The past few years have seen myriad geopolitical events that have shaped the world not only politically but also economically. The crises include the Red Sea crisis, the Russia-Ukraine conflict, and the long-standing conflict in the Middle East. The conflicts were not only wars across borders but also included conflicts in international trade, such as the US-China trade war, punitive tariffs, and sanctions, to name a few.
The Red Sea crisis at the beginning of 2024, during which attacks on vessels in the Red Sea occurred, impacted global trade passing through the Suez Canal. Fifteen per cent of global trade volume passes through this critical sea route connecting Europe with Asia. According to the UN Global Platform and IMF PortWatch, the conflict reduced global trade volume year over year through Suez Canal by 50% in the first two months of 2024, while trade volume through the alternative Cape of Good Hope (via South Africa) route increased by estimated 74% over last year. The Red Sea crisis has led to delayed shipments, vessel bunching, underutilization of shipping companies' capacity, additional fuel costs, and container shortages in Asia. The implication was higher ocean freight costs, including the cost of marine insurance. The cost increase has expected to bring imported inflation and hurt imports due to the high cost of shipment. The exports which were import-intensive are also expected to hurt. The business implication of the crisis is that it would negatively impact firms dependent on small inventories; besides, delayed imports of critical inputs may lead to production breakdowns and supply chain disruptions across import dependent industries. Therefore, a geopolitical crisis has the potential to suddenly becomes a boardroom issue.
In continuity with these crises, the world has seen a shift from globalization towards geoeconomics. Geoeconomics is shaped by armed wars, trade tariffs, sanctions, trade wars, control of sea route, energy leverage and economic nationalism. The business impact is in the form of supply chain alignment, shift from fragmentation of production towards friend-shoring, diversified global sourcing and near shoring. The negative business impact can be delayed imports of parts and components, as well as cost overruns. Therefore, a geopolitical event becomes a business variable impacting industries and firms.
A geopolitical crisis finding its way to the boardroom has a transmission mechanism. A geopolitical event, whether it is the Red Sea crisis, the Russia-Ukraine conflict, a wider conflict in the Middle East, or the US-China trade war, has an impact manifested in the form of disruption in global trade, an energy crisis, or a supply chain bottleneck. These impacts will subsequently lead to increases in commodity prices and a supply shock that is expected to bring inflation, depletion of FOREX reserves, and exchange rate devaluation. The economy wide impact will be on demand, interest rates, and inflation. Therefore, a geopolitical crisis, through the transmission channel, manifests itself in the form of a macroeconomic crisis and, consequently, affects business performance.
The macroeconomic changes which have its roots in a geopolitical crisis will impact business decisions. The energy shock which the world has seen consistently in recent years, an outcome of majority of conflicts, will impact industries like aviation, automobiles, chemicals, and fertilizers due to high fuel costs, high costs of imported components and parts, and high costs of petroleum by-products. The impact at the business level will be in the form of managerial decisions involving pricing, sourcing, inventory, investment, financing, currency risk, market entry, and supply-chain diversification.
The Rupee slipped from Rs 85.64 to a record low of Rs 90.27 on December 3, 2025. The devaluation of the rupee was rooted in geopolitical disruption, combined with an energy crisis, global capital outflow, tariff escalation by United states. One such impact was rise in the cost of imported parts components. The situation may have created a business dilemma for an automobile company. To respond to the business dilemma, multiple strategic business choices can be generated to effectively deal with the situation. Since the import costs of components have increased due to both disrupted supply chains and currency devaluation, the automobile company can either diversify its global suppliers or build a resilient domestic supply chain. The other choices are whether to increase the prices of the final auto-product or absorb the costs to protect and gain the market share. Another choice is to hedge currency exposure or redesign and produce locally.
Therefore, the future managers need to understand that these macroeconomic events do not occur in isolation; they impact other management functions whether strategy, finance, operations, and risk management. Hence, rather than treating macroeconomy as an isolated core discipline, prospective management students need to have an integrated cross functional view of risk-adjusted business decisions.
To understand how any geopolitical event impacts an MBA classroom, students need to understand a 5-stage process. The first is what is the geopolitical crisis. The second is to identify its distinct macroeconomic dimensions. The third stage is to understand the impact from the macroeconomy to the industries and firm operations through the transmission channel. The fourth stage is clearly delineating the business implications when it reaches the boardroom. The fifth stage is to identify strategic choices to deal with these business implications and ways to implement them.
The role of an MBA graduate is obviously at fourth and fifth stage of business decision making. A Management student in an MBA classroom need to understand this transmission and its business implications across different management disciplines. This understanding will help them apply theories and models, concepts, and frameworks to real-world settings. The same is also critically important for those who aspire to be future managers while currently preparing to enter a B-school. The 5-stage process is also useful for understanding how management aspirants can read and evaluate macroeconomic news every day and see its impact on business decision making, and how, management students can prepare themselves to deal with these real-world business challenges once they will join the corporate sector.
Dr Kunwar Milind Singh
Associate Professor
Economics & Public Policy
Lal Bahadur Shastri Institute of Management Delhi
Stay informed, Stay ahead and Stay inspired with MBA Rendezvous.