- The Afghan Government collapsed within hours, after twenty years of Western military and political presence.
- For Europe the immediate focus is humanitarian and security-related; the direct economic effect is limited and indirect.
- For businesses and wealth, the lesson is to monitor exposure and sanctions without reacting impulsively to headlines.
On Sunday 15 August 2021 the Taliban entered Kabul, the Afghan capital. According to Reuters, an official at the Afghan Interior Ministry said President Ashraf Ghani had left the city for Tajikistan, and two Taliban commanders said they had taken the presidential palace, which the Government did not confirm. Meanwhile, staff at the US embassy were being evacuated by helicopter to the airport.
The outcome comes only weeks before 31 August, the date set by Washington to complete its withdrawal, and much faster than almost all analyses had foreseen. It leaves thousands of people, Afghan and foreign, waiting to leave the country and opens a period of great political uncertainty in a strategically important region. Neighbouring countries, from Pakistan to Iran and the Central Asian republics, are following the situation with concern.
First of all, a human matter
Behind geopolitical decisions there are people. Civilians, women, journalists and collaborators of Western countries who remain in Afghanistan face an uncertain future, and several European governments are organising the departure of their nationals and of those who helped them. It is the most urgent aspect and the one that should take most attention in these days.
It is also so for many companies and organisations with staff or partners in the country or the region. The first step is to check the safety of those people and follow the guidance of the Ministry of Foreign Affairs, which advises against travel to Afghanistan, before any economic consideration. Organisations that took part in cooperation or security projects in the region would do well to review their obligations to local workers as well.
A more indirect economic impact
Afghanistan is a small economy and direct trade with Europe is marginal, so no immediate effect on company accounts should be expected. Nor is it a significant producer of energy or raw materials for the markets, which limits direct transmission to prices. The channels of risk are different: migration pressure, the stability of neighbouring countries, the risk of terrorism and the effect on market confidence at a time when the recovery is still fragile.
There is also a compliance element. The Taliban appear in the United Nations sanctions regime, so banks and companies with operations in the area or with linked counterparties must review their exposure and the sanctions lists that apply. It is an area where an oversight can have serious legal consequences.
How to look at geopolitical risk
Episodes of international tension often cause sharp market moves, frequently brief, although their duration and scope are impossible to predict. Reacting to every headline is rarely a good strategy. Recent experience shows that markets distinguish between episodes that genuinely alter global growth, energy or interest rates and those that do not. More useful is to know in advance how much of a portfolio or a business depends on a given region or sector. That information makes it possible to measure real risk without depending on the tone of each day’s news.
Each family and each company should review its geographic diversification, its key suppliers and its contracts with force majeure clauses. It is also wise to keep up to date a security protocol for staff who travel or work in risk areas. This note is for information only and is not an investment recommendation; if in doubt, the right step is to consult an adviser.
Geopolitics cannot be predicted, but you can be prepared.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
