Two years after COVID-19 first emerged in China, the potential failure of the country’s “zero-COVID” policy poses the biggest global risk of 2022, threatening to add to global supply-chain disruptions and inflationary pressures, warned Eurasia Group, a political-risk consulting firm.

“For rich countries, the end of the pandemic will arrive soon as the virus collides with highly vaccinated populations and treatments that prevent death. But most countries, and particularly China, will have a harder time getting there,” wrote Eurasia Group President Ian Bremmer and Cliff Kupchan, the firm’s chairman, in a Monday report.

They predicted China’s zero-COVID policy, running up against a much more transmissible omicron variant with vaccines that are only marginally effective, will fail to contain infections in 2022. That will lead to larger outbreaks and more severe lockdowns “and greater economic disruptions in a nation that has long been the world’s primary engine for growth.”

The zero-COVID policy has entailed border restrictions and strict lockdowns when cases emerge. The 13 milion residents of Xi’an in northwestern China have been confined to their homes for the past 12 days in the largest lockdown since the 11 million residents of Wuhan, where the virus first emerged, were locked down in 2020, according to CNN.

The policy looked incredibly successful in 2020, but now has become a fight against a much more transmissible variant with broader lockdowns and vaccines with limited effectiveness, Bremmer and Kupchan wrote. “And the population has virtually no antibodies against Omicron. Keeping the country locked down for two years has now made it more risky to open it back up.”

That’s the opposite of where China’s leader, Xi Jinping, wants the country to be in the runup to his third term, but there’s nothing he can do about it, they said, arguing that the initial success of the zero-COVID policy and Xi’s personal attachment to it now makes it impossible to change course.

For the world, that means more supply-chain disruptions. “Shipping constraints, COVID-19 outbreaks, and shortages of staff, raw material, and equipment — all more acute because of China’s zero-Covid policy — will make goods less available,” they wrote. “High prices for shipping will also hurt small- and medium-sized businesses that don’t have the resources to book containers, let alone their own ships. Supply constraints should recede over the course of 2022, but disruptions will persist in many sectors. Midyear contract negotiations at major U.S. ports and related slowdowns will add to the difficulties.”

High inflation, breeding inequality, feeding economic insecurity and public discontent, will be exacerbated and remain an overarching economic and political challenge, they said, noting emerging market central banks are being pressed to raise interest rates to contain inflation while developed market central banks pivot toward tighter policies.

Major stock benchmarks rallied strongly in 2021 and were trading flat to modestly higher in choppy trade on Monday. The Dow Jones Industrial Average DJIA, +1.19% was trading near unchanged, while the S&P 500 SPX, +1.53% was up 0.1% and the Nasdaq Composite COMP, +2.11% advanced 0.7%.

Bremmer and Kupchan offered up nine other top risks for 2022:

Gary Gensler had strong words for the crypto industry in a Thursday speech, telling an audience of lawyers that the "vast majority" of the nearly 10,000 existing crypto tokens are securities.

William Watts is MarketWatch’s senior markets writer. Based in New York, Watts writes about stocks, bonds, currencies and commodities, including oil. He also writes about global macro issues and trading strategies. Before moving to New York, he reported for MarketWatch from Frankfurt, London and Washington, D.C.

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