In Geopolitical Concerns, we examine Israel’s strikes on Iran and how they have reshaped Middle East diplomacy, hardening Gulf demands for a Palestinian state, while NATO warns a potential war with Russia could cost $1.5 trillion in its first year. Strategic misalignments and prolonged conflicts reflect a broader unraveling of modern military doctrine.
In Geoeconomics, the U.S. dollar’s sharp decline and soaring equity risk point to instability, as climate-driven financial threats grow amid Trump’s regulatory rollbacks and rising global insurance retreat.
Global Junctions spotlights China’s AI and clean tech surge, eroding U.S. leadership and fueling a technological Cold War, as AI companions become central to addressing social disconnection.
Finally, in Global Trajectories, Ukraine advances fast, cheap defense tech under uncertain U.S. support, while America retreats from global aid and data reliability, drawing sharp warnings from Nobel laureate Esther Duflo.
Geopolitical Concerns
Israel’s War With Iran Has Reordered the Middle East—but Not as Expected
Stephen Kalin and Summer Said, Wall Street Journal
A Putin War With NATO Would Cost the World $1.5 Trillion
Alex Kokcharov, Jennifer Welch, Alberto Nardelli, Julia Janicki, and Tom Fevrier, Bloomberg
The Age of Forever Wars: Why Military Strategy No Longer Delivers Victory
Lawrence D. Freedman, Foreign Affairs
Christopher Clark, Foreign Policy
The Middle East underwent a dramatic shift after Israel’s military confrontation with Iran last month. This clash follows Israel’s 15-month invasion of Gaza, which has left over 56,000 dead. Despite President Trump’s brokered ceasefire and his push to expand the Abraham Accords, Saudi and Gulf states have pulled back from normalization with Israel. These states, which had pursued détente with Iran in 2023 and mediated during the crisis, reassessed Israel’s military power and risk tolerance. They are now demanding a credible path to a Palestinian state—something Israel firmly opposes. The shifting alliances and military escalations in the Middle East are mirrored by growing tensions in Europe, where NATO is increasingly focused on the threat posed by a resurgent Russia. NATO Secretary General Mark Rutte warned that a conflict with Russia, likely centered on the Baltics, could erupt within five years. Bloomberg Economics estimates such a war would cost the global economy $1.5 trillion in its first year. The Baltics alone could lose 43.4% of their GDP, while disrupted Russian energy exports could send oil up $25/barrel and natural gas prices up €50/MWh. Russia’s rearmed military now produces ammunition at four times NATO’s rate, reinforcing Putin’s claim that “all of Ukraine is ours.”
Meanwhile, modern warfare increasingly fails to deliver victory. Long, grinding conflicts—like the U.S. in Afghanistan, Russia in Ukraine, and Israel in Gaza—expose the “short-war fallacy” that wrongly assumes quick success. History, from World War I to today, shows that endurance, not speed, often decides outcomes. Military goals regularly fail to align with political reality, feeding a broader crisis of strategic thinking. This disconnect reflects what historian Christopher Clark calls the “end of modernity.” Since the fall of the Eastern Bloc in 1989 and China’s Tiananmen crackdown, the world has slowly unraveled its post-Cold War order. National media, political parties, and trust in science have weakened, especially after COVID-19. Clark argues we now live in an age of fragmented knowledge and pervasive uncertainty, with the collapse of old narratives playing out not just in headlines, but in our minds.
Geoeconomics
How the next financial crisis starts
Pilita Clark, The Financial Times
S&P 500 Needs Profit Boom or Fed Cuts to Justify Lofty Levels
Alexandra Semanova, Bloomberg
US dollar suffers worst start to year since 1973
Ian Smith, The Financial Times
Wall Street Goes All-In on Risky Stocks
Esha Day and Matthew Griffin, Bloomberg
The global financial landscape in mid-2025 is marked by instability, prominently featuring the U.S. dollar’s worst start to a year since 1973. The dollar index, which measures the currency’s strength against a basket of six others, tumbled 10.8% in the first half of 2025, its weakest showing over any six-month period since 2009, due to President Trump’s stop-start tariff war, vast US borrowing needs, and concerns over Federal Reserve independence. On June 30th, the dollar dropped 0.6% as the Senate prepared to vote on Trump’s tax bill—which is projected to add $3.2 trillion to the debt pile—sparking an exodus from Treasurys. Meanwhile, the S&P 500 has reached record highs, trading at 22 times expected profits—35% above its long-term average—requiring either 30% earnings growth or major Fed rate cuts to justify. Risk appetite surged, with the Invesco S&P 500 High Beta ETF posting its best quarter since 2020, and tech stocks are expected to gain 21% in 2025, despite looming risks from the end of the tariff pause and a weakening economy.
Amid this exuberance, experts increasingly warn that the next financial crisis could be climate-induced. Echoing the 2008 collapse, the Senate Budget Committee’s “Next to Fall” report forecasts housing market disruption from climate-driven property value losses. In January, the Financial Stability Board warned of rising insurance costs and retreat from disaster-prone areas, echoed in February by Fed Chair Powell, who predicted that large swaths of the U.S. could lose mortgage access in 10–15 years. By March, Allianz warned temperatures were approaching levels where insurance would no longer be viable, with homeowner premiums up 82% in high-risk areas from 2018–2022, prompting banks to pull out and risking contagion from California to Italy. Despite pushback from figures like Fed Governor Waller, many now view physical climate risks—evident in catastrophic events from Dubai’s rains to U.S. wildfires—as the primary systemic threat. The Trump administration, in contrast, has rolled back climate policies, withdrawn from the Paris Agreement and the Network for Greening the Financial System (NGFS), dismantled environmental oversight, and declared a “national energy emergency”, claiming that “climate alarmism” endangers freedom and economic stability.
