Geopolitical Risk – Chasing Tales

Risk – VIII: A Hidden Vulnerability- Civilian Infrastructure in War

In October 2023, Sikkim suffered a Glacial Lake Outburst Flood (GLOF)¹, which means that the Teesta River surged after the South Lhonak glacial lake burst, destroying the Chungthang dam, sweeping away 11 bridges, damaging NH-10² ³, and disrupting mobile coverage across northern Sikkim.⁴ Rescue operations were immediately hampered because road access, communications, and power failed at the same time. The government’s own situation reports noted that teams from multiple ministries had to be deployed simultaneously because all three systems had gone down together.⁵ Twenty-three Army personnel were among the missing.⁶ ⁷

In my previous post, I explored how climate change was affecting India’s national security with a broad brush, but while doing this I realised that civilian infrastructure is also, often, military infrastructure. And as everyone knows, India’s well known for the upkeep of her civilian infrastructure, and mild climate, so this post was born.

Systemic failure cascading through civil infrastructure is a danger to Indians and to India’s national security.

What Is Happening
Climate can damage infrastructure in two ways:

Disaster events, which are sudden unforeseen shocks, or the more mundane,
Daily stress due to newer ambient conditions, that among other impacts also compresses the window between maintenance cycles.

The former is usually visible, localised, and patched up through specially sanctioned money.

The Science

Chemistry
Most infrastructure is built from steel and concrete. Climate change affects both through several chemical processes.

Corrosion is the oxidation of steel, which is the process that produces rust. It is driven by a reaction that speeds up as temperature and humidity increase.⁸ Higher ambient temperatures and higher humidity therefore accelerate the corrosion of exposed steel and of steel reinforcement bars inside concrete.⁹ Studies have found that this reduces structural resistance and threatens the safety of buildings and infrastructure.¹⁰ ¹¹
For India’s coastal infrastructure, corrosion is intensified by chlorides from seawater and sea spray. Chloride ions penetrate concrete and break down the protective chemical layer on the steel reinforcement inside it.¹² Once that protective layer is lost, corrosion accelerates. As sea levels rise and storm surges push saltwater further inland, more structures are exposed to chloride-rich conditions than they were originally designed for.¹³ ¹⁴
Carbonation is another process affecting concrete.¹⁵ Carbon dioxide from the atmosphere reacts with calcium hydroxide in concrete, gradually lowering the concrete’s alkalinity. Concrete normally protects embedded steel because its high alkalinity creates a passive film on the rebar. When carbonation reduces that alkalinity, the steel loses that protection and becomes vulnerable to corrosion. Research suggests that under climate change, carbonation can advance much further than expected over a structure’s lifetime, potentially causing corrosion-related failure 15 to 20 years earlier than expected.

Physics
Climate change also affects infrastructure through physical processes.

Materials such as steel, concrete, and asphalt expand when heated and contract when cooled through a process called thermal expansion. Roads, bridges, and railway lines are designed with this in mind, using expansion joints and stress tolerances based on the historical temperature range of the area.¹⁶ When temperatures exceed those historical ranges more often, the materials expand more than expected. This can cause bridge cracking, road deformation, and rail distortion. India’s National Disaster Management Authority identifies all of these as current extreme heat risks.¹⁷
Thermal cycling fatigue is when repeated expansion and contraction over months and years creates cumulative mechanical stress.¹⁸ Tiny cracks form, widen, and eventually reduce the strength of the structure.¹⁹ This is especially important in regions with large temperature swings, including mountain areas where freeze-thaw and heat-cold cycles can be intense.²⁰
Freeze-thaw damage is a physical mechanism relevant to Himalayan infrastructure. Water enters small cracks in concrete or rock-supported structures.²¹ When it freezes, it expands and exerts pressure on the surrounding material.²² Repeated freeze-thaw cycles gradually widen cracks and weaken the structure. Roads, retaining walls, bridges, and tunnels in mountain zones are especially vulnerable to this.²³
Electrical infrastructure is also affected by basic physics. Transmission lines sag more in high heat because the metal expands.²⁴ ²⁵ Transformers and cables become less efficient as ambient temperature rises and can operate closer to their thermal limits for longer periods.²⁶ This reduces efficiency and can shorten equipment lifespan for equipment rated for a maximum ambient of 40°C, a threshold India’s plains now routinely exceed.²⁷
The troposphere, which is the lowest layer of the atmosphere, is getting wetter and more turbulent as climate change increases evaporation and convective activity.²⁸ ²⁹ Water vapour absorbs and scatters microwave signals. This creates what’s called tropospheric delay so that signals from GPS and navigation satellites arrive slightly later than they should because they’re passing through a more moisture-loaded atmosphere.³⁰ For civilian navigation this is a minor annoyance. For precision-guided systems, artillery corrections, or drone navigation that depend on GPS accuracy, accumulated error matters.³¹
Heavier rainfall also causes direct signal attenuation for satellites operating in the Ku and Ka frequency bands³², which are commonly used for broadband and military communications satellites³³. During intense monsoon rain events, which are becoming more intense, the signal can degrade significantly.³⁴ This is called rain fade.³⁵ Climate change is making extreme rainfall events more frequent, which means rain fade events are also more frequent.³⁶

