Impact of Geopolitics - Global Economic Outlook
Key Takeaways
- Geopolitical risk is becoming a long-term economic force
Geopolitical developments increasingly influence trade, investment, inflation and growth, making political and security considerations a permanent factor in economic decision-making. - Trade fragmentation is reshaping global commerce
Tariffs, export controls, industrial policy and economic security measures are reshaping trade relationships, investment flows and supply chain strategies across regions. - Global regionalization is redefining supply chains
Supply chains remain global, but production, investment and trade are becoming more concentrated within regional economic ecosystems, particularly across Asia. - Energy security and economic security are increasingly connected
Disruptions affecting energy markets, maritime trade routes and critical infrastructure can quickly influence inflation, growth prospects and business costs worldwide. - Inflation is increasingly shaped by geopolitical factors
Energy shocks, shipping disruption, resource competition and trade restrictions are becoming important drivers of inflation alongside traditional macroeconomic conditions. - Critical resources are becoming strategic assets
Competition for critical minerals, energy supplies and advanced technologies is reshaping industrial policy, investment priorities and national economic strategies. - AI is creating new economic opportunities and risks
AI is driving productivity and investment while increasing demand for data centers, energy, semiconductors and digital infrastructure, all of which are exposed to geopolitical and regulatory pressures. - Resilience depends on adaptability in a more fragmented world
Businesses are increasingly balancing efficiency with resilience, adapting investment, sourcing and market strategies to a world shaped by geopolitical uncertainty and economic realignment.
How geopolitical risk is reshaping the global economy
The global economy is increasingly being shaped by developments at the intersection of politics, security, trade, technology and resource competition. While inflation, interest rates and growth forecasts remain central to the economic outlook, the forces influencing those outcomes are becoming more complex. Trade policy shifts, energy market disruptions, maritime security concerns, competition for critical minerals and evolving technology regulation are exerting a growing influence on business investment, supply chain strategy and economic performance.
In many respects, 2026 marks a period of strategic recalibration. Governments are increasingly linking economic policy to national security and industrial competitiveness objectives, while businesses are reassessing long-standing assumptions around globalization, energy security and market access. Rather than viewing geopolitical risks as a temporary disruption, organizations are treating it as a persistent factor influencing long-term decision-making.
S&P Global Market Intelligence identifies three forces shaping the global landscape in 2026:
- Adapting to trade realities
- Navigating shaky economic foundations
- Responding to shifting asymmetric power
Together, these themes are reshaping how economies grow, how capital is allocated and how businesses build resilience in an increasingly uncertain environment.
Trade remains one of the clearest examples of this transition. The global trading environment continues to evolve as governments review trade agreements, strengthen domestic industries and pursue policies designed to increase strategic autonomy. While globalization remains intact, trade relationships are becoming more influenced by geopolitical priorities, industrial policy and economic security considerations.
The physical infrastructure supporting global commerce is also becoming an increasingly important source of economic risk. Major maritime corridors, including the Strait of Hormuz, Suez Canal, Panama Canal and Red Sea shipping routes continue to serve as critical arteries for global trade. Developments affecting these chokepoints can influence shipping capacity, transportation costs, commodity prices and global inflation expectations.
Recent events in the Middle East illustrate this relationship. Ongoing disruptions affecting shipping and energy flows have contributed to elevated prices across energy, chemicals and metals markets, demonstrating how regional tensions can affect global economic conditions. Commodity Price Watch notes that the disruption affecting the Strait of Hormuz has contributed to higher commodity prices and increased supply chain uncertainty across multiple sectors.
Climate-related pressures are becoming increasingly intertwined with geopolitical risk. Water shortages affecting transit through the Panama Canal, alongside climate-exacerbated weather events impacting logistics infrastructure, are creating additional challenges for global trade networks.
Competition for strategic resources is also becoming a defining feature of the economic landscape. The rapid expansion of clean energy technologies, advanced manufacturing and AI infrastructure is increasing demand for critical minerals and industrial inputs. Resource-rich economies are seeking greater domestic value creation through local processing requirements and industrial policy initiatives, while major economies are pursuing strategies to secure access to resources deemed essential to economic competitiveness and national security.
