How Geopolitical Disasters Affect Markets

Markets around the world are sensitive to political developments. When political strife takes place this can affect not only a single country’s economy but it can also set off chain reactions around the world. There are numerous examples of politics playing a pivotal role on a countries economy and how these countries have fared because of political change.

The Political Effect

In late 2014 the Greek government decided to hold a snap presidential vote which not only surprised investors but sent the Athens Stock Exchange into a massive tail spin. The end result was a slide of more than twelve percent in the stock exchange along with a spike of ten year government bonds rising above eight percent. The reaction hurt numerous sectors within the economy with bank stocks taking the biggest hit. The election was brought forward by the Greek Prime Minister Antonis Samaras after he failed to achieve backing from Brussels for his 2015 budget.

Results of War

Syria’s civil war which began in 2011 has devastated the county’s economy and has created extreme uncertainty for its future. Prior to the war taking place the unemployment level was below ten percent. Many of the most educated individuals departed Syria in fear of financial ruin. In addition, the total economic costs of the war have surpassed the country’s annual economic output. The war has destroyed Syria’s infrastructure and numerous companies have left the country to invest in other regions. Also, Syria’s exports have come to a virtual standstill. Prior to the war taking place the country exported over two billion euros. Today that number stands closer to a quarter of that number. One of Syria’s most important exports, crude oil, has dropped from four hundred thousand barrels a day prior to the war taking place to less than two hundred thousand barrels.

The ongoing Libyan civil war which started in 2011 and continues today has created a vacuum after the overthrow of Muammar Gaddafi. The country has been a victim of Islamic insurgencies, rise in weapons possession and sectarian violence. Years after the civil war thousands of Libyans remain displaced within their own country. Thousands of civilians continue to live in makeshift camps throughout the country.

The Libyan economy has not done well due to the civil war. Numerous infrastructure projects which were being conducted prior to the war taking place have virtually ceased and equipment has either been destroyed or looted. Libya’s most valuable resource, oil, fell from one and one half million barrels a day in the first quarter of 2011 to less than six hundred thousand barrels per day at present.

The country has an inordinate number of power outages. The average number of blackout hours has reached twelve hours per day post civil war. While this number has decreased slightly it is still unacceptable and leaves civilians/citizens without electricity.

As we can see there are numerous examples of countries unable to maintain political stability or maintain consistent political decision making. These factors play a significant role on a countries ability to either maintain stability or prevent market turmoil.

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