Biology
Climate change changes biological conditions in ways that matter for infrastructure.

Mold and fungal growth increase when warm temperatures combine with moisture and poor ventilation. More humid conditions, heavier rainfall, and more water intrusion into buildings create better conditions for mold on and inside building materials. Mold does not usually collapse a bridge, but it does damage internal building materials, coatings, insulation, sealants, and indoor air quality, and it increases maintenance burdens in buildings.³⁷ The US Army Corps of Engineers identifies hot, humid conditions and climate-linked flooding as important drivers of mold risk in buildings.³⁸ ³⁹
Termites are another biological stressor. Research has found that termite decomposition activity increases sharply with temperature, with one study reporting an almost sevenfold increase for every 10°C increase in temperature.⁴⁰ Warmer conditions can lengthen termite active seasons and expand their range.⁴¹ In India, where termites are already a major issue in many regions, this can increase damage to wooden structures, fittings, and stored materials.⁴²
However, the most important biological effect may be on people, specifically the people who inspect, repair, and maintain infrastructure. Outdoor workers face direct heat stress. Studies from India show that high heat impairs hydration, reaction time, and cognitive performance, and reduces labour productivity.⁴³ One study found heat stress was associated with impaired cognitive function among outdoor workers in northeast India.⁴⁴ Another found significant productivity losses under high heat conditions in southern India.⁴⁵ Broader modelling suggests work performance in India could decline by 30-40% by the end of the century under high-emissions scenarios because of heat stress.⁴⁶ This matters because infrastructure maintenance is done by human beings. If workers can safely spend fewer hours outdoors, inspections are delayed, repairs take longer, and maintenance backlogs grow.

Why This Matters

Think of a bridge. It’s close to the Western front, but maybe somewhere hot rather than cold. Our troops and civilians use it. When war happens, it risks becoming a chokepoint. This is what climate change is doing to that bridge:

Chemistry

Atmospheric CO₂ rises → carbonation front advances through concrete → alkalinity drops → passive film on rebar breaks down
Simultaneously: Monsoon rainfall carries agricultural fertiliser runoff into the river→ sulfates and chlorides enter river water → they penetrate the concrete of bridge piers standing in the river → chloride ions attack rebar from below while carbonation attacks from above
All of this converges in the same steel. Corrosion begins. The steel expands as it rusts, cracking the concrete around it from the inside. The cracks then let in more water and more chlorides. The process accelerates itself.

Physics

Summer temperatures exceed original design range → expansion joints in the bridge deck are stressed beyond tolerance → micro-cracking at joints
Winter cold → contraction → same joints stressed in the other direction
This thermal cycling repeats every year → cumulative fatigue damage accumulates in the deck and in the connections between the superstructure and the piers
Monsoon floods → river scour around the bridge foundations → soil removed from around pier bases → foundations become more exposed, less supported
The cracks from thermal fatigue now provide entry points for the chloride-rich floodwater. The chemical and physical tracks have merged.

