you saw this finding where 32% of the companies we surveyed said that they felt they should pursue the security, national security, of their home country, even if it was costly to them in terms of revenues or their cost base. And that really struck me that companies are seeing themselves as having this geopolitical role.

I think that's something you have argued for quite a bit. You're arguing arguing companies should take part in resilience exercises to defend first, for instance, against Gray zone regression. And that companies have this national security role. But it is something that I think is new.

It really surprised me that even if you put in the companies willing to balance things, you got up to above 80% that we're saying, OK, we have this national security. Only less than 20% I think it was 16% 16% saying no, shareholder value first. That's not our job. And to me, I thought a much, much higher percentage would have said it's not our job to deal with national security issues. It's government's job.

ELIZABETH BRAW: It's a remarkable shift. I think five years ago, 10 years ago, you would have seen a tiny percentage of companies saying, we are willing to consider national security obligations when making commercial decisions and now, as you say, nearly four out of every five companies. Really, a remarkable development or transition has taken place over the past year or so.

SAM WILKIN: Absolutely.

ELIZABETH BRAW: Sam, I want to talk about something less pleasant, which is cost. So these risks and incidents have already resulted in significant costs and/or losses for companies that have been directly or indirectly targeted. And I was interested in hearing from you how that has developed over the past few years, as you have mentioned it in the survey.

SAM WILKIN: So you mentioned, the quantification in your intro. And this is where the survey I think is different than just about any other publication out there. We ask about the cost of political risk losses. And the seminal event, both in terms of just about every type of political risk peril, was the highest.

And in terms of the largest proportion of companies reporting they had a material loss, the seminal event is still Ukraine. It's still the big escalation of the conflict in Ukraine when Russia attempted to seize the whole country. And basically the survey year after that, everyone recorded the losses. And most companies were most likely to say they had to make an earnings restatement because of geopolitical risk.

Then this year, we actually had an event that impacted more companies, which you will not be surprised to hear. That was tariffs. So tariffs actually impacted more companies in our survey sample compared to the Ukraine conflict. But in terms of the big loss year, that's still Ukraine.

ELIZABETH BRAW: And that is likely to continue to be the case since we don't seem to be any closer to a peace deal or peace treaty for Ukraine than we were a few months ago. On that note, thank you, Sam for joining me. And thank you all for listening to Geopolcast.

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