Welcome to this week’s edition of Geopolitics & the Day After. As developments in the Middle East continue to unfold, we have limited this week’s briefing to the geopolitical and geoeconomic dynamics shaping the global landscape. Below is an overview of what we cover this week:
Geopolitical Concerns takes a look at how the weakening of Iran under U.S. and Israeli pressure is amplifying its unpredictability, the risk of regime fragmentation, and global instability—from energy and markets to great‑power relations—without offering a clear or safe postwar trajectory.
Geoeconomics examines how emerging stress in private credit markets and major energy disruptions are exposing deep structural vulnerabilities in the global economy, redistributing risks and benefits unevenly while pushing the world toward a more volatile, uncertain financial environment.
Global Junctions dives into technological and economic transitions, from China’s uneven export-driven growth to rising AI risks, fragile blockchain-based finance, and enduring semiconductor shortages, that are converging to create a global landscape where innovation, inequality, and systemic risk increasingly intersect.
Global Trajectories explores how accelerating global warming, major state investments in future technologies, varied structural resilience across regions like Africa, and mounting threats to global food systems are highlighting a world where climate stress, geopolitical shocks, and technological competition are reshaping long-term developmental paths.
Geopolitical Concerns
Afshon Ostovar, Foreign Affairs
A Worst-Case Scenario for the War with Iran
Kerry Boyd Anderson, War on the Rocks
Analysis: Xi torn between long ties with Khameneis and US relations
Katsuji Nakazawa, Nikkei Asia
How Trump’s War With Iran Changed the World in a Week
Jim Tankersley, The New York Times
Opinion | An Iranian civil war is not in America’s interest
Fareed Zakaria, Washington Post
The severe weakening of Iran following sustained U.S. and Israeli strikes has not yet eliminated the threat posed by the Islamic Republic, instead it may increase its unpredictability and willingness to take risks. Despite heavy losses to its leadership, military infrastructure, and strategic programs, the regime retains cohesion through institutions such as the Islamic Revolutionary Guard Corps (IRGC) and Basij, and has opted for continuity under Mojtaba Khamenei. In a context of reduced conventional capabilities, Tehran is likely to rely more heavily on asymmetric tools, including terrorism, while potentially reconsidering its long-standing restraint on nuclear weaponization as a means to restore deterrence. At the same time, the uncertainty surrounding the trajectory of the conflict raises the prospect of far more destabilizing outcomes. A prolonged war could trigger the collapse of central authority, leading to fragmentation among regime remnants, protest movements, and military factions, alongside the activation of long-standing ethnic and separatist tensions. Such a scenario would carry significant regional and global consequences, including refugee flows, energy disruptions, and the resurgence of militant networks. Within this evolving landscape, external actors are recalibrating their positions. China, despite its deep economic and military ties with Iran, has adopted a cautious posture, balancing its strategic partnership with Tehran against the imperative of maintaining stable relations with Washington, particularly amid broader geopolitical tensions and the potential implications for U.S.-China engagement.
Beyond Iran itself, the conflict is already reshaping the wider geopolitical and economic environment, with effects that extend well beyond the Middle East. Disruptions to shipping through the Strait of Hormuz and rising oil prices have begun to impact global markets, while attacks across Gulf states are undermining their positioning as stable hubs for investment, tourism, and trade. These dynamics risk triggering inflationary pressures, political repercussions in Western economies, and indirect consequences for other theaters, including Ukraine, as resources and strategic focus are diverted. At the same time, the absence of a clear postwar framework has heightened concerns among allies about the long-term implications of the conflict. While the weakening or collapse of the Iranian regime may align with certain strategic objectives, it also raises the risk of a power vacuum in a highly militarized and socially fragmented state. Such an outcome could lead to prolonged internal conflict, similar to previous cases in the region, with significant spillover effects for neighboring countries and global stability. The central challenge, therefore, lies not only in degrading Iran’s capabilities but in managing the aftermath in a way that avoids a broader systemic crisis.
Geoeconomics
Big Lenders’ Risky Loans Are Rattling Wall Street
Rob Copeland and Maureen Farrell, The New York Times
An attack on the world economy
Economist
Vladimir Putin enjoys a huge windfall from the Iran war
Economist
William Alan Reinsch, CSIS
Stress in global financial markets is beginning to expose structural vulnerabilities that had built up during years of abundant liquidity. Concerns around large private credit lenders indicate a growing mismatch between long-term, illiquid loan portfolios and shorter-term investor expectations for liquidity, raising fears of forced asset sales and broader contagion if redemption pressures intensify. What was once seen as a stable alternative to traditional banking is now facing its first systemic test, with declining confidence potentially triggering a self-reinforcing cycle of withdrawals and markdowns. At the same time, disruptions in the Strait of Hormuz have introduced a profound shock to global energy markets, removing a significant share of oil and gas supply and driving price volatility. Even if flows partially resume, the episode signals a structural shift toward persistent energy insecurity, where geopolitical tensions translate more directly and more frequently into price spikes, inflationary pressures, and policy trade-offs for governments and central banks.
