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Geopolitics in 2025: Risks, opportunities, and deepening uncertainties

Thomas Mucha, Geopolitical Strategist
8 min read
2026-02-28
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The views expressed are those of the author at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only. 

Right now, the geopolitical environment is as complex, unpredictable, and dangerous as it’s been in decades. This increasingly chaotic structural backdrop is almost certain to produce a mix of risks and opportunities throughout 2025, particularly as a new US administration applies its own policies to ongoing geopolitical challenges around the world.

Here’s a brief look at the key variables I’m monitoring this year, including what I think this unique geopolitical moment implies for the broader macro, policy, and investment backdrops.

US-China great power competition creates big questions

A key component of my structural outlook for the year is the great-power competition between the US and China, which will be a driving factor for geopolitical stability in 2025. For years to come, this competition will trigger the most critical question for markets: Can these two global powers find peaceful coexistence without stumbling into catastrophic conflict?

US/China war is not currently my base case. However, both sides are actively preparing for this outcome, and it would be foolhardy to ignore this low-probability/high-impact potential outcome given existing geopolitical stress, a more destabilized backdrop, growing ideological divides, and competing geostrategic aims. Therefore, prudent investors may do well to consider scenario planning related to individual portfolio exposures, specific macro and market risks, and a variety of differentiated second- and third-order impacts of what would obviously be a seismic development.

I expect the global order to continue to splinter into an increasingly fluid “multi-aligned” framework this year as part of this deepening great-power competition. This framework would be more fragmented, less cooperative, more transactional, and structurally more prone to accelerated policy, trade, diplomatic, and, especially, military conflicts. To this point, it’s worth nothing that today there are 59 “active military conflicts” around the world — the highest number since WWII.

At home, in the US, domestic political volatility and historically high levels of polarization will likely further stress the global geopolitical backdrop this year, adding further policy constraints and uncertainties to this structural picture.

Climate change fans the geopolitical flames

Another crucial piece of my structural outlook is climate change, which continues to add stress to this already unstable geopolitical backdrop. This will be particularly notable in equatorial and tropical regions where climate impacts are hitting hardest and where most of the key geopolitical challenges are located. These areas include the African Sahel (we’re seeing rising terrorism risks here already), the entire Middle East, Iran and Afghanistan, India’s borders with both Pakistan and China, the South China Sea and Taiwan, and large parts of Central and South America. 

Globally, military planners are preparing for more resource wars, food and water scarcity issues, escalating climate migration, rising political extremism, more failed states, and a higher probability of pandemics and other health-related issues — all of which are exacerbated by climate change. So, a reduced US focus on climate under Trump 2.0 is likely to raise the probability of a negative national security trajectory.

National security at the expense of economic efficiency 

One major aspect of my policy outlook, highly correlated with my structural outlook, is the likely accelerating focus on national security, often at the expense of economic efficiency, inflation, and growth considerations. While these were the dominant policy priorities of earlier eras, this uncertain and dangerous geopolitical environment is likely to force global policymakers to shift focus going forward.

This more robust national security posture would require stronger, more sustained levels of defense spending as countries around the globe respond to higher geopolitical risks and reduced confidence in the US security umbrella. 

In this vein, “protection and promotion” of strategic sectors integral to great-power competition — including (but not limited to) space/aerospace, critical minerals, biotech, and automation/robotics, and AI — will probably escalate. Among these, AI and related components are arguably most noteworthy because of the high national security stakes of this emerging technology. We should also expect an accelerating use of tariffs and other trade measures in this national security context in the US and elsewhere.

Trump 2.0 and a “transactional” approach to foreign policy

Another important element of my policy outlook is the anticipated shift in foreign policy under the second Trump administration. Going forward, the US is likely to take a more “transactional” approach to its foreign and trade policies and rely less on multilateral frameworks and institutions. Foreign and trade policies will become ever more intertwined as the new administration attempts to leverage US economic advantage for geostrategic and domestic political purposes.

