Source: BusinessGreen

Risk analysts and European Commission warn droughts will affect oil prices, industrial output and international conflicts

22 Mar 2011 - Water scarcity could undermine the rapidly growing industrial sectors of China and India, while Europe remains far from immune to water shortage threats, according to new research published to support World Water Day.

A quarter of the world's largest companies are thought to be at risk from water shortages already, but whole economies are at risk of disruption as a result of increasingly scarce water supplies, says a report published today by risk analysts Maplecroft.

In particular, the report warns that the fast-expanding economies of China and India are already having to address concerns over water supply, and the situation in the Middle East and North Africa is even more pressing.

Poor levels of water security in the region could lead to further increases in global oil prices and heightened political tensions, the report says, noting that any shortages could severely disrupt supplies as water is commonly used to force oil out of wells.

The report rates six of the 12 Organisation of the Petroleum Exporting Countries (OPEC) members – Algeria, Iraq, Kuwait, Libya, Saudi Arabia and the UAE – in the highest risk category, while Qatar and Iran are also listed as being at high risk of water shortages.

Maplecroft said that these countries together accounted for about 30 per cent of global oil production in 2009, while all the countries listed in the report as extreme and high risk collectively accounted for 45 per cent of oil output.

Professor Alyson Warhurst, chief executive of Maplecroft, added that control of water sources was likely to exacerbate cross-border disputes in the region as countries take potentially provocative measures to safeguard their supplies.

However, she argued that water risks could be reduced by making better use of new technologies, such as desalinisation plants. For example, the report notes that Saudi Arabia plans to provide 10m cubic metres of water per year through a solar-powered desalination plant.

"For business, there are three considerations," added professor Warhurst. "First, studying water security is a helpful indicator of risk of societal instability. Second, water security is worsening in countries of high growth like India and China, and business sectors that are intensive in water use will need to consider their impacts. Third, there are good examples of business initiatives to enhance water security for communities in water-stressed regions, and the lessons of good practice need to be more widely disseminated."

For the complete article, please see BusinessGreen.