Biology

Heat + humidity + monsoon moisture → mold grows on bearing pads, sealants, and expansion joint filler → these materials degrade faster than designed
Summer wet-bulb temperatures rise → outdoor workers hit safe heat limits earlier in the day → inspection teams spend fewer hours on the bridge → the cracking goes unlogged for longer.
Maintenance is scheduled based on the old assumption of X inspections per year. The bridge now needs X+2. It might get X-1.

The military uses the national grid, national highways, ports, telecom networks, and fuel systems because these already exist at national scale.⁴⁷ Building separate military-only versions of all of them would be costly and, in many cases, impractical.⁴⁸

In forward areas, large fixed installations like wind turbines or solar arrays are visible on satellite imagery and can mark out military positions, a very obvious security liability.

There is also a wider internal security reason for treating civilian infrastructure as a national security issue: power failures, water shortages, and infrastructure breakdowns can contribute to unrest and instability. India has already seen public disorder linked to extended power cuts and water disruptions.⁴⁹ ⁵⁰

This means the military will continue to depend on civilian infrastructure in most cases. As a result, strengthening civilian infrastructure is not separate from strengthening national defence.

Each issue discussed in this post is treated in planning as a separate system with separate vulnerabilities. The problem is that they are not experienced separately.

They fail together.

India has a Ministry of Power, a Ministry of Jal Shakti, a Department of Telecommunications, a Ministry of Petroleum and Natural Gas, a Department of Space, and a Ministry of Road Transport and Highways. Each has its own climate resilience concerns, its own planning horizon, and its own budget. What India does not have is any institution whose job it is to look at all of these physical risks simultaneously and ask what their combined failure would cost during war, or during a 26/11-style attack.⁵¹ ⁵²

The cascade matters because the response to any single infrastructure failure can usually be managed: reroute the convoy, use the satellite phone, run the generator. It is when several failures occur in the same region simultaneously that the workarounds stop working. In a conflict scenario, an adversary that understands India’s infrastructure dependencies does not need to attack each system individually.⁵³ A weather event that the adversary did not cause, hitting infrastructure that climate change has already weakened, can achieve the same effect at no cost.⁵⁴ The Sikkim GLOF was not engineered. But the military vulnerability it exposed- an entire strategically sensitive zone simultaneously cut off by road, by communication, and by power- is exactly the condition a competent adversary would try to manufacture.

Sources

Risk – V: The Strait of Hormuz and The Price of Uncertainty

If you’ve been following this blog’s series on risk, you know by now that risk isn’t just something that happens on a trading screen or inside a bank. Risk lives in the real world — in weather patterns, in election results… and also clearly in the Strait of Hormuz.

Geography
The Strait of Hormuz is a narrow oceanic passage connecting the Persian Gulf to the Gulf of Oman and, from there, to the rest of the world’s oceans. It is bordered on the north by Iran and on the south by the UAE and Oman.¹ At its narrowest, it is just 21 nautical miles wide, with the navigable shipping lanes only about 2 miles wide in each direction.²

Importance
Through this bottleneck flows roughly one-fifth of all global petroleum liquids, which is approximately 21 million barrels per day of crude oil and condensates.³ UNCTAD puts it at around a quarter of all global seaborne oil trade.⁴ The daily value of oil and LNG transiting the Strait is estimated at over $1.3 billion.⁵Annually, trade flows worth approximately $1.2 trillion from five Gulf countries (Iran, the UAE, Qatar, Kuwait, and Bahrain) depend on this waterway remaining open.⁵

So, if this strait is blocked for one single day, between US $2 and $2.3 billion worth of oil trade will be disrupted.⁶

Update, if you live under many rocks
The strait has been blocked since Israel and USA decided to start bombing Iran on 28 February 2026⁷, with the Strait formally closing to most traffic by 4 March⁸ (aside: I feel like March has lasted for 84 years).

