Geopolitical risk is always present in today’s globally linked economy. Investors have been attracted to the emerging market sector in the last decade considering their momentum of economic growth and their significant contribution to global GDP of approximately 50 percent as estimated by the ECB.

Several nations have encountered a volatile political environment recently, thus countering their growth prospects and currency status. Turkey, Egypt, Syria, Russia and Ukraine have captured recent headlines. The contagion effect of the current Iraqi situation has interrupted China’s need for natural resources (they are the largest global consumer of oil), and to satisfy their growth prospects.

China has contributed significant capital to Iraq’s infrastructure and oil production. They are the recipient of over half of the oil produced in Iraq. If the current environment deteriorates, China’s ability to maintain a 7.5 percent GDP growth rate will be in jeopardy, causing a domino effect with other nations who depend on trading with them.

This leads to our current dilemma — few global issues evoke debate of passion and pedantry like our voluntary military conflict in Iraq. We can discuss endlessly and circuitously and never obtain a compromising conclusion to our involvement. Weapons of mass destruction, personal disdain of Saddam Hussein by then President Bush or the continuous threat of invasion of neighboring nations by Iraq’s imposing military was our reasoning.

Our participation from March 20, 2003, to Dec. 18, 2011, was costly on both a human and monetary scale to the American people. We lost 4,487 military service members as well as over 32,226 injured during the course of the war. The American taxpayer footed an estimated trillion dollars to cover our occupation over the eight years, capital that could have been utilized for our domestic growth or to lower deficits.

In the last several weeks we have been witnessing the dissolving of our earnest efforts to bring democracy to a nation that was once our enemy. Accounts of the Sunni terrorist group ISIS have them sweeping through the country with little resistance and occupying strategic footholds in major cities. Brutality is their calling card and their emphatic philosophy of imposing Islamic Sharia Law has created thousands of fatalities. The formidable question is where we will go from here to contain the damage from infiltrating neighboring countries.

Nouri al-Maliki was voted prime minister on June 8, 2006. He is an Islamic Shiite and he has reignited the century-old impassioned divisiveness between Sunni and Shiite factions by making his administration exclusive and not inclusive. A preponderance of corruption and an elusive democracy has instilled disdain within the Sunni population. Our efforts in Iraq were to prevent a partisan power vacuum in the government

Our current position addressing this conflict is to have the al-Maliki government compromise with the Kurds who occupy the north and the Sunni population who occupy central Iraq. These conditions must be met before we commit any serious military support. However, the clock is ticking and ISIS is being empowered by each military success they achieve.

If complete control falls within ISIS hands, we will have another terrorist nation to contend with in the not so distant future. Ironically, Iran has put forward an effort to contain ISIS before their mortal enemy establishes a dominant foothold into their western sphere. The suggestion for us to work with a nation who wants to see our demise, and that of our ally Israel, is categorically labeled insane.

The U.S. participation is vital in containing the insurgents and demanding a government that is representative of all the population. As Iraq is the second largest oil producer in the Middle East and the fifth largest producer worldwide, the recent oil price hike is a direct result of the vital economic impact a disruption can have and an inflationary factor reverberating worldwide.

Global economies are beginning to see modest growth from their central banks expanding their balance sheets. The hotbed in Iraq can put a major hiccup in the plans of a global economic recovery. Investors can mitigate risks through extensive diversification among a variety of several asset classes, sectors and geographical regions — this helps minimize the impact of event risk and valuation deterioration of the portfolio. Contact your financial professional to learn more.