Geopolitical Risk Brief: July 2026

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

The US and Iran are engaged in sustained, but sub-war level, confrontation, elevating risks to shipping and energy flows. In Ukraine, a cabinet reshuffle aims to improve wartime governance and energy resilience ahead of the winter season. Recent earthquakes in Venezuela have shifted political focus from transition talks to humanitarian management and reconstruction, altering the trajectory of US engagement.

Heightened geopolitical tensions in the Middle East, a critical phase in the Ukraine war, and a humanitarian crisis in Venezuela create a volatile global landscape. Understanding the specific indicators of escalation or policy shifts—such as naval actions in the Strait of Hormuz, key government appointments in Ukraine, or aid distribution patterns in Venezuela—is essential for organizations to anticipate and mitigate disruptions to energy markets, supply chains, and regional stability.

US-Iran Confrontation Calibrated Below High-Intensity War

The US, Iran and their regional partners appear intent on calibrating conflict escalation rather than pursuing fullscale war, but the risk of disruption to shipping, energy flows and aviation remains elevated.

The reimposition of the US naval blockade against Iran and renewed reciprocal strikes suggest that both sides are entering another period of sustained confrontation while still seeking to stay below the perceived threshold of high-intensity war. US moves are likely aimed at compelling Iran to commit to unfettered transit through the Strait of Hormuz, while negotiations over a final agreement continue.

The most important indicators to monitor are any Iranian deployment of sea mines in the Strait of Hormuz, attacks causing significant US casualties, US strikes against deeper or more strategic Iranian targets, and Houthi attacks that inflict major damage on infrastructure or commercial vessels.

Ukraine Cabinet Reshuffle Focuses on Wartime Governance

In Ukraine, President Volodymyr Zelenskyy’s cabinet reshuffle reflects an effort to improve wartime governance and reform delivery rather than a shift in strategic direction. The reshuffle is likely aimed at restoring momentum for EU- and International Monetary Fund-mandated reforms while strengthening coordination on defense production, reconstruction and energy resilience.

The most important near-term issue is whether the incoming government can accelerate investment in the energy sector ahead of another winter season. Russian attacks have already severely damaged power-generating capacity, and businesses continue to face electricity shortages.

Key indicators will include the appointment of a prime minister with strong energy-sector credentials, parliamentary progress on long-delayed reforms, and success in closing funding gaps for infrastructure resilience projects. Failure on those fronts would increase the risk of continued power outages, contract alterations and economic disruption, while elections remain highly unlikely under ongoing martial law.

Venezuelan Political Priorities Shift to Earthquake Recovery

In Venezuela, the major earthquakes in late June shifted political priorities away from transition negotiations toward reconstruction and humanitarian management, now likely to dominate both domestic policymaking and US engagement with Venezuela.

Our assessment remains that holding elections is not a priority in the US relationship with the Venezuelan government; the scale of damages will likely slow any such US-initiated plans for a pathway toward a political transition. The slow state response, service shortages and widespread disruption also increase the risk of protests demanding food, housing, public services and, eventually, broader political change.

The most important indicators are evidence of aid distribution failures, security personnel participating in looting, the expansion of antigovernment protests, and whether the US increasingly separates earthquake-relief efforts from sanctions-related leverage. Such developments would indicate that disaster recovery is becoming a larger determinant of Venezuela’s political development than formal negotiations over a democratic transition.

The resumption of US-Iran hostilities and the impact on commodity and financial markets. As of the time of writing, the spot price of Dated Brent crude has rebounded by close to 20% compared with its post-US-Iran agreement low in early July. The pick-up in traffic through the Strait of Hormuz has also stalled. How long the military exchanges and the related disruptions last is difficult to predict at this juncture, but they will remain the key driver of near-term economic and financial prospects.  

Shifting monetary policy expectations. Prior to the release of June’s US consumer price inflation data, futures markets were fully pricing in a 25-basis-point rise in federal funds rates by October, along with a further hike in early 2027. While those expectations were subsequently tempered by the softer-than-expected inflation data, current market pricing still implies a 70% chance of an October hike. Futures markets have also moved to reprice in 50 basis points of rate hikes by the major Western European central banks by early 2027. While we are skeptical about the implied likelihood of these outcomes as things stand, a continued surge in oil prices would force us to rethink.   

The signals from S&P Global’s July Purchasing Managers’ Index™ (PMI®) figures. The global composite output index edged up in June, the third rise in a row, albeit following a very sharp drop in March in the initial stages of the US-Iran conflict. Price indexes also generally moderated in June. June’s data were collected during a period in which oil prices fell markedly and shipping through the Strait of Hormuz picked up. The news on both over July to date has been much less favorable. “Flash” PMI figures for July will be released on the 24th. 

Still solid US labor market conditions. While June’s headline nonfarm payroll gain of 57,000 was well below the average rise of 164,000 over the prior three months, it was above our estimate of “break-even” payroll growth of 33,000 per month. The unemployment rate continued to trend lower accordingly, falling to just 4.2% in June. Given current demographic trends, it does not take much job growth to keep the labor market tight and lean against monetary policy easing.

Recent US dollar strength. The latest rebound has accompanied a shift in market pricing toward earlier Federal Reserve rate hikes. Although not our base case, sustained dollar gains would raise the likelihood of more monetary tightening outside of the US than we currently forecast. 

What are the primary risks in the US-Iran conflict? The primary risks are disruptions to shipping, energy flows, and aviation. The analysis indicates that both the US and Iran are in a period of sustained confrontation, with US moves aimed at securing transit through the Strait of Hormuz. 

What is the goal of Ukraine's cabinet reshuffle? The reshuffle is an effort to improve wartime governance and reform delivery. It aims to restore momentum for EU- and International Monetary Fund-mandated reforms while strengthening coordination on defense production, reconstruction, and energy resilience. A key near-term priority is accelerating energy sector investment to address power shortages related to Russian attacks.

How have the recent earthquakes affected Venezuela's political situation? The earthquakes have shifted political priorities from transition negotiations to reconstruction and humanitarian management. This development is expected to slow US-initiated plans for a political transition. The slow state response and service shortages increase the risk of protests over food, housing, and public services, potentially becoming a larger driver of political change than formal negotiations.