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Head of Market Development and Distribution, Political Risk, Credit & Bond, AXA XL

The story of contemporary civilization begins with efforts to exploit water resources. The story also includes strife and conflict: Historians agree that the city states of Lagash and Umma in the Tigris-Euphrates basin went to war more than 4,500 years ago specifically over water. Since then, competition for fresh water has played a role, directly or indirectly, in countless disputes, including violent conflicts.

Some facts:

  • – Today, about 650 million people live without access to safe water.
  • – In 2030, it’s estimated that global demand for water will outstrip supplies by 40%.
  • – Over 90% of the world’s population lives in countries with transboundary river and/or lake basins.

In a world growing in population and prosperity, competition for fresh water is only going to increase.

An increasingly thirsty world

To the global economy, it could be argued that water is more important than either oil or gas. Any kind of disruption to fresh water resources can be completely crippling to people, industries and ultimately a country.

For many businesses, access to sufficient fresh water is obviously critical to success. For example, it takes:

  • – 62,000 gallons to produce a ton of steel.
  • – 1,360 gallons to produce a ton of cement.
  • – 400 gallons to grow the cotton needed to make one T-shirt.
  • – 24 gallons to make one pound of plastic.
  • – 13 gallons to make one gallon of paint.

Given the importance of water to many businesses, some can expect to be drawn into competitions over fresh water resources, either willingly or unwillingly. Other businesses may not be directly involved in these competitions, but are likely to be the affected nonetheless. In any case, competing demands for scarce fresh water resources can expose companies to challenging and unpredictable risks.

Competition between and within nations

Competition for fresh water can be between nations as well as between regions within the same country. At the national level, examples include ongoing efforts to dam upstream sections of the Mekong River; these are already creating downstream impacts in Myanmar, Thailand, Laos, Cambodia and Vietnam. Similarly, Tajikistan’s plans to dam the Vakhsh River would affect farmers in Uzbekistan, and Ethiopia’s proposal for a hydro facility on the Upper Nile is a major concern for Egypt.

In addition to competition between countries that share a river basin or aquifer, sub-national or regional disputes are becoming increasingly frequent. These typically revolve around economic development efforts designed to promote growth in a region or city, and local communities impacted by the projects. For example, large dams can produce a range of benefits including water for drinking and industrial use, irrigation, flood control, hydro power generation, inland navigation, and recreation. It is also estimated that large dams have displaced between 40-80 million people over the past six decades, and many have been negatively impacted.

Another source of potential strife is trade in “virtual water.” By importing the water embedded in food products, i.e., “virtual water,” water-starved countries can meet their water requirements via trade agreements instead of conflict. For instance, a number of such agreements have been struck between arid countries in the Middle East and countries in Africa. Under these deals, the water-starved country typically contracts with the water-rich country for the exclusive use of large amounts of farmland. While these arrangements can provide an arid country with some measure of food security, thus minimizing a potential source of social strife, they can also negatively impact local communities in the “host” country. For example, Qatar struck a deal with Kenya in which it agreed to pay for the construction of a deep-water port in exchange for the exclusive use of 40,000 hectares of farmland. While this deal would seem to offer benefits to both countries, Kenya has also experienced considerable civil strife in recent years as a result of food shortages.

Beneficial outcomes and adverse follow-on effects

Development projects are invariably based on some set of expected beneficial outcomes – no one really believes Ethiopia wants to dam the Upper Nile simply to antagonize Egypt – yet with water-related projects, achieving those benefits can create follow-on effects that heighten the potential for strife. This is certainly the case when the projects involve freshwater resources that different interests rely on for different purposes.

The challenge for companies, particularly those operating in emerging markets, is that civil strife is unpredictable and can manifest itself in different ways. Although the situations are often quite – well – fluid, a couple of scenarios are common.

  • An investor agrees to finance a water development project promoted by the national government and supported at the outset by regional / local authorities. Local communities that are later impacted negatively by the project can influence regional / local authorities to turn against it, and pressure the national government to take action. This could include requiring the investor to implement costly mitigation measures, re-negotiating the terms of the contract, or nationalizing the facilities. Those impacted by the project could also resort to vandalism if not outright sabotage, and cause significant damage to the facility. Regardless of how the situation plays out, the investor’s return on investment expectations are sure to take a hit.
  • Manufacturing / Assembly facilities are sited in an area to take advantage of new power and/or water resources made available by a water development project. Social unrest sparked by people affected by the project curtails the power / water available to these facilities, or results in significantly increased costs. Either way, the original assumptions used to site the facilities at this location are out the window, and the available options for maintaining production at the site are less than ideal.