Technology represents another growing dimension of geopolitical influence. AI, advanced semiconductors and digital infrastructure have become strategic assets, prompting governments to introduce new approaches to regulation, data governance and technology access. Diverging approaches to AI governance are creating a more fragmented operating environment for multinational firms.
The broader economic backdrop reflects these interconnected forces. Moderating inflation and supportive fiscal measures may support growth, yet elevated debt burdens, energy market volatility and continuing geopolitical uncertainty remain significant challenges. Increasingly, economic outcomes are being influenced by traditional macroeconomic indicators as well as developments affecting trade routes, strategic resources, technology ecosystems and geopolitical alliances.
Trade policy volatility and global regionalization
Trade policy remains an important driver of economic uncertainty, but tariffs are no longer the sole lens through which businesses evaluate risk. Governments are using trade policy alongside industrial policy, investment screening, export controls and economic security measures to advance broader strategic objectives. As a result, companies must navigate a trading environment shaped not only by costs and market access, but also by geopolitical alignment, regulatory developments and considerations of supply chain resilience.
While tariffs continue to influence sourcing and investment decisions, businesses are increasingly adapting to a more complex trade landscape characterized by regional trade agreements, competing economic blocks and shifting geopolitical priorities. The result is a global trading system that remains interconnected but is becoming increasingly shaped by regional strategies and strategic partnerships.
The rise of global regionalization
One of the defining trade themes is the emergence of global regionalization. Rather than signaling a retreat from globalization, global regionalization reflects a restructuring of supply chains and trade flows around regional economic ecosystems.
Supply chains are expected to remain global in nature, but trade and investment patterns are becoming increasingly concentrated within regions. North America is likely to become relatively less integrated into some global supply networks, while economic integration across Asia is expected to strengthen through expanding regional trade, manufacturing investment and supply chain collaboration. Businesses are increasingly evaluating production footprints according to geopolitical stability, market access, infrastructure quality and long-term resilience.
This trend is also supported by new and evolving trade relationships. Closer economic cooperation among Asian economies, increased engagement between emerging-market trading partners and efforts to deepen regional manufacturing ecosystems are creating alternative growth pathways beyond traditional trade corridors. At the same time, regulatory developments in Europe and ongoing trade negotiations across multiple regions continue to reshape market access conditions and investment priorities.
Global regionalization in practice
- Supply chains remain global, but production networks are becoming more regionally concentrated.
- Intra-Asia trade and investment linkages are expected to strengthen.
- Businesses are balancing efficiency with resilience and geopolitical exposure.
- Regional trade partnerships are becoming increasingly important drivers of supply chain strategy.
The USMCA review: A defining trade event for 2026
The scheduled review of the United States-Mexico-Canada Agreement (USMCA) is expected to be one of the most consequential trade developments of 2026. While the agreement has become a cornerstone of North American manufacturing integration, evolving geopolitical priorities and economic security concerns are likely to influence negotiations.
Discussions are expected to focus on several areas with significant implications for business investment and supply chain strategy. These include automotive rules of origin, customs policy coordination, critical minerals supply chains, energy security, intellectual property protections and the treatment of foreign direct investment. The outcome of the review may influence decisions around manufacturing locations, supplier diversification and regional trade flows throughout North America.
In a broader sense, the USMCA review reflects how trade agreements are increasingly being used to advance strategic economic objectives, particularly in sectors linked to national competitiveness, technology and critical resource access. Businesses operating across North America should monitor these developments, as they could shape the region's manufacturing and investment landscape for years to come.
Strategic autonomy and the evolution of trade alliances
A growing number of economies are reassessing their trade relationships and economic partnerships to strengthen strategic autonomy and reduce exposure to geopolitical risk.
Across Europe, Asia, Latin America and emerging markets, governments are seeking greater flexibility by diversifying investment relationships, expanding trade partnerships and strengthening domestic industrial capabilities. Regional groupings and trade alliances such as ASEAN, RCEP, BRICS and various bilateral agreements are becoming increasingly important as countries position themselves within an evolving global trade environment.