These dynamics are redistributing economic gains and risks unevenly across the global system. Elevated energy prices have provided Russia with a temporary fiscal and geopolitical reprieve, boosting export revenues, easing the pressure of sanctions, and strengthening its position in key markets such as India and China, while also complicating Western efforts to tighten restrictions. However, this windfall remains fragile, constrained by long-term structural weaknesses in Russia’s energy sector and the uncertainty surrounding sustained demand at higher price levels. More broadly, the combination of geopolitical instability and policy unpredictability is amplifying global economic uncertainty. Fluctuating tariffs, shifting trade measures, and an open-ended conflict in the Middle East are reinforcing a climate in which businesses delay investment, reassess supply chains, and price in higher risk premiums. Energy disruptions are particularly acute for Asia, with potential knock-on effects for global manufacturing, while the perceived fragility of Gulf economies could dampen capital flows. Even in the case of a short conflict, lingering volatility and strategic uncertainty are likely to weigh on growth, complicating policymaking and reinforcing the sense that the global economy is entering a more unstable and less predictable phase.
Global Junctions
China’s Tariff-Defying Export Boom Leaves Its Factory Workers Behind
John Liu, Yujing Liu, Colum Murphy, Jessica Sui, Linda Lew, Annabelle Droulers and Allen K Wan, Bloomberg
An AI disaster is getting ever closer
Economist
Is the Stablecoin Economy Structurally Sound?
Neha Narula, Project Syndicate
Global memory chip crunch set to last till 2030: SK Hynix
Yifan Yu, Nikkei Asia
China’s export machine continues to deliver strong headline performance, but mounting evidence suggests that its benefits are increasingly unevenly distributed across the domestic economy. Despite record trade surpluses and resilient export growth in the face of tariffs, factory workers in key industrial regions are experiencing falling wages, job insecurity, and declining living standards, reflecting a structural shift toward more capital- and technology-intensive production. The expansion of high-end manufacturing, automation, and AI-driven “dark factories” is reducing labor demand, while weak domestic consumption and a struggling services sector limit alternative employment opportunities. At the same time, rapid advances in artificial intelligence are introducing a parallel set of risks at the global level. The growing tension between technological acceleration and safety concerns—illustrated by disputes between governments and leading AI firms—highlights a broader dilemma: AI is becoming too strategically important to slow down, yet increasingly capable of enabling cyberattacks, surveillance, and other forms of harm. As safeguards struggle to keep pace and competitive pressures intensify, the risk of a significant technological or security incident is rising.
At the intersection of financial innovation and technological disruption, the expansion of stablecoins and tokenized assets is raising fundamental questions about the resilience of emerging financial infrastructure. As these instruments move toward systemic importance, the underlying blockchain networks—diverse in design, governance, and reliability—could become critical points of vulnerability, especially given the absence of clear accountability and regulatory oversight. Meanwhile, constraints in the physical layer of the digital economy are becoming more visible, with surging demand for AI applications driving a prolonged shortage of memory chips that may persist for years. Limited capacity expansion, combined with resource constraints such as energy and water availability, is reinforcing supply bottlenecks and sustaining elevated prices. These pressures are further compounded by geopolitical instability, as energy disruptions linked to the Middle East conflict increase operational costs for industrial players. Taken together, these dynamics underscore a broader transformation in which technological advancement, infrastructure limitations, and systemic risk are becoming increasingly intertwined within the global economy.
Global Trajectories
Scientists detect a sudden acceleration in global warming
Potsdam Institute for Climate Impact Research
Japan to double science, tech spending to $380bn over 5 years
Ryuto Imao and Rieko Miki, Nikkei Asia
Landry Signé, Foreign Affairs
The Iran War Could Trigger a Global Food Crisis
Bram Govaerts and Sharon Burke, Project Syndicate
New evidence suggests that global warming is accelerating at a pace not previously observed, with temperature increases since the mid-2010s significantly outstripping earlier trends. By isolating long-term climate signals from short-term natural variability, researchers find a consistent and statistically robust shift toward faster warming across datasets, reinforcing concerns that existing climate targets may soon be out of reach. If current trends persist, the 1.5°C threshold could be exceeded before 2030, showing the urgency of rapid emissions reductions. Concurrently, governments are intensifying efforts to position themselves at the forefront of technological transformation. Japan’s planned expansion of science and technology investment reflects a strategic push into areas such as artificial intelligence, space, and nuclear fusion, where public funding is expected to catalyze private sector participation despite uncertain commercial returns.
Amid broader global uncertainty, structural resilience is emerging as a defining factor shaping economic trajectories across regions. Contrary to expectations, many African economies have demonstrated an ability to adapt to external shocks, including aid reductions and trade disruptions, by leveraging domestic resources, institutional capacity, and diversified economic ties. This heterogeneity challenges prevailing narratives of uniform vulnerability and suggests that resilience is increasingly rooted in structural characteristics such as governance, exposure to external risks, and fiscal capacity. At the same time, geopolitical disruptions are revealing the fragility of essential global systems, particularly in food security. A prolonged disruption in the Strait of Hormuz could trigger cascading effects across energy, fertilizer, and agricultural supply chains, placing tens of millions at risk of food insecurity while amplifying existing pressures from climate change and conflict.