Risk
In previous posts on this blog, we’ve talked about risk as the possibility that something unexpected happens, and that the unexpected thing costs you something⁹ ¹⁰ (because when it gifts you something, you’re happy- we only tend to be worried when something bad happens, not when something nice happens by accident/ through uncertainty). That cost could be money, time, safety, or opportunity. But the key insight is always this: risk is not just about bad outcomes. It’s about uncertainty itself.¹¹

Finance has a more precise definition. In financial markets, risk is typically measured as the volatility of returns (how much a price, yield, or value might swing from its expected level).¹² But risk also has a tail dimension¹³ ¹⁴: the small-probability, catastrophic events that are hard to price and even harder to hedge ^{(hedging is a risk management strategy where you take the opposite position from an asset you already own so that if the first asset reduces in value, the opposite hedged position will experience the exact opposite and either maintain value or increase in value, which allows the entity that is using hedging as a strategy to continue to be part of the market rather than sell the first asset which is facing volatility, while also not losing everything if its value falls sharply. It involves the cost of buying the opposite asset, so it is a kind of insurance)}¹⁵. The Strait of Hormuz is the textbook example of this second kind of risk. It sits in the tail, but when the tail wags, it apparently wags the whole dog with it.

Geopolitical Risk Premium (GRP)
Geopolitical risk is the threat, occurrence, or escalation of adverse events, such as wars, terrorism, and international tensions, that disrupt global relations, economies, and supply chains.¹⁶ ¹⁷

Every time tension rises in the Gulf, the price of oil goes up- even before a single barrel is disrupted.¹⁸ This is called the Geopolitical Risk Premium (GRP): the extra cost added to the price of oil simply because the possibility of disruption exists.¹⁹

In early 2026, Oxford Economics estimated this premium at approximately US $9 per barrel.⁵²⁰ That means every barrel of oil being bought and sold globally was US $9 more expensive than it would be in a world without Hormuz tension, and not even because supply had actually been cut, but simply because markets were pricing in the possibility that it might be.

As we know, this is a foundational concept in risk and risk management: people pay for uncertainty (this is how insurance works as a business, for example).²¹ ²² The premium is the market’s way of costing the uncertainty of not knowing what will happen, whether for a term life insurance (which actuarial nerds actually know a lot about) or about Iran closing the Strait of Oil: we don’t know what will happen, and that not-knowing is worth something (priced as the premium).²³ ²⁴

Scenario Analysis
Oxford Economics published a scenario analysis in February 2026 that laid out how it was thinking about Hormuz risk:⁵

20% probability of faster de-escalation, where the risk premium unwinds quickly
45% probability of the Strait stays open, flows remain broadly normal
30% probability of low-level disruption, where repeated interference cuts vessel traffic by 50% for two months, reducing global oil supply by 4 million barrels per day
5% probability of severe disruption, where Iran halts transit for up to a week, pushing oil to $140 per barrel and gas above $40 per MMBtu

So, according to Oxford Economics, the most likely scenario was that nothing would go drastically wrong. Still, that 30% scenario of low-level disruption is not a small number. In finance, a 30% probability event is something you plan for, hedge against, and price into your decisions. And then the 5% tail event happened. In risk-speak, this is called a Grey Rhino²⁴– a highly probable, high-impact threat that is visible and repeatedly warned about but neglected anyway, because acting on it costs money now, and the event is only probable, not certain.

Insurance
One of the most sensitive early-warning signals of financial risk is insurance pricing, because when something becomes riskier, insurers reprice insurance to cover both, the rising uncertainty, and the total risk.²⁵ They’re basically trying to cover all major possibilities that they’ll have to pay you rather than you either swallowing the losses, or you paying them.

Therefore, war risk insurance premiums for ships transiting the Strait have been surging²⁶, which means that freight rates for oil tankers have spiked. Marine fuel costs are rising too, layering cost upon cost.²⁷ Maritime insurance companies have the incentive to be ahead of the news, not behind it.²⁸When they start repricing risk aggressively, or worse, when they start withdrawing cover entirely, ships that are theoretically able to transit the Strait become practically unavailable because they can’t afford or obtain insurance.²⁹³⁰

This is not the first time insurance has been the mechanism that shut down a shipping lane. When Houthi attacks began in the Red Sea in late 2023³¹, the persistent collapse in traffic wasn’t primarily because ships were being sunk- it was because the threat alone made insurers reprice, which made shipowners reroute. War risk premiums for Red Sea voyages rose from effectively zero to between 0.5% and 1.0% of a ship’s hull value, and major carriers including Maersk, MSC, Hapag-Lloyd, and CMA CGM suspended transits entirely, not because their ships couldn’t physically pass, but because the insurance mathematics no longer worked.³² By late 2024, S&P Global reported that Cape of Good Hope reroutes were likely to “persist well into 2025”, and they did.³³ The Hormuz closure is the same mechanism, at a far larger scale.

