Experts from the Baikal Lobridge Analytical Center have prepared a study on cross-border water resources and their growing importance for the global economy.
Water has always been a critical resource for agriculture, energy, industry and infrastructure development. However, rising consumption, changing precipitation patterns and more frequent extreme weather events are placing increasing pressure on water systems. As water becomes scarcer, the availability and reliability of water supplies are becoming increasingly important factors in economic development.
Cross-border water resources are particularly important in this context. More than 40% of the world's population lives in river and lake basins that cross national borders. A country's decision to build dams, change water withdrawals or expand irrigation can directly affect agriculture, energy and industry in neighbouring countries.
The study looks at how water risks translate into geoeconomic and business risks, which industries are most exposed to changes in water availability, and whether existing mechanisms for managing cross-border water resources are keeping pace with the new economic reality.
The study was also featured in an article by Vedomosti. The full analytical report is available here.
Below are the key findings of the study.
Water is becoming a factor in economic security
Growing water stress is changing the conditions for economic development in individual countries and regions. For governments, reliable access to water is closely linked to food and energy security, industrial development and the resilience of critical infrastructure.
Climate change does not create water risks from scratch; rather, it amplifies existing constraints. Changing precipitation patterns, droughts, floods and declining access to certain water sources increase uncertainty and make long-term planning more difficult.
Cross-border resources deepen interdependence between countries
Cross-border rivers, lakes and aquifers create a unique system of interdependence. Countries located upstream and downstream often have different economic interests and different capacities to influence how water resources are allocated.
The construction of hydropower plants, dams and irrigation systems can bring significant economic benefits to one country while increasing risks for another. Managing cross-border water resources is therefore not only an environmental policy issue, but also an important part of international economic cooperation.
Water risks are spreading across key industries
Agriculture and energy remain among the sectors most sensitive to water availability. However, water constraints are increasingly affecting industries that have not traditionally been associated with water scarcity.
Semiconductor manufacturing requires large volumes of ultra-pure water, data centres use water to cool equipment, and the mining industry relies on water at various stages of extraction and processing. As a result, water availability is becoming one of the factors influencing where new production and technology facilities are located.
Water risks are becoming business risks
For companies, changes in water availability can lead to production constraints, higher operating costs and the need for additional infrastructure investment. Cross-border projects face further risks, including regulatory changes, disputes between countries and dependence on decisions made by other states.
Water availability can also influence the choice of location for new production facilities, supplier reliability, insurance costs and the attractiveness of long-term investments.
International regulation does not always reflect the scale of interdependence
The existing system for managing cross-border water resources includes international law, intergovernmental agreements and cooperation mechanisms at the river-basin level. At the national level, countries have their own water security strategies and water-use regulations, while companies are developing practices for assessing and disclosing water-related risks.
At the same time, strategic coordination between these levels remains a challenge. For governments and businesses, it is becoming increasingly important not only to respond to water shortages once they occur, but also to assess long-term water risks in advance and develop mechanisms to mitigate them.
Joint management is becoming key to resilience
As water stress increases, the resilience of cross-border water systems will depend on countries' ability to share data, coordinate infrastructure projects and take into account the impact of their decisions on other stakeholders within the basin.
For businesses, this means considering water risks as early as the assessment of investment projects, the selection of production sites and the design of supply chains. The more dependent an industry is on water, the more important it becomes to assess not only current water availability, but also how reliable that availability is likely to remain over the long term.
Key takeaway
Cross-border water resources are already becoming part of the global economic architecture, affecting food and energy security, industrial production, investment and international supply chains. The key challenge is not simply the physical scarcity of water, but the ability of governments and businesses to manage growing interdependence.
For governments, this means taking water availability into account in industrial and infrastructure planning and developing mechanisms to coordinate the management of cross-border resources. For businesses, it means incorporating water risks into assessments of investments, production sites and supply chains. The greater the level of water stress, the more important it becomes to move from responding to individual crises to systematically managing long-term risks.