The risks that treasurers need to deal with can be grouped into two broad categories. On the one hand are specific, microeconomic risks, like a key supplier failing to deliver on time, or a staff shortage in a specific geographic region. On the other hand, there are bigger macroeconomic risks like inflation and trade wars.
It’s the latter that are more likely to keep senior executives up at night, because they have very little direct control over them. You can always find a new supplier, but you’re probably not going to be able to bring peace to the Middle East.
The global business environment has always been shaped by geopolitical dynamics, but today’s challenges are particularly acute. From shifting alliances to economic sanctions and political upheavals, navigating this landscape has become a core responsibility for CFOs and treasurers.
The stakes are high. Geopolitical tensions can disrupt supply chains, destabilize currency markets, and impact investment opportunities. In this article, we’ll explore the current backdrop of global risks, their implications for businesses, and strategies to mitigate uncertainty.
The Current Geopolitical Backdrop
You’d have to be living on the Moon to be unaware of the increase in global tensions in recent years. While there’s always conflict somewhere, there are several major geopolitical flashpoints dominate the headlines right now:
US-China relations
The return of Donald Trump to the U.S. political stage could exacerbate tensions with China, particularly around trade, technology restrictions, and national security. Trump has made it clear he intends to implement substantial tariffs on imports, potentially placing a strain on businesses reliant on offshore manufacturing or those who export to the U.S.
Conflict in the Middle East
Escalating violence in the region threatens global energy supplies and introduces instability into key financial markets. The situation in Israel and Palestine is increasingly causing ripple effects in other countries, as the level of support becomes a bone of contention in relations and trade talks.
Unsettled Europe
Years after the UK’s departure from the EU, businesses continue to grapple with regulatory uncertainties, trade complexities, and labor shortages in key sectors. The challenges of immigration across the continent are also causing tensions to rise, with far right political parties gaining ground in some regions.
War in Ukraine
The war in Ukraine remains unresolved, driving volatility in energy markets and supply chains across Europe and beyond. A change in administration in the U.S. is also fueling uncertainty, with President Zelensky facing the diplomatic challenge of securing continued funding for the conflict.
Global protectionism
An increasing trend of protectionist policies worldwide, such as tariffs and localization rules, makes it harder for multinational businesses to operate seamlessly.
These dynamics are layered on top of an already fragile economic environment, with inflationary pressures, rising interest rates, and supply chain disruptions continuing to challenge business resilience.
Key Risks for Treasurers
It’s clear that there are some major macroeconomic risks for companies to deal with right now. But how do these specifically impact treasurers? As Konrad Haunit, Managing Director at Deutsche Bank says, it all comes down to stability,
“Treasurers play a crucial role in strengthening the resilience of multinational corporations in the prevailing environment of geopolitical uncertainty.”
Here are some of the specific risks that treasurers need to deal with in the face of this uncertainty.
Regulatory and country risk
Geopolitical tensions often lead to abrupt changes in trade agreements, sanctions, or capital controls. These changes can make cross-border cash flow difficult and limit access to funding. Political instability in certain countries could also raise the risk of sudden policy shifts, jeopardizing operations or investments in those regions.
Liquidity risk
In volatile environments, companies might face challenges in securing adequate funding or accessing cash for local operations. Limited access to credit or liquidity due to regional instability can disrupt daily operations and long-term strategic plans.
FX risk
Heightened geopolitical risk often results in fluctuating currency values. Treasury teams may encounter unexpected FX volatility, which could negatively impact profit margins, cash flows, and financial forecasts.
Credit risk
Expanding supply chains into new or volatile markets increases exposure to credit risks. These risks include reliance on financially unstable suppliers or customers, as well as unforeseen challenges when operating in unfamiliar markets.
Mitigation Strategies to Consider
While these risks can present challenges, treasurers are well positioned to be able to guard against them. There are a variety of different strategies which can be employed depending on the needs and objectives of the business. Here are some examples:
Investment hedging and cash repatriation
Treasurers can protect overseas assets by utilizing currency hedging strategies to offset potential losses caused by political or economic instability. This isn’t a direct currency exposure hedge, but rather a way to generate profits from economic instability (which will often come with currency devaluation) to offset potential in-country investment losses.
At the same time, treasurers should ensure they have a strategy in place to unlock trapped cash in high-risk regions if required. Some example options could include intercompany loans, dividend upstreaming, or cross-border cash pooling.
Mitigating credit risk
Using trade credit insurance and letters of credit to secure transactions with new or higher-risk suppliers and customers can help mitigate the risks that come with bad debts. This is a risk that can increase substantially in the event of economic or political upheaval.
In partnership with the CFO and finance team, treasurers should conduct detailed financial evaluations before entering into agreements with new partners or entering unfamiliar markets.
How Technology Enables Strategic Treasury
Geopolitical uncertainty is no longer an external factor to be managed reactively, it’s a core business consideration. CFOs and treasurers have an opportunity to position themselves as strategic partners, not just risk managers.
But the reality is that doing this effectively is incredibly challenging if you’re relying on traditional manual processes. Gaining insight on cash positions, taking a dynamic approach to forex exposure and managing liquidity for individual subsidiaries take a huge amount of time and effort using spreadsheets and manual data pulls.
“We were all manual. We spent hours logging into various portals, put in the new cash balance, and then manually looked for any decreases in cash or known one-offs to try to project where we’d be. We weren’t looking out into the future and we also were only looking at it at our top corporate level where we own over 30 subsidiaries.”
McKenzie Knudson – Senior Treasury Analyst at Sealaska Corporation
Advanced reporting tools provide the ability to cut and organize this data in any way imaginable, and sophisticated forecasting tools help future planning based on multiple scenarios.
By leveraging advanced treasury tools, businesses can turn potential threats into opportunities. For example, real-time insights into cash positions can help enable acquisitions of distressed assets in volatile markets.
Integrating the right technology allows finance and treasury to spend less time on gathering and organizing data, and more time on high value analysis and strategic decision making.
Looking Ahead to 2025
As geopolitical tensions continue to evolve, the role of treasury and finance teams will only grow in importance. The ability to adapt quickly, maintain financial stability, and seize opportunities requires both robust strategy and modern tools.
Trovata gives treasurers all the tools they need to navigate uncertainty with confidence, offering real-time data, automated processes, and advanced planning capabilities. Book a demo today to see how Trovata can help you thrive in any environment.
