Research — May 21, 2026
Navigating Geopolitical Event Risk: A Practical Framework for Credit, Market and Supply Chain Exposures
Geopolitical shocks, from armed conflict and energy disruptions to trade-route blockages, create an information environment that is fast-moving, interconnected and difficult to assess in isolation. For risk, credit and investment teams, the challenge is not just understanding what is happening, but how events are transmitted across economies, sectors, entities and portfolios in real time.
In this 60-minute webinar, specialists from S&P Global Market Intelligence walked through a practical, end-to-end framework for geopolitical event risk assessment — using the ongoing Middle East conflict and the closure of the Strait of Hormuz as a live case study.
Speakers:
- Alexia Ash — Director, Models & Scenarios
- Michelle Cheong — Head of Thought Leadership, Credit Solutions
- Arsene Lui (CFA/FRM) — Director, Quantitative Modeling
- Hangyu Ma (CFA/FRM) — Senior Manager, Quantitative Modelling
From Narrative to Numbers: Building a Macroeconomic Scenario
Every geopolitical scenario starts with a story. Alexia Ash demonstrated how S&P Global Market Intelligence's country risk analysts and macroeconomists translate qualitative narratives, such as the disruption of shipping through the Strait of Hormuz, into quantified parameters that feed the Global Link Model across 70 economies.
Key scenario assumptions included:
- Continued disruption of safe shipping through the Strait of Hormuz, which is already seeing an estimated 17 million barrels of oil per day removed from the market — the largest supply disruption in history.
- Brent crude modeled at US$200 per barrel, with government interventions and strategic reserve releases factored in.
- A persistent depression in oil supply even after the strait reopens, reflecting infrastructural damage and longer alternative shipping routes.
Headline macro impacts:
- In this illustrative scenario, global GDP is reduced by approximately 1 percentage point versus baseline.
- World inflation rising from a baseline of 3% to 6%, with the effects more pronounced in Asia and Europe, given their higher reliance on Middle Eastern oil.
Linking Macro Scenarios to Credit Risk
Arsene Lui outlined how the Macro-Scenario Model bridges macroeconomic forecasts and counterparty-level credit risk. The model calibrates real GDP growth, unemployment rate, interest rates, oil prices, inflation, house prices and equity prices against historical default rates and ratings migrations — separately by industry and country.
Impact on selected countries by region (expected change in probability of default (PD) over 12 months):
- Europe: PD increase of 8–12% — the most heavily impacted region.
- United States: PD increase of approximately 7%, despite being a major participant in the conflict.
- APAC: PD increase of less than 4% — relatively less exposed.
The sectors most affected across countries include consumer services, energy, and entertainment and media. The model also generates credit-score transition matrices, enabling portfolio managers to quantify the probability of upgrade or downgrade under stress.
Early Warning Signals: Seeing Stress Before It Hits Financial Statements
Hangyu Ma introduced the Early Warning Signals (EWS) framework, powered by the RiskGauge™ PD model, covering public and private companies globally. The framework combines the probability of default and changes to produce intuitive traffic-light signals — green, amber and red.
What the signals revealed:
- A clear shift from green to amber across Middle Eastern non-financial public companies between late January and mid-April, with some early signs of stabilization.
- No meaningful spike in red signals at this stage — suggesting elevated pressure rather than imminent widespread defaults.
- Uneven country-level impact: the UAE showed a broad build-up of credit stress (rising red and amber); Israel saw significant amber increases with limited red change; Saudi Arabia and Kuwait appeared more resilient, likely supported by higher oil revenue.
- Sector divergence: Consumer-facing sectors (retail, consumer products, real estate) saw the largest increase in red signals, while energy, transportation, capital goods and utilities showed improving conditions — likely benefiting from higher oil prices and the ability to pass through costs.
An Integrated Framework — Powered by AI
Michelle Cheong brought the components together with a seven-step event risk framework designed to be repeatable, scalable and adaptable to different event types — from wars and sanctions to cyber and climate events.
- Hypothesize risk transmission channels before the event.
- Prioritize entities, sectors, supply chains and geographies at risk.
- Quantify through scenario modeling (Global Link Model, Macro-Scenario Model).
- Monitor continuously with macro surveillance, feeding updated parameters back into scenarios.
- Drill down into company-specific impacts that broad-brush analytics may not capture.
- Decide — use the analysis as one input into your hedging, limit-setting and contingency planning decisions.
- Review post-event to refine the framework for next time.
The role of AI: Large language models were used to convert research from S&P Global Ratings (via CreditCompanion™) and Global Risk & Economics (via IntelAssist™) into structured risk transmission maps, automatically bucketing countries, industries and sectors into inclusion and exclusion lists. What previously took days can now often be accomplished within hours, based on internal testing and client use cases.
Beyond the Headlines: Supply Chain and Logistics Under Strain
The webinar revealed that the credit picture extends well beyond oil prices and choke points:
- In our credit risk models, air freight and logistics entities carry an average credit score of b−, with many at ccc+.1 Roughly 40% are flagging a significant risk of further credit deterioration — even before accounting for the conflict.
- Short interest data is acting as a leading indicator of institutional sentiment, with divergent patterns across regions: energy shorts in the Americas peaked and retreated. In contrast, European energy shorts continued to climb, and APAC energy and broader market shorts moved in tandem.
- Supply chain data helps to trace how shipping routes are evolving and a country’s concentration risk on the Middle East exports
- Daily updated country risk scores are flagging deterioration in cargo and transport risk not only in active conflict zones but also in markets less prominently featured in news coverage, such as Bahrain and Haiti.
- Gen-AI capabilities help summarize insights from S&P Global Ratings research and macroeconomic trends, which, in our internal testing, have reduced the time required to filter out critical information by up to approximately 80%
- Credit monitoring capabilities, together with credit analytics, track contagion risk and deterioration at entity levels.
Key Takeaways
- Risk is uneven — across countries, sectors and individual entities. Blanket assumptions can miss critical exposures.
- Early warning signals identified stress before financial statements and rating actions — making real-time surveillance essential.
- Credit pressures are concentrated in demand-driven sectors, while supply-side sectors may benefit from higher commodity prices.
- A repeatable, AI-enabled framework allows risk teams to recalibrate within hours as events evolve — turning reactive analysis into proactive decision-making.
Watch the Replay
Missed the live session? Watch the relay here to explore the full framework, live demonstrations and Q&A.
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which are each separately managed and independent divisions of S&P Global.