Expropriated By Russia, With Love

As global trade experts know, supply risk can take many forms. And in today's world, no longer is it enough to create predictive models that will suggest when a supplier might become insolvent or when it might witness a decline in quality or on-time performance. That's because geo-political risk can be equally -- or even more -- damaging to a company's bottom line than other supply risk factors. As an example, look no further than Russia, a country whose current leadership can best be described as democratically elected for life (because any real challengers or public dissenters will face jail time or worse).

Last week, The Guardian wrote about how Russia has decided to expropriate a $20 billion private sector energy project. According to the article, "Shell is being forced by the Russian government to hand over its controlling stake in the world's biggest liquefied gas project, provoking fresh fears about the Kremlin's willingness to use the country's growing strength in natural resources as a political weapon." An expert quoted in the article notes that "the Kremlin was once again using legal pretexts to cover what was essentially an expropriation of private resources in the energy sector."

For companies investing in global sourcing or joint venture operations in developing countries, this example should serve as a serious warning about the potential supply risk dangers that lurk outside of private sector partners. Whether it's Russia, China, or Peru -- all countries with significant government meddling and a long track record of public interference in private sector affairs -- does not matter. What does is that if you're not factoring into account political stakes into your supply risk equation, then you're mispricing the total costs and downside risks of doing business globally.

Jason Busch

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