You're the head of strategy at an industrial group in São Paulo. Your most profitable operation depends on a single geopolitically fragile country —as a key market or as a sole supplier. Concentrating everything there is the most efficient path and the one that leaves the most margin. But a geopolitical shock —sanctions, war, restrictions— can strand that asset overnight, as happened to BP with its stake in Russia or to Huawei when it was cut off from U.S. supply.
The situation
Geopolitical risk doesn't behave like normal business risk: it's a fat tail that can strand an asset completely and overnight, no matter how profitable the operation is. A sanction, a war, or an export restriction can turn your stake unpayable, your factory inaccessible, or your supplier illegal overnight. BP had to write down its stake in Rosneft after the invasion of Ukraine; Huawei was cut off from U.S. chips and software by sanctions.
Here's the trap that tempts your board. Concentrating critical exposure in a geopolitically risky jurisdiction is the most efficient path: the sole supplier is the cheapest, the dominant market the most profitable. But that efficiency ignores the tail: the more you concentrate, the bigger the asset a shock can strand. The answer isn't to flee every risky market (they all carry some degree of risk), but to diversify and build redundancy, and plan scenarios for sanctions and decoupling, accepting somewhat less efficiency in exchange for not being stranded. Efficiency is visible every day; the tail, only the day it blows up.