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Author: Natasha Martin, Director of Product, Ethixbase360
The ongoing conflict in Iran has added fresh volatility to an already fragile global economic outlook in 2026, compounding uncertainty around tariffs, sanctions, and wider geopolitical tensions. Even before these latest developments, warning signs were emerging in stock, bond and labor markets, consumer sentiment and consumer credit, contributing to what many describe as an increasingly “K-shaped” economy.
While forecasts of a recession remain relatively modest, the risk is not insignificant. Goldman Sachs estimates a 20% probability, while JP Morgan places the likelihood closer to 35%.
Periods of economic pressure often lead organizations to reassess spending priorities, and compliance programs are not immune. The Verdantix Global Corporate Survey 2025: Risk Management Budgets, Priorities and Tech Preferences notes that ESG and climate-related investments are slowing, while a Gartner survey found CFOs reporting that legal, HR, and compliance functions are among those most likely to experience minimal budget growth or even cuts.
Reducing compliance investment during period of economic stress however can create precisely the conditions that allow risk to grow.
Perverse Incentives and Third-Party Behavior
Periods of economic strain tend to reveal how incentives shift across global value chains. When tariffs change, sanctions regimes tighten, or trade routes fragment, third parties adapt. Sometimes that adaptation is legitimate. Too often, however, it is not. Organizations that rely heavily on distributors, suppliers, logistics partners, and intermediaries should recognize that ethical pressure is rarely felt evenly across the value chain. Economic hardship, sanctions regimes, and trade restrictions can heighten the temptation for third parties to cut corners, misrepresent information, or circumvent controls. These behaviors are increasingly visible in global trade patterns: forged or altered shipping documents, nominee companies registered shortly after sanctions announcements, unusual sales distortions following tariff changes, and intermediaries appearing almost overnight to “solve” newly created trade barriers.
These responses are not random. They are often rational reactions to distorted incentives. The risk for organizations is twofold. First, regulatory exposure increases, particularly as liability frameworks expand and governments place greater expectations on companies to oversee the conduct of distributors, agents, and intermediaries. Second, and often more damaging, is reputational risk. Alignment with the wrong third party at the wrong moment can undermine years of brand trust in a matter of days.
The Verdantix Global Corporate Survey 2025 notes that despite a growing number of high-profile third-party failures, many organizations still underestimate the relationship between geopolitical fragmentation, third-party behavior, and reputational exposure. Despite the rise in reputational damage linked to third-party relationships, many firms still fail to recognize how a fragmenting international environment can amplify these risks.
Enforcement Is Shifting — Not Disappearing
Economic pressure does not mean regulators are stepping back.
Across jurisdictions, governments continue to expand oversight of global trade, supply chains, and corporate conduct. Trade enforcement, sanctions monitoring, and supply chain due diligence regimes are all intensifying, even as priorities shift between policy areas.
Recent developments illustrate this shift. Regulators are increasing scrutiny of forced labor risks in global supply chains, strengthening monitoring of sanctions evasion through shipping networks and so-called “shadow fleets,” and probing corporate structures designed to obscure beneficial ownership or bypass procurement rules. At the same time, enforcement is moving beyond entity-level screening toward ownership-based due diligence, reflecting a more strategic, and at times fragmented, regulatory landscape shaped by national economic interests—where risk is defined not just by who a company is, but who ultimately owns or controls it.
Taken together, these developments highlight an important point: regulatory scrutiny is not disappearing — it is shifting.
Additionally, periods of regulatory flux often invite others to fill the gap. NGOs, activist investors, and other stakeholders can drive a steady stream of scrutiny, creating a “whack-a-mole” effect of emerging issues. As one participant noted at our 2nd European Third Party Risk Management conference last year, “the only thing businesses hate more than regulation is unclear regulation.” When expectations are ambiguous, external pressure tends to intensify—and inconsistency can create more risk for organizations than clear, well-defined regulatory requirements.
Building Resilient Third-Party Risk Programs
Economic volatility is also reshaping value chains. As governments increasingly act in their own national interests, global trade is becoming more localized, more politicized, and more volatile. In many ways, international regulation is beginning to resemble a geopolitical tennis match, with governments responding to one another through tariffs, sanctions, export controls, and industrial policy. Businesses operating across borders are often caught in the middle of these policy exchanges.
As noted at a recent conference, large organizations often operate with the agility of tanker ships when what’s increasingly required is the maneuverability of sailboats. While it’s not possible to anticipate every risk in a fragmented global landscape, companies can design programs that are more adaptive and better equipped to respond quickly to emerging threats.
Breaking down silos between compliance, procurement, finance, cybersecurity, and in-house legal teams is essential. What appears low risk within one function may represent significant exposure when viewed across the broader enterprise. When silos persist, risks often fall through the gaps. Most importantly, organizations should resist the temptation to weaken oversight during periods of economic pressure. Instead, they should reinforce compliance expectations across their third-party networks, maintain visibility into ownership structures and business practices, and conduct targeted audits and monitoring where risks are elevated.
There is a well-known saying: never waste a good crisis. Periods of economic and geopolitical disruption often sharpen the focus of executive leaders and boards on what is truly at stake. Organizations that hold their compliance nerve, maintain robust third-party controls, and recognize the behavioral impact of distorted incentives will not only weather the storm — they may emerge from it stronger.