Climate and geopolitics increasingly threaten essential infrastructure

Climate and war are globally and increasingly threatening vital energy, water, and transport infrastructure. Credit insurer Allianz Trade warns of disruption taking increasingly serious forms. Better than billion-dollar repairs are preventive green measures, argues the report 'Securing critical infrastructure'.

The report cites a variety of examples showing how critical infrastructure is being undermined:

• The low water level in the Panama Canal. If the drought continues, world trade could shrink -7% this year.
• Tensions at the Red Sea have now pushed up transport costs by +92%.
• A blockade in the South China Sea will drive up oil prices by at least +20%.
• Nuclear power plants run at half power due to shortage of cooling water, but flooding then causes major disruption to road, water and rail transport

According to Johan Geeroms, Director Risk Underwriting Benelux at Allianz Trade, the number of incidents due to climate and war is only increasing. "That costs an incredible amount of money in repair work. On top of that comes economic instability. Goods flows and energy security in particular come into play. But also think about data traffic. Look at the sabotage of the Nord Stream pipelines in 2022. There are so many pipelines on the seabed. The question is not whether more sabotage will follow, but when."

Allianz Trade estimates direct damage from annual climate incidents (drought, flooding, heat) at $30 billion a year for high-income countries and $18 billion for low- and middle-income countries.

For the situation in Europe, the report refers to calculations by the Global Infrastructure Hub (the G20's GI Hub). Over the period 2024-2040, an estimated $10.6 trillion of investment would be needed in Europe for climate-related infrastructure investments. Based on current plans, only $9.1 trillion will be invested. This results in a significant shortfall of $1.5 trillion (14.3% of the total investments needed).

Translated to sectors, for European ports, for example, this amounts to an annual deficit of $4 billion in 2024, rising to $8 billion in 2040. For power generation, the annual investment deficit is $6 billion in 2024, rising to $15 billion in 2040.

The Allianz Trade report also questions the quality of the existing infrastructure. Johan Geeroms: "There is a lot of overdue maintenance. Many investments have been postponed. Globally, a problematic period is behind us. The urgency to take measures has greatly increased. Our message is that countries should not focus on pure maintenance and rehabilitation. It is smarter to take green measures. Then the knife cuts both ways. Investing in renewable energy means less dependence on oil, for instance. So fewer oil tankers, fewer delays en route due to war, etc."

European initiatives such as the Green Deal (for climate neutrality by 2050) and the REPowerEU plan (reducing dependence on Russian gas) are steps in the right direction, according to Geeroms. "It is a start, but much more is really needed. If you look at the political shifts in Europe, that seems to be a difficult thing to do. Just responding to infrastructure problems caused by climate and war costs a lot more money than preventive green measures that ensure resilient infrastructure. These also further support economic growth."