For businesses, this trend means that geopolitical alignment and regulatory compatibility are becoming more important considerations when evaluating investment opportunities and market-entry strategies. Economic relationships are increasingly being shaped by comparative advantages as well as strategic priorities, security considerations and long-term resilience goals.
Marine chokepoints: The growing importance of trade-route resilience
Trade policy is only one source of disruption facing global commerce. The physical infrastructure that supports trade is becoming an increasingly important source of risk.
Key maritime chokepoints, including the Strait of Hormuz, Suez Canal, Bab el-Mandeb Strait and Panama Canal, remain essential to the movement of energy, commodities and manufactured goods. Disruptions affecting these routes can have significant implications for shipping costs, transit times, inventory management and inflation.
Recent disruptions in the Middle East have reinforced the strategic importance of these corridors. Commodity Price Watch notes that ongoing constraints affecting the Strait of Hormuz have contributed to elevated energy, metals and chemicals prices while increasing uncertainty across global transportation and logistics networks.
For businesses, resilience increasingly depends on understanding not only trade policy developments but also how geopolitical events can affect critical transportation corridors and supply network performance.
Climate risk and trade-route disruption
Climate-related pressures are adding a new dimension to trade and supply chain risk.
The Panama Canal remains particularly vulnerable to water shortages, which can reduce shipping capacity and increase transit delays. At the same time, more frequent and severe weather events continue to affect transportation infrastructure across major logistics networks. These developments demonstrate how environmental pressures are becoming increasingly intertwined with economic and geopolitical risk.
As global supply chains become more dependent on resilient transportation networks, organizations are increasingly evaluating climate exposure alongside traditional geopolitical and operational risks. This broader approach to risk assessment is likely to become a defining feature of trade and supply chain strategy in the years ahead.
Inflation, energy shocks and policy constraints
Inflation in 2026 is increasingly being shaped by geopolitical forces rather than domestic economic conditions. While central banks continue to monitor labor markets, consumer demand and wage growth, the inflation outlook is becoming more dependent on developments occurring across global trade routes, energy markets, commodity supply chains and geopolitical flashpoints. As a result, inflation is no longer simply a monetary policy challenge; it has become a geopolitical one.
Although inflation has moderated from the highs experienced following the COVID-19 pandemic and global energy crisis, downside risks to price stability remain. Businesses face a growing range of external cost pressures, including shipping disruptions, commodity volatility, trade restrictions, climate-related supply constraints and geopolitical tensions affecting the movement of goods and resources. These risks can be transmitted through global supply chains and affect prices far beyond the regions where disruption originates.
Energy markets remain a critical transmission channel
Energy remains one of the most important links between geopolitical developments and economic performance. The concentration of global energy production and transportation through strategically important regions means geopolitical events can rapidly affect production costs, transportation expenses and inflation expectations.
According to S&P Global's June 2026 Global Economic Outlook report, Brent crude is expected to average approximately $110 per barrel in 2026, highlighting the continuing influence of geopolitical developments on commodity markets and inflation forecasts. Even as markets adapt to periods of disruption, energy remains a significant variable shaping growth expectations, monetary policy decisions and corporate planning.
Recent developments in the Middle East illustrate how quickly geopolitical tensions can affect global markets. Commodity Price Watch notes that ongoing disruptions affecting the Strait of Hormuz have contributed to elevated prices across oil, refined products, chemicals, aluminum and copper markets. These impacts extend beyond commodity producers, influencing manufacturing costs, transportation expenses and consumer prices globally.
Shipping disruption and inflation risk
Maritime transportation remains the backbone of global trade, making shipping routes increasingly important to inflation outlooks. Disruptions affecting strategic chokepoints such as the Strait of Hormuz and Panama Canal can increase freight costs, extend delivery times and create inventory shortages across supply chains.
