A slice-and-dice of global geopolitics
Now for something completely similar, but hopefully with a somewhat distinct flavour. The ongoing scramble to generate unique content for FAnews readers took your writer to another fascinating webinar, this time for an up-to-the-minute slice-and-dice of global geopolitics. Three presenters took to the virtual podium to make sense of shipping routes, trade tariffs and war, among other developments.
Secular geopolitical shifts
Anthony Kennaway, Head Group Public Affairs at global reinsurer Swiss Re, was on hand to lead the discussion. He started by saying that what had once been explained away as temporary disruption to the global geopolitical picture were now looking more like structural shifts, with implications for capital flows, energy and international trade. That is what happens, dear reader, when a four-week-long military undertaking nears four months.
James Crabtree, introduced as a distinguished visiting fellow at the Council on Foreign Relations and a leading commentator on politics, geopolitics and international affairs, was asked to describe the ‘big moving pieces’ in the unfolding secular backdrop. The rise of China and the changing role of the United States (US) were labelled ‘significant’, with the latter shift being more prominent. “This is a very different US from the one that we have become used to, and that has ramifications throughout the global order,” he said.
The US President’s conciliatory engagements with his Chinese and Russian counterparts were juxtaposed with his more aggressive tone towards his peers in the European Union and United Kingdom. The speaker then introduced “weaponisation of dependencies” to explain how countries were repurposing their economic and trade links, often built up over decades, to their own advantage. Recent examples include the closure of the Strait of Hormuz and the US export-control directive requiring Anthropic to suspend foreign-national access to its Claude Fable 5 and Claude Mythos 5 models on national-security grounds.
Cutting dependencies on China and the US
The sense is that most economies are trying to reduce their dependencies on the two superpowers. This is evident in European, Middle Eastern and North-east Asian countries seeking “new partners and new ways of achieving sovereign autonomy”. Kennaway steered the conversation to the so-called middle powers that might leverage the status quo. As an aside, this conversation played through without a single mention of South Africa, whose government postures as if it belongs to this emerging group.
The Strait of Hormuz debacle remained topical, with the latest in a long line of US-Iran ‘deals’ coinciding with the webinar. “There is a lot of speculation about what might be in it, but there are a couple of things that are clear,” Crabtree said. First, the US has struggled to achieve its objectives. Second, while the deal may see the reopening of the Strait, it does not deal with the more complex issues, including nuclear proliferation and uranium enrichment. Forget the nuclear threat, “now Iran can close the Strait of Hormuz if things go against it,” he said.
The FR10 ‘framing’
Jérôme Haegeli, Group Chief Economist and Head of the Swiss Re Institute, was invited to reframe geopolitics in the reinsurance context, and to take a stab at some of the risks and opportunities emerging from uncertainty. He offered an unusual FR10 acronym to soften the mainstream economics for his online audience. F, in this equation, stands for fragmentation. The economist said that fragmentation was exhibited across and within economies, singling out the K-shaped consumer economy in the US as one example.
Fragmentation fuels populism. And it contributes to US exceptionalism, which was briefly mentioned alongside the inflationary pressures the world’s largest economy is faced with. Haegeli made what turned out to be an accurate prediction that the incoming US Federal Reserve Chair, Kevin Warsh, would leave interest rates unchanged on 17 June. So, we have F for fragmentation; R for the regime shift described by Crabtree; and 10 for the 10 million barrels per day of oil being stripped from global supply. For context, this is more or less equivalent to total oil demand across the EU.
How do you translate this big picture into numbers? According to Swiss Re, the current oil supply shock will raise global inflation by more than it lowers GDP growth in 2026. Broadly, global GDP growth will be cut by 0.3-0.7% while inflation trends 1-1.5% higher. The consensus is that the oil supply shock will be bad for Europe, which is already flirting with recession; bad for Asia; and less bad for China, which can source oil elsewhere. The known unknown is to what extent artificial intelligence (AI) will influence traditional macroeconomic measures.
“AI is positive for capex and growth in the US; it has been [the catalyst] for the rally in equity markets … with US equities at a record level,” Haegeli said. In case you have not yet noticed, dear reader, the AI revolution is real. It is transmitting through economies as capital investments in compute power, data centres and energy supply; and it is redefining the consumer segment through the billions of dollars spent on monthly subscriptions to Anthropic, and OpenAI, and Gemini, and Grok, and Microsoft Copilot, and {insert your favourite here}.
An unlikely AI bust
The risk, dismissed as a low probability, is that the AI boom slows, putting close to 40% of the US S&P 500 market capitalisation on the back foot. Swiss Re could not offer any reason why the AI trend might weaken. “We are in a global race on AI; a global race on natural resources; a global race on digital resources; a global race on rare earth minerals; and a global race on Fintech,” said Haegeli. At present, US exceptionalism is leading the race, with China a close second and the rest of the world, including Europe, very far behind.
Those keen to understand how the Strait of Hormuz issue transmits through the global economy will enjoy the three scenarios the reinsurer shared. Scenario one, given with the highest likelihood, is for a partial transit recovery during the Northern Hemisphere summer. According to the presenter, this best-case scenario would see energy flowing at about 50% of the pre-crisis level. If this happens, it should see Brent crude stabilise nearer $80 per barrel, with a manageable impact on growth and inflation.
Scenario two, described as severely disrupted oil transit through the summer, would see Brent crude prices settle nearer $110 per barrel, pushing the global economy into a period of stagflation, which is a period during which inflation outpaces sluggish economic growth. And scenario three, which is fortunately the least likely outcome, would see oil supply disrupted throughout 2026, causing oil prices to spike to the mid-$120s, causing the global economy to tip towards recession.
Global themes for advisers
There are three global developments that financial advisers will want to keep their eye on. First is how the US midterms transmit through to the world economy. Swiss Re expects limited change, even if control of the House and Senate is split. That said, the economist expected “market volatility surrounding policies and policy reaction functions” post-elections. Under this theme, US interest rates will likely stay higher for longer, with 10-year rates forecast in the 4.5-5% range.
Theme two exhibits under the trade fragmentation tagline. The cold hard truth under this theme is that all the back-and-forth on US trade tariffs since October 2025 came to naught; after months of noise, the net effect on global tariff rates was marginal. Concerns under this theme centre around the weaponisation of a country’s competitive advantages, for example, interfering with access to AI technologies or restricting foreign direct investment.
As for theme three; well, that would be technology, or more precisely, the AI revolution. To conclude, the economist dropped a $100 trillion shocker, saying this was more or less the capex required to make global infrastructure AI-era ready. That number nicely frames the $1.1 trillion in 2027 capex forecast across the US’s five listed hyperscalers.
Writer’s thoughts:
The AI race, oil shocks, trade fragmentation and US exceptionalism are all influencing the asset classes, sectors and shares you might recommend to clients. If you could pick just one theme to guide a client’s investment strategy, which would it be? Please comment below, interact with us on X at @fanews_online or email us your thoughts [email protected].