Political risks: outside a company’s span of control

Regardless of the scenario, civil strife and other political risks represent categories of risk that are usually outside a company’s span of control. This is particularly the case when the source of the strife is competing demands for water. Companies can build or supply or finance things, but sometimes there are situations they just can’t anticipate, or more importantly, control. Perhaps the land needed for a development project was acquired without fair compensation, or there was some bribery or corruption. Or the downstream impacts on local communities weren’t foreseen. In any event, these types of situations can quickly spin out of control, with potentially devastating consequences for the project in hand.

Risk engineers can help companies understand the nature of the risks they face, especially in developing countries. Political Risk insurance can provide a safety net by offering a company the opportunity to swap a known and quantifiable risk outside of its control for a known and certain cost.

For companies with operations in far flung parts of the world, understanding local political dynamics can be a challenge. And seemingly small changes in water use or availability can swiftly turn contentious and provoke civil strife. While warfare on the order of Lagash versus Umma is unlikely today, companies should nonetheless be mindful of the water sources they rely on in different locales, and as necessary, take prudent steps to understand, minimize and mitigate the risks associated with competing demands for this vital resource.

While scarcity can spawn conflict, it can also serve as a catalyst for innovation. Or as Plato put it, “Necessity is the mother of invention”.  Read "Turning Air into Water" below, about how innovators around the world are working to extend finite water supplies.

Want to know more? You can reach Joe at:

Turning Air into Water

In the face of scarcity, it’s natural to explore for new sources. With water, one avenue of exploration involves extracting the water that naturally exists in the atmosphere as water vapor. While the amount of water stored in the atmosphere is relatively insignificant – it represents only 0.004% of all fresh water – in absolute terms it amounts to 12,900 cubic kilometers. Put all that water in one place, and you’d have the world’s third largest freshwater lake.

The processes for converting air into water are well known. Most applications today involve cooling the air below its dew point; these are commonly referred to as atmospheric water generators (AWG). AWG systems typically include a compressor to circulate refrigerant through a condenser, and an evaporator coil to cool the air. The air temperature is then reduced below its dew point, and et voilà, water is condensed. The water is then purified using advanced filtration methods along with UV light sterilization to produce exceptionally clean water.

While AWG systems have been around for many years, they have had two main drawbacks. Firstly, they needed considerable amounts of electricity to power the compressors and circulate the refrigerant. And secondly, early models could produce only modest amounts of water, e.g. up to five liters per day in optimum conditions.

But necessity is indeed the mother of invention, and these obstacles are being overcome. Newer AWG systems use solar panels and advanced lithium batteries to create and store electricity. Some innovators are also creating systems that use wind power to send hot air deep underground where it condenses naturally. And with improvements in system design, today’s units can produce up to several thousand liters of water per day.

As the underlying technologies become more efficient and cost-effective, AWG systems are being used more widely and in increasingly diverse settings including:

  • – Remote mining sites
  • – Light industrial sites in areas with constrained water resources
  • – Hospitals and other facilities that require a dependable water supply round-the-clock
  • – Island resorts
  • – Disaster relief
  • – Greenhouse irrigation.

AWG systems are also being deployed in traditional settings. For example, the Monterey (California) Peninsula Water Management District last year approved the use of AWGs as a sole source of water for commercial and industrial applications.

Mark Twain once said “There is no such thing as a new idea.” Perhaps. The Incas after all maintained a culture above the tree line by “harvesting” dew and collecting it in cisterns. Nonetheless, more efficient, cost-effective and flexible methods for turning air into water offer considerable promise in a world that is becoming thirstier and thirstier.




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Global Asset Protection Services, LLC, and its affiliates (“AXA XL Risk Consulting”) provides risk assessment reports and other loss prevention services, as requested. This document shall not be construed as indicating the existence or availability under any policy of coverage for any particular type of loss or damage. AXA XL Risk. We specifically disclaim any warranty or representation that compliance with any advice or recommendation in any publication will make a facility or operation safe or healthful, or put it in compliance with any standard, code, law, rule or regulation. Save where expressly agreed in writing, AXA XL Risk Consulting and its related and affiliated companies disclaim all liability for loss or damage suffered by any party arising out of or in connection with this publication, including indirect or consequential loss or damage, howsoever arising. Any party who chooses to rely in any way on the contents of this document does so at their own risk.

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