A Wake-Up Call on Geopolitical Risk

An experience in Mexico last week underscores the need to get very specific and hard-nosed about how severe the risks can be. 


I was minding my own business last Thursday when I drove smack into a truck blockade outside Mexico City that brought back memories of how unexpectedly and powerfully what we benignly refer to as "geopolitical risk" can derail business expectations.

Because I think of myself as pretty sophisticated on geopolitical risk, based on many years of living in multiple countries outside the U.S. and on decades as a journalist, the fact that I could be caught unawares makes me want to sound an alarm: All sorts of things can go wrong in all sorts of ways.

The blockade arose because of one of the sorts of disputes that I followed when I led the Mexico City bureau for the Wall Street Journal from 1993 to 1996. The tensions were always there. The question was just whether, and how, they'd turn into incidents or even movements that would affect real people in real ways.

In this case, a large group of truckers argues that the federal government isn't doing enough to protect drivers, one or two of whom are being killed by criminals each month, according to the group. The federal government says it's working with the truckers to improve security, but the truckers say the government isn't acting in good faith and has decided to use public pressure. (While I have a lot of history here, I don't know enough about this dispute to offer an opinion on who's right and who's wrong, and assignment of blame isn't even all that important for my point about how geopolitical risk can surface suddenly.)

I blundered into the blockade because I had flown to Mexico City to help my older daughter, Shannon, celebrate her 30th birthday. She was born there, but we left before she turned two, and she hadn't been back. Shannon had long expressed interest in exploring her Mexican roots -- as a blonde with blue eyes who speaks nearly fluent Spanish with a native accent -- so she, her sister and I decided to mark the milestone birthday there. We had driven to San Miguel de Allende, a lovely town a few hours north of Mexico City, for a couple of days and were heading back to do our part for the Mexican economy by having a decadent lunch at Quintonil to mark Shannon's big day.

Then traffic just stopped. And this wasn't a let's-jockey-for-position-to-get-around-the-crash sort of stop or even a let's-wait-for-the-ambulances-and-police-cars sort of stop. This was a full stop. This was an everybody-turn-off-your-engines-and-sit sort of stop. 

And the stop went on for more than four hours.

It was also just one of nine that blocked freeways heading into and out of Mexico City that day, meaning that commercial traffic for one of the world's five biggest cities was essentially halted. (For the record, the blockade that caught me was the largest and most painful -- and not just because my daughters and I couldn't get to Quintonil for lunch... or even that I was losing my hefty deposit.) 

Now, occasional strikes aren't necessarily all that big a deal for business, in general, and for insurers, in particular. When I ran the editing operation for the Wall Street Journal/Europe in the 1980s, we used to sometimes miss deliveries because truckers, especially in Italy, were on strike, but readers stuck with us.

The blockade in Mexico, though, summons memories of the sort of risk that can derail whole industries, even economies.

When I was offered the position of Mexico City bureau chief, it was a real departure from my time covering the computer industry, but there were some "known unknowns" that intrigued me. NAFTA was being implemented in the fall of 1993, and a presidential election was going to be held in 1994, an event that often triggered major changes (even more than in other countries, for a host of reasons). But I wasn't even close to plumbing the depths of what the story turned out to be.

Mexico woke to New Year's Day in 1994 with the news that a Marxist group had occupied the capital of the state of Chiapas. In March, the presidential candidate who was all but guaranteed to win the election was assassinated, ending a moratorium on such political violence that had lasted for six decades. Two high-profile kidnappings followed. In September, the head of the ruling party was assassinated -- leading to a too-tangled-to-be-believed saga that sent the president's brother to prison for 10 years, before his conviction was overturned. 

And all that was just leading up to the main event: a devaluation of the currency. 

Carlos Salinas de Gortari, who served as president from 1988 to 1994, had embarked on a bold economic plan that intrigued much of the developing world. He renounced the country's socialist history, privatizing banks, the telecommunications system, the television monopoly, etc. He campaigned for foreign investment to modernize the Mexican economy, promising, in return, that he'd support the value of the currency and protect those investments. And the shock therapy seemed to be working... until 1994 came along and steadily eroded investors' confidence.

When the new administration devalued the currency in December 1994, it tried to portray the move as a minor adjustment, but the bottom fell out. The peso went from roughly three to the dollar to 10 to the dollar, almost overnight. Foreign investors, feeling betrayed, pulled out of the country. The Mexican economy cratered. Other Latin American economies with strong ties to Mexico teetered, creating enough of a threat to even the U.S. economy that the Clinton administration orchestrated a bailout for Mexico.  

And I foresaw none of that -- not Chiapas, not the assassinations, not the kidnappings, not the devaluation that undercut a major trend in the economic progress of the developing world.

Nor did anyone else. In fact, my reporters and I -- as surprised as we were -- were so far ahead in our reporting about the loss of foreign confidence in 1994 and in our analysis of how the devaluation would play out that the WSJ nominated us for a Pulitzer Prize for our coverage in 1994. As part of a larger effort at the WSJ, we were finalists for the Pulitzer for our coverage in 1995. 

The world has certainly learned a lot about the potential dangers of unknown unknowns in recent years. Almost no one saw a pandemic coming. A Russian invasion of Ukraine was barely a possibility for just about all of us. An attack on the U.S. Capitol? No way. 

So there's certainly more humility about knowledge of geopolitical risks than there has been. The inflationary spikes that resulted largely from supply chain disruptions have also given us far greater appreciation of the potential fallout.

But I wanted to underscore the need to look past the general idea of geopolitical risks and get to the specifics. Perhaps the problems will just turn out to be surprising, like my four hours fidgeting on a Mexican freeway last Thursday. But the problems could also turn out to be massive both for businesses and those that insure them, as happened when I was in Mexico in the '90s. 

"Geopolitical risks" is a fine term, but it can be considered at a 50,000-foot level. The view from 1,000 feet -- or five feet, the distance that separated me from the bumper of the car ahead of me -- can be a lot scarier... and far more instructive.



P.S. The fine folks at Quintonil worked us in for dinner the night after the blockade blew up our lunch reservation, and the food was glorious.