Navigating geopolitical risk: Lessons from the oil and gas industry

Over the past several decades, globalization has created wide-ranging benefits and opportunities. It has boosted economic activity, improved industry efficiency, expanded access to goods and innovation, enabled companies to reach new markets, lowered consumer costs, accelerated technology, and fostered global collaboration. It has also encouraged cultural and knowledge exchange, connecting people and ideas to drive growth and quality of life worldwide.

Globalization has also brought distinct challenges and risks. As Western multinational corporations moved into previously restricted or avoided markets, their exposure to disruptions and risks grew. For years, rules-based international economic integration, backed by entities like the World Trade Organization (WTO), international financial institutions, and regional trade agreements, helped reduce many of these risks.

The context for these risks is evolving, defined by a new geopolitical landscape. The rise of China as a global economic power, Russia’s influence in energy markets and aggression in Eastern Europe, and growing nationalism in once trade-friendly democracies are all reshaping global dynamics. As economic ties between Eastern autocracies and Western democracies shift, new host-country pressures are also developing. As a result, geopolitical risk now stands at its highest level since the Cold War.

Certain risks, such as the rivalry between the United States and China, are predictable. Others, including events such as 9/11 and COVID-19, emerge unexpectedly and produce far-reaching consequences. In both cases, the impacts on global companies are substantial. Oil and gas companies, in particular, have endured numerous geopolitical events over the past century due to operations in politically volatile, high-risk environments. 

Unlike other industries that can bypass unstable areas, energy companies must operate wherever resources exist, often in countries rife with geopolitical risk or terrorism. Assets are fixed, projects require significant capital with high sunk costs, and production is often crucial to national economies. These factors make geopolitical risk both inevitable and highly consequential.

Over time, oil and gas companies have learned to navigate competing government interests, shifting tax laws, cross-border regulations, land restrictions, and complex ownership across multiple jurisdictions. As a result, these firms have developed effective strategies for managing geopolitical risk, which are increasingly pertinent as other industries face similar forces.

Against this backdrop, the oil and gas industry's experience offers valuable insights. The experiences of oil and gas companies illustrate several strategies for managing geopolitical exposure that are applicable across industries.

Divorce ownership control from operating control in designing collaborative ventures 

Global companies can structure ventures so local partners oversee operations and stakeholder engagement, while the foreign partner retains authority over strategy, capital, and core technology. This arrangement builds local trust and political support while guarding against interference and nationalization. The aim is lasting influence and stability, not simply maximum ownership.

Proactively manage stakeholder relationships 

Key stakeholders in the host country – government, regulators, customers, suppliers, employees, communities, and media – should be identified and engaged to build trust, legitimacy, and lasting support. Active engagement uncovers risks early, aligns interests, and resolves issues before they escalate. The goal is ongoing credibility and goodwill that protect and strengthen the venture over time, not mere communication.

Ensure transparency and communication 

Transparent, consistent communication with stakeholders about the company’s goals, values, activities, and impacts is vital. Clear, proactive disclosure builds credibility, protects reputation, and reduces the risk of misinformation or damaging narratives. The goal is to foster trust through openness and consistency, not just meet compliance requirements.

Diversify risks while positioning for opportunities 

Diversifying investments and operations across countries and regions reduces dependence on any one market and bolsters resilience against geopolitical changes. Entering new markets enhances agility and creates further growth opportunities. Scenario planning anticipates disruptions and positions companies to capitalize on emerging opportunities.

Deliberately plan for an exit should the need arise

Contingency plans are needed to exit a market if conditions worsen significantly. Clear trigger points must be defined, financial and operational trade-offs understood, and viable alternatives secured in advance. The objective is to enable a rapid and controlled exit that preserves value and minimizes disruption if geopolitical risks intensify.

Disruptions and uncertainty arise in any industry. Currently, tensions across the MENA region have elevated risks. While oil and gas is often the first to be affected, impacts rarely remain contained: energy market disruptions ripple across supply chains, influence costs, and reshape global investment decisions. Companies must take a deliberate approach to managing geopolitical risk. Building resilience is essential both to withstand disruption and to compete in an increasingly complex global landscape.

If you’d like to learn more, a detailed analysis can be found here.