As geopolitical rivalry deepens and governments assert greater control over capital, foreign investors are increasingly exposed to abrupt regulatory shocks. From forced divestments to covert expropriations, political risk is no longer an outlier but a structural feature of global markets. Traditional safeguards like Political Risk Insurance offer little immediate protection. Can financial innovation provide a more effective hedge against political risk?
Mark Carney’s speech at the 2026 WEF highlighted the breakdown of an international order that relied heavily on the US managing common resources ranging from open seas to internet pipelines and the backhaul plumbing for financial markets. The resulting environment is expected to be increasingly fraught with more countries acting in naked self-interest (often short-term) to the exclusion of foreign trade and investment. As a result, incidents like Venezuela’s expropriation of the Orinoco belt, which wiped out ExxonMobil’s and ConocoPhillips’ investments in the country in 2007, will become more common. In the recent past, Russia has forced sales of Western assets at throwaway prices, China attempted a regulatory crackdown of its tech industry, and a variety of smaller countries have taken similar actions. Risk of expropriation in general can make it difficult for multinationals to anticipate operational challenges and make long-term investments, even in projects that otherwise would appear commercially profitable. World Bank surveys indicate that about 25% of investors in developing countries have divested or cancelled expansions due to irregular government actions—including abrupt regulatory shifts, contract violations, and transfer restrictions. Political risk is the main barrier to FDI, surpassing corruption, infrastructure, and financing concerns.