Dynamic risk modelling; a strategic approach to surviving geopolitical volatility

The Middle East crisis has had an immediate effect on energy prices and has exacerbated some regional fragmentations and volatility. Looking to the medium term, Gilles Moëc, Chief Economist at AXA Group, and Xavier Veyry, APAC & Europe CEO at AXA XL, discuss the potential implications of the conflict for financial markets and business confidence, and the role that strategic risk modelling will play in building resilience. 

Xavier Veyry: The current conflict in the Middle East is the latest example of a profound reshaping of the overall macroeconomic and geopolitical landscape – from a future energy mix perspective, a sovereignty perspective and an overall trade alliance perspective.

It’s always difficult to predict the future, perhaps never more so than today, and that means we need to be agile and flexible to respond to the changing needs of our clients as they plan for tomorrow. Data and strategic risk modelling will be key to this. 

Across our different lines of business – whether in political risk, marine or multinational programmes – innovation is increasingly driven by the need to better anticipate and manage interconnected risks. This includes advanced risk modelling, real-time monitoring of exposures and more integrated solutions that combine insurance and risk consulting to give clients a clearer view of fast-moving situations.

But, as the Middle East crisis continues, Gilles, are you able to share some insights into the economic impact of the conflict to date and what we and our APAC and Europe clients need to be thinking about for the medium term?

Gilles Moëc: The focus is on inflation.

There’s not just been a price shock for energy but also for other commodities – like helium, which is crucial for the production of electronic chips, or fertilisers, which will have an impact on food prices down the line. If energy prices begin to reduce by the end of this quarter – Q2 2026 – then the crisis can probably be said to have been manageable. It’s a matter of how long this goes on for. We can probably expect GDP growth to slow by a couple of decimal points. But if prices for energy and other commodities remain high beyond the end of Q2 then things could get a lot worse. 

The way the equity market has responded to the current geopolitical crisis has, so far, been measured. The impact on the bond market is larger, which makes sense in the face of a price shock. Before the current conflict began, the financial markets were pricing in two interest rates cuts by the US Federal Reserve by the end of the year, now they are expecting no cuts at all.  The European Central Bank, which was expected by many to hold rates steady, is now expected to hike twice. The absence of US interest rate cuts is always negative for emerging markets, especially those which tend to be very sensitive to food and energy price shocks when they are not producers. Local inflation in those markets will likely temper growth. 

Xavier Veyry: Our clients are, of course, feeling the immediate effects of the crisis on energy prices and supply chains.

In marine insurance, for example, geopolitical tensions directly affect the insurability of key trade routes. As a long-standing partner to the shipping industry, our role is to provide stability over time by helping maintain the continuity of trade flows in uncertain environments. This means deploying mechanisms that can adapt to evolving tensions, adjusting cover where the risk environment changes and ultimately supporting shipowners not only against traditional navigation risks, but also against war-related exposures.

As we look to the medium term, we’re very conscious that, as Gilles has mentioned, the effects of this current geopolitical crisis are happening to varying degrees and at different paces across regions. That means that, as risk partners, we need to be agile and flexible.

Gilles, do you foresee this regional fragmentation having an effect on how local economies operate and trade? 

Gilles Moëc: Some of the reshaping that you mention, Xavier, is taking the form of fragmentation of blocs that previously may have been more aligned. It’s really quite unusual to see this degree of unity in Europe in response to a crisis – if you compare it with the reaction to the second Gulf War, for example. Whereas when you look at the North America trading bloc, Canada is warming its trading relations with China, while Mexico conversely is involved in tariff disputes with Beijing. Two economies within the same trading alliance are acting very differently. 

This fragmentation has hit trade in goods but not trade in services – yet. If trade in services is affected by this realignment then there could be big challenges ahead.
It’s important to remember too that this crisis follows a pretty unusual trade war between the United States and Europe. The financial markets did not react too badly to that, partly because of the fortuitous timing of the AI tech boom. 

It's also interesting to note how some regions have, over the past few years, improved their resilience to some of the effects of geopolitical events. In Europe, for example, it’s the second time in five years that there’s been an energy price shock. And in that time, many countries have greatly improved their sensitivity to carbon-derived energy and accelerated the diversification of energy supply since 2022. In the EU, the production of renewable energy has increased dramatically during the past three years compared with the previous decade. This has boosted the resilience of some economies to the effect of the energy price hikes prompted by the current crisis and to any future shocks. 

Xavier Veyry: It’s certainly an ever-changing picture, and these risks can’t be viewed in isolation.

There have always been – and will always be – crises. But the risk elements now are interacting much more, on a wider scale and at a faster pace. As a global insurer we have exposure to all of these dynamics, which allows us to connect those dots – and connect them faster – to support our clients.

Even sovereign risk, once considered relatively stable, is now being reassessed, while at the same time projects are becoming larger and more capital-intensive. In this context, political risk and credit solutions play a critical role by protecting lenders when political events, regulatory changes or defaults prevent repayment – ultimately helping turn uncertainty into financing and enabling investment to continue.

For multinational clients, this environment also translates into increasing complexity in aligning global consistency with local regulatory requirements. This is where coordinated global programmes become essential.

Ultimately, whether it is enabling investment through political risk solutions, maintaining trade flows through marine and war risk coverage, or structuring multinational solutions for global clients, our role is to make risk manageable and business possible. Insurance is what turns uncertainty into actionable decisions.