Who hasn’t felt uneasy watching the international news lately? From the war in Ukraine to conflicts in the Middle East to crucial elections around the world. Unpredictable geopolitical events are dominating the news, and the global economy is in the midst of more uncertainty than ever before. Geopolitical risks that were once hard to imagine are now having a direct impact on our lives and economies. These risks aren’t just about faraway countries; they’re affecting commodity prices, inflation, and even the investment portfolios in our hands. Today, we’re going to take a deep dive into how these geopolitical risks are affecting the global economy and how we should respond to these uncertainties.
The shadow of never-ending wars: the economic fallout from Ukraine and the Middle East
The war in Ukraine has had a massive impact on the global economy since it broke out in 2022. Russia is the world’s second-largest oil producer and a major exporter of natural gas, while Ukraine is the world’s fifth-largest grain exporter. The war has caused energy prices to spike, with international oil prices (Brent crude futures) reaching a 14-year high in March 2022, exceeding $139 per barrel. Grain prices have also skyrocketed, fueling global inflation.
The recent direct armed conflict between Israel and Iran, which began on June 13, 2025, has further increased instability in the Middle East and poses serious concerns for the global economy. Israel has launched airstrikes against Iran’s nuclear facilities and military bases, and Iran has also retaliated with missiles and drones against Israel. The conflict has resulted in numerous casualties on both sides, with at least 657 people (including 263 civilians) reported killed in Iran and at least 24 in Israel. The United States also participated in an attack on Iran’s nuclear facilities, and on June 23, a US-led ceasefire was announced.
These armed conflicts are maximizing anxiety about the global energy supply chain. The Middle East is home to about 30% of the world’s oil production, and the Strait of Hormuz in particular is a key corridor through which about 20% of the world’s seaborne oil transportation passes. Since the clashes broke out, Brent crude oil prices have surged about 8% since the Israeli airstrikes on June 13, temporarily exceeding $78.50 per barrel. Experts warn that in a worst-case scenario, such as a blockade of the Strait of Hormuz, oil prices could soar to $100 to $150 per barrel, reducing annual global GDP by nearly $1 trillion and causing stagflation. In addition, economic disruptions caused by rising shipping freight rates, global supply chain bottlenecks, and a rebalancing of aviation and tourism activity in the region could lead to inflationary pressures and slower economic growth globally.
Testing democracy: the ripple effect of national election results
Recent important elections in countries around the world are adding another layer of uncertainty to the global economy. The U.S. presidential election, for example, sets the policy direction of the world’s largest economy, so the outcome will have a profound impact on global trade, investment, and foreign policy. A candidate’s victory could lead to deregulation or tightening of certain industries, changes in trade policy, and even a realignment of alliances, all of which play a role in the investment strategies of global companies.
Elections in Europe also increase uncertainty about the integration and future of the European Union (EU). The rise of far-right populist parties could lead to increased protectionism, changes in immigration policies, and talk of exiting the EU, whichcould affect not only the stability of the European economy but also the global trading order. The rise of the far-right in the June 2024 European Parliament elections raises concerns about the future direction of EU policy. These election results could lead to increased market volatility in the short term and changes in economic cooperation and trade relationships between countries in the long term.
Technological hegemony and supply chain reshaping: the new geopolitical landscape
The race for technological supremacy between the United States and China is reshaping supply chains around the world. The race between the two countries to gain leadership in key technology areas such as semiconductors and artificial intelligence is forcing companies to diversify their production bases and reorganize their supply chains. While this can lead to increased costs in the short term, it can also lead to more resilient supply chains in the long term. For example, the United States is providing billions of dollars in subsidies through the CHIPS and Science Act to encourage domestic semiconductor production. Policies like these help companies reduce their dependence on specific geographies and hedge against geopolitical risks.
Climate change and resource security issues are also emerging as new geopolitical risks. Extreme weather events can reduce agricultural production, threaten food security, and exacerbate conflicts between resource-rich and resource-consuming nations. Competition for control over key minerals, especially lithium and cobalt, is an important geopolitical factor that will shape the future of industry.
Conclusion: In times of uncertainty, seek smart responses
We’ve seen the far-reaching impact of geopolitical risk on the global economy. Factors such as the war in Ukraine, conflicts in the Middle East, national election results, and the race for technological supremacy are creating an ever-changing and unpredictable economic landscape. How should we respond in these times of uncertainty?
First and foremost, we need to make informed, smart decisions. Continuous attention and analysis of international affairs and economic flows are essential to proactively identify and prepare for risks. Businesses should strengthen their resilience to uncertainty by diversifying their supply chains and reducing reliance on specific geographies. Investors should also consider diversification for the long term and better understand which assets are subject to geopolitical risk, rather than getting caught up in short-term market volatility.
Experts believe that geopolitical risk is unlikely to be resolved in the near term. Rather, a combination of factors, including climate change, demographic shifts, and technological advances, is likely to create a more complex and unpredictable geopolitical environment. We must accept this uncertainty as the new normal, and develop the ability to respond flexibly and agilely. We look forward to using this crisis as an opportunity to build a more robust and sustainable global economic system.
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