Transitioning to a riskier, messier and diversifying world

Our analysis suggests that the level of geopolitical risk will rise over the next few years. The trends that lead us to this conclusion are likely to also play out in 2025. Our Geopolitical Sentiment Tracker shows that more countries now have poor bilateral relations, while Russia’s ties with Iran, North Korea and China are deepening.

The ‘Great Power Competition’ between the US and China will persist. Protectionism, sanctions, export controls and tariffs will create more economic friction. Even though we have not yet observed a slowdown in global trade, this could change if US President Donald Trump implements a plethora of tariffs. Diversification efforts will grow, with exports taking different routes to their end markets.

New multi-currency payment systems are being set up to lower dependencies on the US dollar-led system. Similarly, efforts are being made to join alternative alliances to the West, such as BRICS1. Companies and political leaders are having to adjust to this new operating environment. Companies are dealing with political risks by enhancing their capabilities and altering their strategies. For example, Chinese and European, but also US Electric Vehicle (EV) firms are entering new partnerships to sidestep political pressures while ensuring access to materials, technology and markets. Some companies are relocating their headquarters or focusing on less politically fraught markets.

Most political leaders will continue to avoid choosing sides for as long as they can to maximise their bargaining power. For example, India is now allegedly the second-largest supplier of restricted critical technologies to Russia. However, this strategy will be made more difficult if the Trump administration forces countries to take a stance in exchange for relief from tariffs or security protection.

Nevertheless, the countries benefitting from geopolitical changes will become more apparent in 2025, for example, due to a surge in exports as they sit on new transit routes. Beyond these trends, today’s geopolitical hotspots will remain in focus. US foreign policy will focus on the Middle East, either because the current conflicts are continuing and expanding, or because the involved parties are willing to negotiate: kicking off nuclear talks with Iran, attempts to achieve a two-state solution between Israel and Palestine, and efforts to normalise relations between Israel and some Arab states. A combination of both dynamics – ongoing hostilities and talks – is most likely.

The odds of a ceasefire between Russia and Ukraine next year are higher, even though there are still many avenues for a continuation of the conflict. Nevertheless, a ceasefire is a possibility under Trump. While this would be a positive development for Europe, as local firms stand to benefit from Ukraine’s reconstruction, concerns would loom over the longevity of such an agreement and Russia’s aspirations. US efforts to ‘contain’ China’s economy will aggravate tensions between the two powers. Although trade issues will likely be the main focus, tensions in the East and South China Seas will grow.

The EU will struggle with opposing dynamics: demand for more spending on defence and the green transition clash with the desire for fiscal prudence; calls for more political integration clash with nationalist tendencies; and the need for global EU leadership faces the reality of weakened political leaders. On top of this, the EU faces political pressure to distance itself from China, while having to manage a likely trade war with the US. The EU will also face anxieties over the US’s willingness to provide military protection; Trump’s attitude towards the EU, and the EU’s response, will likely erode the transatlantic relationship. However, Trump has the potential to lower the dial on some geopolitical risks. For example, as a condition for a ceasefire in Ukraine, renewed relations between the US and Russia could erode Russia’s ties with Iran and North Korea.

Outages due to strikes on Iran’s oil infrastructure are a plausible outcome, as both Israel and Iran become accustomed to direct confrontations. Such risk will come and go and implies a premium of about USD 5, far below a ‘broad-contagion’ premium reflecting threats to regional oil infrastructure, lower availability of spare capacity and, as a last resort, a blockade of the Strait of Hormuz.

Following Trump’s election, the negative impact on the price of oil from higher domestic output is likely to be offset by pressure on Iran’s crude exports, and delayed energy transition legislation.

We see more frequent volatility spikes in oil markets in 2025, but supply should remain the driving force. Saudi Arabia’s willingness to accept lower prices to restore OPEC credibility and regain market share, and growing non-OPEC output, both point to a weaker price equilibrium, in the low range of our USD 75 to USD 80 Brent target.