Before we get to the main event this week, remember to check out our latest podcast with Marko Papic, Partner and Chief Strategist at the Clocktower Group, and a B0$$ human in general. His first book – Geopolitical Alpha – came out last month for any of you who are interested in the intersection between geopolitics and investing. If you are enjoying the podcast, consider doing us two solids: a) share it with your friends and b) leave us a review wherever you listen to podcasts.

We can always tell how crazy the previous week has been when we sit down to choose a topic for the weekly Perch newsletter and there are too many potential topics. 

We could spend thousands of words, for instance, on last Friday’s brazen assassination of Iranian nuclear scientist and Islamic Revolutionary Guard Corps brigadier general Mohsen Fakhrizadeh and what it means for U.S.-Iran relations in the Biden administration (tl;dr – not much). 

Less shocking but even more important may be the new draft European Union proposal to build a digital, democratic alliance with the United States to stand up to “authoritarian powers” (cough CHINA cough). We’ll likely have more to say on that score once the draft is submitted for review by EU leaders on December 10th

The tragic and ongoing civil war in Ethiopia continues, with federal forces reportedly capturing the Tigray regional capital of Mekelle over the weekend even as Tigray leaders swore to fight a guerilla war and amidst Tigray rocket attacks against neighboring Eritrea. 

All of these events – and the myriad others we are tracking right now but don’t have time or space to delve into today – are important and you need to be keeping track of them to maintain a baseline level of global situational awareness. 

This week, however, we want to encourage you to take a step back from the headlines and give some serious thought to a much bigger issue that does not fit neatly into a headline or even a single newsletter post: water scarcity. 

The impetus for the focus is the publication of the UN’s annual Food and Agriculture Organization (FAO) report on “The State of Food and Agriculture 2020” and if you have time to spare, we suggest reading the report for yourself. Most folks, however, don’t have time to read 210 pages of such in-depth analysis. For executives and decision-makers under significant time pressure, even the 27-page executive summary is a big ask in terms of time. In addition, the UN report, while a truly excellent source of new information about global water issues, focuses on the issue of water scarcity itself, and not on the potential implications for political risk and supply chain resilience, which are huge and far outweigh any of the (important) developments we alluded to in the paragraph above. 

So instead, here’s our best attempt to sum up the import of the FAO report and the potential geopolitical implications in ~1,000 words.

If you remember anything from this post, remember that water stress is one of the most important and underappreciated variables that affect geopolitical risk. The best example of this is the ongoing civil war in Syria. Syria experienced extreme droughts in 2008 and 2009, leading to declines in wheat production of almost 40 percent. The resulting exodus of Sunni Arab farmers to Syrian cities to find new jobs created an entire underclass of discouraged and angry Sunnis who were willing to risk their lives to revolt against the Alawite-majority Assad government at the height of the Arab Spring in 2011 – and plenty others who were willing to drink the Islamic State Kool-Aid and its promise of a return to the imagined golden age of caliphates past.

Of course, the story is more complicated than this, but any decent analyst can draw a relatively straight line from the droughts in Syria in the late 2000s to almost every major geopolitical development in the region since: The rise of the Islamic State, the subsequent signing of the U.S.-Iran nuclear deal, renewed calls for Kurdish independence, and the return of Turkish military forces to the Arab world – to mention just a few. When thinking about risk in the future, figuring out where droughts are currently occurring, or whether other threats to food security (remember those locust plagues in East Africa that everyone has forgotten about from earlier this year?) are imminent, is as good a place to start as any.

Here are some of the eye-popping statistics from the FAO report. 1.2 billion human beings live in areas currently experiencing very high levels of water scarcity. Roughly 90 percent of those people live in South Asia or in Southeast Asia. An additional 2 billion humans live under conditions of just plain high-water scarcity. Irrigated agriculture currently accounts for more than 70 percent of global water withdrawals and 41 percent of those withdrawals are not sustainable. 

Globally, more than 60 percent of irrigated cropland is highly water-stressed, and the amount of fresh water available per capita in the world has declined by more than 20 percent in the last twenty years. In Northern Africa and Central Asia, per capita, fresh water has decreased by over 30 percent. To put that in some perspective, some traditional definitions of water scarcity kick-in when annual water supplies per person drop below 1,700 cubic meters. Many of the places described in the FAO report as under “very high” stress are already seeing levels below 1,000 cubic meters.

N.B. – these are necessarily broad figures. In some countries, overall water stress may seem like a non-issue, but when you start to peel back the layers of data, you’ll find significant water stress in key areas where agriculture is the most important industry, or where urbanization and population growth is exacerbating an already serious underlying problem. This is true in many Latin American countries right now and why we’ve been warning for months about the potential for rising food prices due to droughts and water issues in places like Brazil and Argentina, both major cogs in the global food supply chain and both experiencing significant domestic political issues as a result. 

Case in point: soy futures were up 12 percent in November, corn was up 9 percent, and coffee prices were up almost 20 percent. Like all data-points, nothing in today’s missive is going to pinpoint for you exactly where and how some of these issues will impact you. Think of them instead like warning indicators on your car, each of which can indicate a range of potential problems, from a potential minor annoyance to crashing on the freeway at 75 miles per hour. The only way is to get a (reputable) mechanic to look underneath the hood and tell you what’s going on.

Here, however, is the real kicker in the FAO report. Buried about 35 pages in, the FAO identifies 11 countries where irrigated cropland is currently under very high water stress and where rainfed cropland experiences a very high frequency of drought: Morocco, Pakistan, Turkey, Egypt, Afghanistan, Iran, Kazakhstan, Uzbekistan, Syria, Yemen, and Saudi Arabia. Four additional countries fall just below the line set for “very high” – Iraq, Rwanda, India, and Ethiopia. 

That is not an exhaustive list of the countries whose geopolitics are being impacted by water issues – that list would basically be every country in the world, in some way. But it is the list of the countries where water issues are creating the most intense pressure points today, and where a potential drought or the exhaustion of a key water source could be a tipping point into chaos. That is the lens through which you should view developments in some of these countries, like the controversial new agricultural laws in India we alerted you about in June and which the English-speaking media has finally discovered, or the Iranian government’s tenuous grip on its own country, or Ethiopia’s civil war, or the breakneck rush to push through significant reforms in places like Uzbekistan and Saudi Arabia that seem deceptively calm on the surface.

Long-term, water scarcity is a major geopolitical issue. It will shape future immigration and migration patterns, cause wars and revolutions, and drive technological progress as humans search for solutions. In the short-term, water-scarcity is also a major political issue and a destabilizing variable in numerous countries already experiencing other political stresses. Unlike many other geopolitical issues, the impact of water scarcity is not always clear or instantaneous, but Syria’s current plight serves as both an important warning and an instructive tragedy of the potential impact of water scarcity, however indirect, on managing political risk. By the time water issues reach global headlines, it’s often too late to do anything about them, so if any of the countries or regions above affect your bottom-line, best to start making contingency plans now. 

If we can help, you know where to find us.