These disruptions can generate inflationary pressure even when demand conditions remain relatively stable. Longer transit times increase working-capital requirements, reduce inventory availability and raise logistics costs, all of which ultimately feed through to end-user prices. As supply chains become more dependent on resilient transportation networks, shipping risk is becoming an increasingly important inflation indicator.
Resource nationalism and commodity volatility
The transition toward cleaner energy systems, advanced manufacturing and AI infrastructure is increasing competition for critical minerals and industrial inputs. Governments are placing greater emphasis on securing access to strategic resources, while resource-rich economies are seeking greater domestic value creation through export controls, processing mandates and regulatory requirements.
These developments can create additional volatility in commodity prices by affecting supply availability and investment decisions. Businesses operating in sectors dependent on critical minerals, energy inputs or industrial metals may face greater procurement uncertainty and exposure to price fluctuations. In turn, these costs can be transmitted through manufacturing and consumer markets, contributing to broader inflation pressures.
In addition, competition among major economies for access to strategic materials is encouraging the development of industrial policies designed to secure domestic supply chains. National security considerations are increasingly influencing decisions on rare earth elements, antimony, titanium and other materials critical to energy transition technologies and advanced manufacturing.
Fiscal constraints and policy flexibility
While inflation is easing in many economies, governments and central banks face a more complicated operating environment than in previous economic cycles. Elevated sovereign debt levels continue to constrain policy flexibility, limiting governments' capacity to respond to new shocks through fiscal stimulus. At the same time, central banks must balance supporting economic growth with maintaining inflation credibility.
The Age of Agility outlook identifies elevated debt burdens and renewed inflationary pressure as important risks shaping the economic environment in 2026. This creates a more fragile backdrop for global growth and limits the ability of policymakers to absorb future shocks using traditional fiscal and monetary tools.
Future geopolitical disruptions, whether related to energy markets, trade policy, commodity supply chains or regional conflict, may therefore have a greater economic impact because governments possess less room to offset those pressures than in previous periods.
Climate disruption and inflationary pressure
Climate-related disruption is becoming an increasingly important factor in inflation. Water shortages affecting transit through the Panama Canal, severe weather events impacting transportation infrastructure and climate-related disruptions to agricultural production can all contribute to supply shortages and higher costs.
The interaction between climate risk and geopolitical risk is becoming particularly important for global trade. Climate-related infrastructure disruption can reduce shipping capacity, increase transportation costs and place additional pressure on already vulnerable supply chains. As businesses seek to improve resilience, climate exposure is increasingly being evaluated alongside geopolitical and operational risks rather than as a separate challenge.
This convergence is likely to become a more important driver of price volatility, investment decisions and supply chain planning over the coming years.
Geopolitical influences on inflation: Transmission channels
As geopolitical risk becomes more deeply embedded in the global economy, inflation is increasingly transmitted through multiple interconnected channels rather than a single source of disruption. Developments affecting energy markets, maritime trade routes, strategic resources and climate-sensitive infrastructure can all influence production costs, pricing decisions and economic growth outcomes. Organizations that understand how these factors interact are likely to be better positioned to anticipate inflationary pressures and adapt procurement, pricing and investment strategies accordingly.
| Geopolitical driver | Economic transmission channel | Business implication |
|---|---|---|
| Trade restrictions and tariffs | Higher import and production costs | Margin pressure and pricing challenges |
| Middle East conflict and energy disruption | Higher oil, fuel and transportation costs | Inflation risk and rising operating expenses |
| Maritime chokepoint disruption | Freight cost increases and inventory shortages | Supply chain delays and working-capital pressure |
| Resource nationalism | Commodity and critical mineral price volatility | Procurement uncertainty and sourcing diversification |
| Climate and infrastructure disruption | Reduced logistics efficiency and supply shortages | Inventory risk and resilience planning |
Looking ahead, inflation is likely to remain sensitive to developments occurring beyond domestic economic conditions. Energy security, maritime trade routes, commodity supply chains and geopolitical relationships will continue to influence the pace and persistence of price pressures across the global economy. For businesses and policymakers alike, managing inflation increasingly requires understanding not only monetary conditions, but also the geopolitical forces shaping the movement of goods, resources and capital.