Cascading Effects
A cascade effect is a sequence of events in which each event produces the circumstances necessary for the initiation of the next event.³⁴ Here are some impacts that we’re all seeing these days:

Higher oil prices are a tax on everything. They raise the cost of transportation, manufacturing, petrochemicals, and heating- essentially every sector of the modern economy.³⁵ ³⁶
Qatar, the world’s largest LNG exporter, ships nearly all its gas through Hormuz. Any disruption to LNG flows hits Europe, Japan, South Korea, and increasingly India. These are countries that have been restructuring their energy systems around gas as a “transition fuel.”³⁷ ³⁸
Fertilisers are made from natural gas and other petrochemical inputs. The Gulf is a major producer. If fertiliser shipments are disrupted, the cost of growing food goes up. Planting decisions change. Crop yields fall, with the most severe consequences falling on developing economies.³⁹
When ships can’t transit the Strait (or won’t, because insurance costs make it uneconomical) they have limited alternatives. The next-best option is to go around the Cape of Good Hope at the southern tip of Africa, which adds roughly 3,500–4,000 nautical miles and about 10–15 days to the journey.⁴⁰ ⁴¹ That means more fuel, higher crew costs, slower delivery times, and, crucially, fewer ships doing more work: Before the crisis, around 150 vessels transited the Strait each day; that figure has since fallen to four or five. The result could be a supply-side squeeze in global shipping capacity.⁴² Freight rates rise not just for oil tankers but for cargo ships, container ships, and bulk carriers.⁴² These higher costs flow through to the price of every manufactured good that depends on components, materials, or energy from the Gulf region.
When oil prices spike, petro-dollar economies gain. Gulf sovereign wealth funds get richer.⁴³ ⁴⁴ The US dollar often strengthens (since oil is priced in dollars).⁴⁵ But for oil-importing nations, the impact is brutal: India, for instance, imports over 85%⁴⁶ of its crude oil, and while it has diversified⁴⁷ supply routes in recent years, roughly 40%⁴⁸ of crude imports and 90%⁴⁸ of LPG imports still transit the Strait. When the Strait closed, the government was forced to issue emergency orders directing refineries to maximise domestic LPG production to stop cooking gas running out in households.⁴⁸ A sustained oil price spike means a widening current account deficit,⁴⁹ a weaker rupee,⁵⁰ imported inflation, and growing pressure on the Reserve Bank of India to raise interest rates^{(to curb inflation and defend the currency because raising interest rates increases borrowing costs for consumers and businesses, reducing demand and slowing down economic activity, which helps bring inflation down)}: even if the domestic economy doesn’t otherwise warrant it.
The cost of jet fuel has more than doubled since the Strait closed.⁵¹ ⁵² The cost to airlines is estimated at $11 billion⁵³ in additional annual fuel costs, which will show up in your flight bills, but also in the cost of any items being transported through air, including, for example organs for transplant⁵⁴ (that’s right, it won’t just impact Amazon deliveries).
UNCTAD⁵⁵⁵⁶⁵⁷ explicitly warned that high debt burdens and rising borrowing costs limit these countries’ ability to absorb new price shocks. When energy bills go up and borrowing costs rise simultaneously, governments face impossible choices: cut subsidies, raise taxes, or default.
- To understand why, you need to know one thing about how developing-country debt works: a significant amount of the $11.4⁵⁸ trillion in external debt owed by developing countries is denominated in US dollars. This means that while these governments collect their taxes and revenues in their own local currencies they must repay their loans in dollars, a currency they don’t control and can’t print.⁵⁹
- When oil prices rise and economic conditions worsen, local currencies tend to weaken against the dollar.⁶⁰ ⁶¹ Think of it this way: if your salary is paid in rupees but your rent is charged in dollars, and the rupee suddenly buys fewer dollars than it did last month, your rent just got more expensive, even though the dollar amount didn’t change. That is exactly the position these governments are in. The debt didn’t grow; their money just became worth less, making the same debt harder to pay.⁵⁶
- The result is a brutal squeeze from three directions at once: energy bills going up, borrowing costs rising, and debt repayments consuming an ever-larger share of government revenue in real terms.⁵⁷ When a government is spending a significant portion of what it earns just to service debt it took on years ago, there is almost nothing left for the things governments are supposed to do: run schools, staff hospitals, maintain roads, and protect its most vulnerable people.⁶² Please note: currently 3.4 billion people live in countries already spending more on debt than on health or education.⁶³ ⁶²
When oil prices spike, the standard central bank response is to raise interest rates to fight inflation, but higher rates, combined with rising energy costs, create the nightmare scenario of stagflation⁶⁴– the sepulchral portmanteau of stagnation + inflation: economies are not growing, are even contracting, and then being hit with inflation.⁶⁵ The 1970s oil shocks produced exactly this scenario, and most Western economies spent nearly a decade fighting it.⁶⁶ ⁶⁷

