Despite being vital to health, security, and economic prosperity, water is often taken for granted. As supplies come under growing strain, water-related considerations will shape economic policy and political decision-making, as well as firms’ investment decisions, risk assessments, and corporate strategies.
PARIS—The past few months have offered a stark reminder of the importance—and precariousness—of water supplies. The Gulf Cooperation Council countries, which together supply roughly 62 million people with drinking water drawn almost entirely from the sea, have had their desalination plants targeted by drones and missiles, as part of a geopolitical conflict they did not create.Meanwhile, in Central America, insufficient rainfall has been lowering water levels in the Panama Canal for years, creating tension between local need for fresh water and demand for transit through a vital shipping artery. This is the same crisis seen from opposite ends: in Panama, a shortage of fresh water chokes maritime trade, and in the Gulf, a maritime conflict reduces drinking water. Water is, in the strictest sense, a security issue—but the world has yet to govern it as one.The consequences of inadequate water management are far-reaching. Diseases related to unsafe water and sanitation represent a major public-health risk and a leading cause of death among children under five globally. Moreover, water is a vital agricultural and industrial input: around 90% of global freshwater withdrawals support economic activity, with the remaining 10% going to households.Then there are the economic costs of water-related natural disasters, which are growing more severe and frequent due to climate change. Droughts cost the world an estimated $307 billion annually, representing 15% of all disaster-related economic losses. Floods caused $651 billion in damages in 2000–19. Meanwhile, water pollution continues to erode economic growth across entire regions. In 2016, the World Bank projected that the most vulnerable regions’ growth rates could decline by as much as 6% of GDP by 2050 as a result of water-related losses.Water’s role in global trade is crucial as well, with around 80% of the world’s merchandise trade by volume traveling by sea. The world’s most important chokepoints—the Strait of Hormuz, the Panama Canal, and the Suez Canal—have all been disrupted in recent years. In 2023, prolonged drought forced Panama to begin rationing access to its waterway. Daily transit dropped by roughly one-third by early 2024, and shipping rates spiked across the Pacific. While this year’s closure of the Strait of Hormuz was not triggered by a water-related disruption, it reinforces the message that water is an essential strategic variable in global logistics.Water-related risks continue to rise. United Nations researchers now warn that many regions are approaching “water bankruptcy”: when water systems can no longer realistically return to their historical baselines, owing to depletion, pollution, and damage to water-related natural capital like wetlands. Moreover, the Carbon Disclosure Project estimates that companies already face hundreds of billions of dollars in water-related risks—most of which could be mitigated at a fraction of the potential cost.The good news is that water resilience is not a technological mystery. The solutions are known: better infrastructure, better planning, and better governance. And they are highly cost-effective: every dollar invested in water and sanitation infrastructure, for example, generates some $4–12 in economic returns through avoided health costs and higher productivity.What has been missing is the strategic attention to deploying these solutions at scale. Part of the problem is visibility. Economists have long observed that resources are managed most effectively when their value is visible. Yet, unlike energy and emissions, water use is only beginning to be measured and disclosed.This helps to explain why, despite growing scarcity, water continues to be priced as if it were abundant. In France, the same resource costs anywhere from €0.02 ($0.023) per cubic meter for irrigation to roughly €4 for treated household water—a 200-fold spread that bears no relation to scarcity or economic value. It also explains why water is only starting to shape investment decisions, risk assessments, and corporate strategies, as well as economic policy and political decision-making.This lag can also be seen at the global level. At the G8 summit in Évian in 2003, leaders warned of the economic and geopolitical consequences of water insecurity. Yet, 23 years later, water is one of the few strategic resources without a Bretton Woods of its own, relying instead on a patchwork of agreements and institutions. With roughly one-fifth of global water consumption embedded in goods consumed outside the country where they are produced, this amounts to a major blind spot. Research on the globalization of virtual water flows has shown that when water is properly accounted for as a factor of production, the classical patterns of comparative advantage that organize global trade no longer hold: water-scarce countries export water-intensive goods to water-abundant ones, subsidized by an unpriced and dwindling input.World Trade Organization rules are already being adapted to account for carbon intensity, so one might hope that water intensity is next. But such action depends on a commitment to translating a long-standing awareness of water-related risks into institutions, incentives, and investment decisions that match the scale of dependence.Abundant and predictable water supplies supported economic growth, industrialization, and global trade for over two centuries. But the days when water could be taken for granted are over. Water is a strategic asset in its own right, and we must treat it with the same seriousness as we do with energy, trade, and finance.The question now is how quickly governments, businesses, investors, and institutions can integrate this understanding into the decisions they make every day. The countries and companies that excel over the next two decades will be those that treat water as the precious resource it is.