Eye of the tiger: Asia's ambition for 400 Bcm of natural gas in power by 2035
Accelerating power demand in Asia amid geopolitical uncertainty
Asia is emerging as a global leader in power consumption growth, underpinned by rapid industrialization, urban expansion and sustained economic development. Asia’s ambition for 400 billion cubic meters of natural gas in power by 2035 offers an analysis of how Asia is positioning natural gas at the center of its evolving power strategy. With the region facing rapid economic development, rising urbanization and growing energy needs, natural gas is emerging as a critical transitional fuel to support grid stability and decarbonization efforts.
Home to over 60% of the global population, Asia accounts for about 52% of worldwide electricity demand. This is expected to increase by more than 40% by 2035, led primarily by mainland China, which accounts for nearly two-thirds of Asia’s power consumption, and supported by significant growth in India and Southeast Asia.
Gas demand in the power sector is projected to rise from 280 Bcm in 2024 to approximately 368 Bcm in 2035, representing a 32% increase. Southeast Asia is poised to drive much of this growth, while more mature markets such as Japan, South Korea and Taiwan may see a slight decline due to energy policy shifts and slower demand growth.
Natural gas plays a vital role in Asia’s strategy to transition away from high-emissions fuels. As solar and wind energy gain momentum, particularly in China, where they are expected to dominate the power mix by 2035, gas-fired generation will be essential to provide flexibility and maintain grid reliability, especially during peak loads and weather-related disruptions.
This also identifies key upside factors that could drive demand beyond current forecasts. These include stronger-than-expected economic growth in emerging economies such as Vietnam and India, which are projected to maintain GDP growth above 5% annually through 2035. Additionally, the rapid proliferation of power-hungry data centers could further elevate regional electricity needs.
However, geopolitical instability and broader geopolitical effects on the economy pose notable uncertainties. The direction of energy policy, combined with geopolitical tensions, particularly those influencing trade, energy security and cross-border infrastructure investment, may significantly impact Asia’s energy trajectory. Geopolitical risk in the region, including shifts in global trade alliances and regulatory frameworks, could accelerate or delay investments in gas infrastructure.
Downside risks include increased competition from cheaper coal, delays in gas infrastructure projects and faster-than-anticipated expansion of renewables. A potential downside of 69 Bcm in gas demand by 2035 is identified under scenarios where coal remains competitive or policy incentives favor accelerated renewable adoption, particularly considering geopolitical issues such as trade tariffs on solar technologies.
Despite these headwinds, the base-case scenario still anticipates robust gas demand growth, reaching over 378 Bcm by 2035. Realizing Asia’s ambition to exceed 400 Bcm in natural gas consumption for power will require continued infrastructure investment, long-term policy support, and the ability to navigate geopolitical instability and the evolving global economic landscape.
In summary, Asia’s energy future hinges on balancing its growing power needs with environmental goals and navigating the impact of geopolitics in the world economy. Natural gas remains a strategic component of this equation, crucial for enabling a flexible, cleaner energy system amid rising demand and shifting geopolitical dynamics.
You can access the full report on PlattsConnect:
Eye of the tiger, Asia's ambition for 400 Bcm of natural gas in power by 2035
Green Rules scenario
The energy transition is increasingly being shaped by geopolitical competition. Governments are pursuing strategies to strengthen domestic clean-energy supply chains, secure access to critical minerals and reduce exposure to geopolitical shocks. Resource-rich countries are increasingly seeking greater domestic value capture through processing mandates, local-content rules and technology-transfer requirements.
In the Green Rules scenario, it is not newfound altruism but a fundamental self-interest in improving global stability and national security that drives action. This is directly linked to reducing dependence on fossil fuels and volatile energy commodity markets while rejuvenating national economies to compete in a clean-technology-driven global economy. Ongoing concerns over climate change and ambitions to mitigate it remain strong and are supported, even supercharged, by these new political and economic forces. The result is a world where a revolutionary change in energy use, supply and emissions takes place.