What happens next?
As of April 12, 2026, US-Iran talks in Islamabad collapsed after 21 hours without a deal⁶⁸, and Trump has announced a naval blockade of the Strait.⁶⁹

According to CNBC’s analysis of oil-shock-induced bear markets, the average duration of a market decline caused by an oil shock is approximately 13 months, with an average drop of around 30%.⁷⁰ But the range is enormous, and duration, more than any other variable, determines how much lasting damage gets done.⁷⁰ Allianz Research has already stated plainly: if the Strait remains blocked for more than three months, the impact on global growth will start to be recessionary.⁷¹ Global GDP growth for 2026 has already been revised down to 2.6%, from 3.1% projected before the conflict.⁷¹

However, the thing to note is that even if the Strait reopens, the effects don’t simply switch off.

Insurance premiums, once repriced upward, tend to stay elevated for years.⁷² ⁷³ This is because the risk hasn’t gone away once the issue has been resolved, it has simply been revealed: that is, now people know, and Iran knows, and people know that Iran knows, that they can do this any time they wish to. Iran has even begun charging transit tolls to ships seeking passage, a development that, if it stands, converts a one-time crisis into a permanent feature of the global shipping cost structure.⁷⁴

Secondly, shipowners who rerouted through the Cape of Good Hope have restructured their logistics, signed new contracts, and reoriented supply chains that won’t simply snap back the moment a ceasefire holds.⁷⁵ ⁷⁶ The IFO Institute forecasts that Germany, which is used as a proxy for industrial Europe, will still see the drag from the war on its GDP growth through 2027, even in the de-escalation scenario.⁷⁷ The inflation spike from Q2-Q3 2026 has already been priced in by Allianz, and that won’t change just because the Strait opens.⁷⁸

There is also the question of what the world does with the lesson. Every oil shock in history has accelerated investment in energy alternatives.⁷⁹ ⁸⁰ The 1973 embargo triggered the first serious wave of Western investment in nuclear power and efficiency standards.⁸¹ The 2026 shock has already prompted urgent conversations about alternative pipelines, renewable acceleration, and LNG infrastructure diversification.⁸² ⁸³ These structural responses will, eventually, reduce the world’s dependence on this chokepoint: but they operate on decade-long timescales, not quarterly ones.⁸⁴

In the shorter term, the most honest answer is: nobody knows⁶⁴, and we’re all paying the cost of not knowing.⁸⁵ The financial markets’ best guess, reflected in options pricing and analyst forecasts, is that there is a meaningful probability of both a relatively contained outcome and a prolonged, recessionary one.⁸⁶⁸⁷The uncertainty itself has a cost, as we’ve now established. And that uncertainty will remain priced into everything. This is the architecture of systemic risk. It doesn’t ask for your involvement. It doesn’t need you to have invested in oil futures or to have taken a position on Iranian politics. It just needs the world to be as interconnected as it is.

Sources

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