Geopolitical Risk Brief: May 2026

Our country risk experts provide insight into key geopolitical events that could impact the economic environment in May.

The April 8 ceasefire between the US and Iran remains in place but with no substantive progress in negotiations to resolve the ongoing conflict and maritime disruption around the Strait of Hormuz. Armed exchanges have occurred over several days around the Gulf but have not collapsed the ceasefire.

According to Iranian state media, Iran’s latest response to a US proposal included demands previously rejected by the US, such as Iranian sovereignty over Hormuz and deferment of negotiations over Iran’s nuclear program to a subsequent phase. The US has continued to enforce a naval blockade on Iranian ports since April 13. CENTCOM stated on May 12 that it had turned around 65 commercial vessels and disabled another four since April 13.

Potential pathways to war escalation, which remains a severe risk in the coming weeks, include armed confrontations at sea. Calibrated operations of this kind — should they occur — would likely continue until a point where the US administration assesses that negotiations have fully stalled without a meaningful outcome. This decision would probably result in a return to high-intensity conflict. 

US President Donald Trump and Chinese President Xi Jinping met May 13- 15, the first US presidential visit to mainland China since 2017. As of May 18, both countries had announced incremental progress on bilateral trade through individual statements, but concrete outcomes from the closed-door negotiations remain largely unconfirmed.

Messaging from both sides suggests policy focus aimed to contain points of disagreement rather than to promote substantive policy convergence. It suggests that while both countries seek to limit further erosion to commercial ties, structural disagreements over trade and industrial policy and broader security concerns are likely to persist.

Several key issues remain unaddressed, including the establishment of a bilateral trade and investment framework. Importantly, neither country has formally committed to extending the “Busan trade truce” negotiated in October 2025 beyond its November 2026 expiry. The October agreement temporarily reduced tariff rates and included commitments by mainland China to allow US non-military commercial entities access to rare earth exports.

While both sides appear willing to stabilize relations, the absence of binding frameworks, limited clarity on tariff trajectories, and continued restrictions on high end technology trade suggest that risks to effective implementation of announced deliverables remain significant. 

The duration of disruptions due to the Middle East conflict. At the time of writing, whether an agreement could be reached to end the conflict in the near future remained highly uncertain. Even if a deal is struck (and holds, which is also uncertain), it will take time for oil production and supply to normalize. What a new normal would look like for shipping security and costs in the Strait of Hormuz is also unclear. 

The depletion of oil inventories. With global stocks falling and seasonal demand set to rise, absent a resolution to the impasse in the Gulf, the risk of price spikes and shortages will increase markedly.

The economic fallout from a protracted oil shock. Our annual global real GDP growth forecast for 2026 was cut to just 2.2% in May and remains below consensus.