AI governance, data localization and labor market disruption
AI is an important geopolitical and economic issue. As governments seek to balance innovation, competitiveness and national security concerns, they are adopting different approaches to AI governance, creating a fragmented regulatory environment that businesses must navigate. Issues such as data localization, privacy requirements, government oversight, access to technology and cross-border data flows are increasingly important considerations for multinational organizations deploying AI systems across multiple jurisdictions.
Rather than converging around a single global framework, major economies are developing distinct models for AI regulation and digital governance. The EU has established a more comprehensive regulatory approach focused on governance, accountability and risk management. The US continues to emphasize innovation and market-led development, while mainland China is pursuing policies that combine AI advancement with stronger state oversight and data controls. Emerging markets are increasingly shaping their own approaches through localized data requirements, digital sovereignty initiatives and AI development strategies aligned with national priorities.
For businesses, this fragmentation adds complexity to digital transformation strategies. Organizations operating globally may need to comply with multiple frameworks simultaneously, creating challenges related to data management, model deployment, technology procurement and regulatory compliance. As AI becomes more deeply embedded in business operations, governance considerations are increasingly strategic business issues rather than purely legal or technical matters.
AI and the changing economics of labor
AI is also influencing labor markets in different ways across regions and industries. While concerns about automation remain prominent, the economic impact of AI is likely to vary significantly depending on workforce composition, digital infrastructure, education levels and businesses' ability to integrate AI into daily operations.
In many developed markets, organizations are increasingly focused on using AI to improve productivity, automate repetitive processes and optimize workforce efficiency. This is particularly evident in administrative operations, data management and routine analytical tasks, where AI technologies can augment existing workflows and improve operational performance.
In contrast, many emerging markets are expected to use AI primarily as a tool for productivity enhancement rather than workforce replacement. S&P Global research notes that economies across Asia, Latin America and Sub-Saharan Africa may be more likely to leverage AI to complement human labor, improve efficiency and boost output. This divergence means AI-related labor market impacts are likely to differ significantly across countries.
Beyond productivity, AI adoption may also influence labor relations, workforce development strategies and skills investment. Governments, businesses and educational institutions are increasingly focused on developing digital capabilities to ensure workforces can adapt to evolving technology requirements. As AI adoption accelerates, competitive advantage may increasingly depend on the ability to combine technology investments with workforce readiness and human capital development.
AI infrastructure and supply chain pressure
The rapid expansion of AI is creating a new category of supply chain and infrastructure demand. Growth in AI applications is increasing the requirements for advanced semiconductors, memory chips, data center capacity, cloud infrastructure and electricity generation. These demands are creating new investment opportunities while introducing new vulnerabilities into global supply chains.
Recent S&P Global research highlights growing pressure across memory-chip markets and digital infrastructure supply chains as AI-related demand accelerates. Competition for semiconductors, high-performance computing capacity and supporting infrastructure is becoming a strategic economic issue that extends beyond technology firms. As AI adoption expands across industries, secure access to the infrastructure supporting AI may become increasingly important for economic competitiveness and innovation.
The growth of AI infrastructure is also contributing to rising demand for energy, strategic minerals and advanced manufacturing capabilities. This creates a direct link between AI expansion and broader geopolitical themes such as resource nationalism, energy security and technology competition. As countries compete to develop AI leadership, access to infrastructure, talent and strategic resources is becoming a more significant determinant of long-term economic competitiveness.
AI as a geopolitical risk factor
AI is being increasingly viewed through the lens of national security. Governments are placing greater emphasis on semiconductor access, digital sovereignty, strategic technology partnerships and control over critical digital infrastructure. Export controls, technology restrictions and competing regulatory models are contributing to a more fragmented global AI ecosystem, with implications for innovation, international collaboration and market access.
As AI capabilities become more important to economic growth, productivity and security, organizations will need to monitor technological developments as well as the regulatory, geopolitical and supply chain risks associated with AI adoption. The challenge for businesses is not simply whether to adopt AI, but how to do so in a more complex, increasingly fragmented global environment.