Global Junctions
China Is Quickly Eroding America’s Lead in the Global AI Race
Liza Lin, Josh Chin, and Raffaele Huang, Wall Street Journal
Trump’s Policy Bill Could Put the U.S. Further Behind China
David Gelles, New York Times
How Rare Earths Became China’s Top Trade Weapon
Christina Lu, Foreign Policy
Why Tech Billionaires Want Bots to Be Your BFF
Time Higgins, Wall Street Journal
China’s rapid progress in AI is challenging U.S. dominance. Chinese companies are offering cost-effective, high-performing alternatives, with multinationals like HSBC, Standard Chartered, and Saudi Aramco testing or deploying models like DeepSeek, which is 17 times cheaper than comparable U.S. options. Even American tech giants Amazon, Microsoft, and Google are offering DeepSeek, despite U.S. security concerns. While ChatGPT leads with 910 million downloads compared to DeepSeek’s 125 million, Chinese firms are surging, particularly in Latin America and Africa. Alibaba’s Qwen, with over 100,000 derivative models, and Tencent’s open-source push are advancing adoption worldwide, including in Japan and South Africa. A Harvard study attributes China’s rise to superior data and human capital. This AI race is fueling a technological Cold War, with Microsoft’s Brad Smith warning that global adoption—not invention—will determine supremacy. Western firms are already losing ground, as Jefferies projects $10 billion in lost Nvidia revenue from U.S. chip export controls to China. As global competition over AI supremacy intensifies, a parallel transformation is unfolding in the digital realm, where AI is being positioned as a solution to deepening social fragmentation. Tech leaders are pushing AI as a remedy for social disconnection. Elon Musk relaunched Grok to better reflect user worldviews, echoing Meta’s and Microsoft’s goals of “friendly,” values-aligned bots. A Harvard study confirmed AI companions now rival humans in reducing loneliness, signaling a major societal shift as digital relationships become increasingly normalized.
Compounding the U.S. disadvantage in its competition with China is President Donald Trump’s policy shift after his July 1st domestic bill will gut Biden-era climate tax credits, curbing renewables and expanding fossil fuel reliance under the “energy dominance” banner. In stark contrast, China advances clean tech, with May solar output equal to one-third of total U.S. electricity use and five-minute EV charging systems entering commercial use. Elon Musk condemned the policy as “destructive,” warning of massive job losses and weakened national resilience. Meanwhile, China’s dominance in rare earths—with 85% of global processing and 92% of magnet output—continues to imperil U.S. supply chains. Despite MP Materials receiving a $58.5 million tax credit to rebuild domestic capacity, experts say U.S. dependence will persist for years. China’s rare earth leverage, last used in 2010 against Japan, is again seen as a potent geopolitical tool.
Global Trajectories
The Future of Modern Warfare Is Being Built in Ukraine
Alan Crawford and Daryna Krasnolutska, Bloomberg
Esther Duflo, Nobel laureate: ‘Development aid is not a waste of public money’
Esther Duflo, Le Monde
America’s economic data are becoming murkier
The Economist
Senate G.O.P. Gambles Its Legacy and Political Fate on Bill
Carl Hulse, The New York Times
Ukraine has become a crucial testbed for modern warfare, innovating new weaponry at low cost and speed to become the “arsenal of the free world.” A prime example is the “TerMIT” unmanned ground vehicle—a 280-kg robot now used by over 20 military units—costing just $20,000 compared to the $380,000 average economic cost of a fallen soldier. About 40% of Ukraine’s weapons are now domestically sourced, and drones have transformed the battlefield, responsible for 70% of Russian equipment losses by early June. Russia is also adapting, increasing combat drone output by 17% in May and enhancing Shahed UAVs with jamming-resistant fiber optics. Yet, Ukrainian defense startups face funding constraints and are reducing dependence on Chinese and U.S. components amid doubts about President Trump’s commitment. As U.S. support of Ukraine wavers, the Trump administration is broadly retreating from global aid. Nobel laureate Esther Duflo declared on June 30th that foreign aid is an investment, not waste, as global aid inflows hit their lowest level since 2005. At the Fourth International Conference on Financing for Development in Seville, the U.S. refused to participate, with Health Secretary RFK Jr. announcing a halt to funding GAVI, which has saved at least 1.5 million lives. Duflo highlighted progress: global extreme poverty has fallen from 2 billion in 1992 to 713 million in 2022, and life expectancy in sub-Saharan Africa rose from 52 to 63 years since 2000. She praised research-backed interventions like India’s Pratham, now influencing education budgets across Africa. While countries pledged 0.75% of GDP for foreign aid, dwarfed by NATO’s 3.5% defense spending target, Duflo argued that empowering poor nations is the smartest investment amid growing instability.
Meanwhile, in the U.S., on July 1st, Senate Republicans passed a sweeping tax and health bill with $4.5 trillion in tax cuts, blowing past fiscal norms and increasing debt. Critics, including Senators Tillis and Paul, warned of Medicaid harm and rising deficits. Though Republicans delayed major cuts until after the 2026 midterms, Democrats and even Senator Josh Hawley pledged to resist the bill’s health provisions. Funding cuts are similarly impacting the country’s economic data infrastructure, quietly undermining the very tools needed to assess fiscal responsibility and global investment. The Bureau of Labor Statistics has scaled back economic data collection due to an 18% real-term cut in funding and declining survey participation (93% in 2000 to 67% today). By April–May 2025, 30% of prices were imputed, undermining confidence in indices like the CPI. Trump’s proposed further $56 million (8%) cut may compromise tracking of key economic effects, including his tariffs.