This US approach is also likely to be applied beyond China — again, in a more bilateral fashion — to allies across Europe, North America, and Asia and, once implemented, I’d expect commensurate responses from targeted governments.

As a feature of this more transactional/trade-leveraging framework, we should also expect efforts by the Trump administration to “cut a deal” with China later in 2025. This will be possible given the desire of both sides to reduce tensions and address structural domestic economic concerns. Given my national security bias and the structural/long-term nature of US-China geopolitical (and especially) high-tech competition, this is not my base case, but we should remain open to this most market-friendly outcome.

These policy shifts have economic impacts. Structurally higher inflation and lower global growth than in the “goldilocks” era of globalization are likely to persist in the long run as byproducts of the combination of greater use of tariffs, additional trade actions, and more supply chain disruption and substitution carried out over several years. 

Geopolitical risks top of mind and under the radar

There are several regions I’m keeping a close eye on as part of my geopolitical outlook: 

  • Ukraine/Russia: We see increasing pressure for ceasefire negotiations in 2025, with ongoing Trump administration efforts to broker a deal. Battlefield developments will remain the key variable regarding the timing — and seriousness — of these efforts. My base case remains ongoing conflict for much of 2025, with heightened risks to civilians and civilian infrastructure in Ukraine, and some additional risk to Russian troops and other military assets.
  • Middle East: The fall of the Assad regime is a momentous development for regional security dynamics, challenging Iranian (and Russian) influence in the region, while removing yet another barrier to ongoing and already-high levels of Israeli military action. I therefore expect additional military conflict on multiple fronts, particularly if the Trump administration takes a harder line on Tehran (my base case), which has the low-probability/high-impact potential to trigger a wider regional conflict. My biggest question on this point is whether Israel seizes the opportunity of Iran’s considerably degraded strategic position to target the country’s nuclear weapons program. This remains my (weak) base case.
  • Taiwan: More Chinese military activity in and around Taiwan remains a big concern of US national security policymakers as it raises the probability of accidental conflict while giving Chinese forces more “practice” for embargo and invasion scenarios. The US will likely continue its “porcupine” deterrence strategy and President Trump has appointed notable China hawks to key cabinet positions. This said, the “transactional” nature of Trump’s policy approach puts Taiwan into play as a “grand bargain” chip, so uncertainty here remains elevated.
  • North Korea: North Korea’s more assertive military posture on the Korean Peninsula, combined with domestic political instability in South Korea and, most importantly, North Korea’s “mutual defense pact” with Russia (including military activity in Ukraine) signals more geopolitical friction throughout the year.

In addition to these, there are a few under-the-radar risks, worth noting. For one, the fall of Assad’s regime in Syria to US-designated terrorist group Hayat Tahrir al-Sham raises new questions about the spread of political jihadism and, in particular, the risk of terrorism in the Middle East and beyond. US national security officials have been pointing to rising terrorism risks even before these latest dramatic developments. For another, elsewhere, cyber and other sabotage attacks on US and other Western nations’ most important infrastructures remain an under-the-radar risk and a key focus for policymakers. 

The bottom line is higher geopolitical volatility and conflict in a more “multi-aligned” backdrop makes further geopolitical “surprises” more likely. In general, we should expect a wider set of potential outcomes — both positive and negative — across this global landscape.

What does this mean for the investment landscape?

A destabilized geopolitical environment should continue to offer structural and long-term tailwinds for a variety of national security themes. These include, but are not limited to:

  • Legacy defense as countries worldwide boost defense spending and rebuild arsenals depleted by wars in Ukraine and the Middle East. 
  • Defense innovation, as dual-use civilian military applications drive doctrinal shifts at the Pentagon, PLA, NATO militaries, and elsewhere around the world.
  • Decarbonization, because of the strategic centrality of energy, and, especially, climate resilience, given my expectation that climate policy under Trump 2.0 will not be a priority.

Deepening geopolitical and policy disruptions throughout 2025 will also likely produce more differentiation across the board, which offers us ongoing opportunities to seek winners and identify losers at the regional, country, industry, company, and asset class levels in both public and private markets.

Expert

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