Why Scottish businesses must wake up to a new era of geopolitical risk

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What has the “Donroe Doctrine” got to do with Scottish business?

On the face of it, not much beyond the fact that its author, the US president, has Scottish ancestry through his Hebridean mother. Yet as business lobbies pump out “manifestos” ahead of next week’s Scottish budget and as the Holyrood election hustings accelerate, it’s the stunning exercise of American power in Venezuela that should be concentrating minds in Scotland’s executive suites.

The brazen capture of Nicolás Maduro and Trump’s covetous glare in Greenland’s direction should not be mistaken as events too distant to be relevant to the home front. The fact that a Scottish airport was used by the US military this week as part of its seizure of a Russian “dark fleet” oil tanker speaks for itself.

Nor are such events simply a continuation of recent geopolitical instability. They mark a tipping point, showing that geopolitics – and its near cousin, geoeconomics – are along with AI now the defining drivers of business risk globally. No country or sub-national region will be immune as the US, China and Russia redraw the map around their perceived spheres of influence.

In Russia’s case, its muscle-flexing comes in the form of increased grey zone activity in Europe, including cyber attacks, some of it uncomfortably close to Scotland. Remember also the Yantar, a presumed Russian spy ship sailing off the Scottish coast in November that used lasers to disrupt RAF pilots. Last month General Sir Gwyn Jenkins, first sea lord, warned of increased Russian capability to damage critical undersea cables and pipelines.

At the same time, the erosion of the multilateralism that has underpinned the rules of international trade for decades, tech rivalry between the US and China, and a scramble for mineral resources in a contested energy transition, are all ingredients of this stark new reality. “We have seen a very clear return to the law of the jungle,” Sir Mark Lyall-Grant, former UK National Security Adviser, told the BBC this week.

In its Holyrood election manifesto yesterday, CBI Scotland called out “tax and regulatory drift, creaking infrastructure and an education and skills system that isn’t meeting the needs of business”. Reasonable points in a business-as-usual context. “Geopolitical instability” was mentioned only once, in passing.

Yet in a survey by the World Economic Forum only six months ago, “geoeconomic fragmentation” ranked second after AI commercialisation as likely to have the most impact on multinational companies in the next five years.

Adapting to and managing geopolitical risk is now “a critical factor” for businesses across all sectors, says Charlie Humphreys, a London-based director at consultancy Flint Global. “This is not only true for large multinational businesses operating in complex global markets, but we are also supporting companies throughout value chains, including businesses operating in regions deemed, until recently, reasonably immune to political risk”.

Scotland’s industrial economy is already being re-shaped by geopolitics. In Glasgow, a revival of Clyde shipbuilding is underway as BAE Systems builds for the UK and Norwegian navies a new type of frigate designed for anti-submarine patrols as far as the Barents Sea. In Edinburgh, 150 aerospace jobs are being created at Leonardo, the Italian defence company, which recently won a contract to supply radar systems for the Gripen fighters that Sweden will provide to Thailand’s air force.

Offshore power is also facing geopolitical headwinds, centred on potential Chinese involvement in the supply chain for the dozens of wind farms planned for the North Sea under the ScotWind project.

The UK government has since early last year been grappling with whether to allow Chinese wind turbine company Ming Yang build a £1.5 billion blade and nacelle factory at Ardesier Port, near Inverness. Westminster must balance furthering Scotland’s ambitions for floating offshore wind and the “green jobs” that would be created against wider UK security concerns around Chinese digital technology and supply chain dependency.

Moreover, Trump’s opposition to wind power is well known. Throw in geopolitics and it’s hard to see how London could allow China into the UK’s critical energy infrastructure without attracting the wrath of the US president.

Geoeconomic disruption in the form of US tariffs was the story of Scotland’s whisky industry last year. There is still no sign of the hoped-for exemptions from a White House that now seems focused elsewhere.

Even critical mineral competition is bearing down. Glasgow-based mining and engineering business Weir Group in November warned of “elevated levels of uncertainty related to critical metals disputes and further tariffs between the US and China, and their potential to impact global supply chains and customer sentiment”.

As for the ever-present risk of cyber attacks, Renfrewshire-based Bridge of Weir Leather was blindsided last year when production at its biggest global customer for the company’s car upholstery, Jaguar Land Rover, was knocked out for a month by a cyber attack. All of this represents vulnerability for the medium- and larger-sized businesses in Scotland that employ 250 people or more, some in important supply chains.

It’s a sector that’s “particularly sensitive to economic cycles”, according to a report last month by the Fraser of Allander of Institute and Hunter Centre for Entrepreneurship, Strategy and Innovation. Such is the challenge posed by previously unthinkable geopolitical risks that the UK government will in coming months with the British Chambers of Commerce establish a “diplomatic advisory hub” at the Foreign Office to help businesses navigate the new environment.

“Businesses can’t afford to treat geopolitics as distant headlines anymore,” says Jason Morris, Scotland market senior partner at consultancy PwC.

“Scottish business leaders must build resilience through agile structures, continually updating skills and governance to manage the unexpected shocks that now represent the greatest threat”