We see geopolitical risks persisting as a base-case scenario for 2025. Below we share the main upside and downside risks to our base case that investors should take into consideration.
Tail risks
Trump could become more ‘geopolitical’. This risk could see the United States use tariffs and other means to reorganise the world in line with US interests. The United States could force countries to pick sides on China or deter aspiring new BRICS joiners. A bipolar world would be the result if implemented in full, although many middle countries are likely to resist picking sides for as long as possible. Efforts to devalue the dollar with a new ‘Plaza’-style agreement could also fall into this ‘geopolitical’ category, although today’s context makes this difficult.
The concept of ‘spheres of influence’ could take hold, with the United States expanding its sway both North and South while allowing Russia and China their zones. This scenario could result in a grand bargain with China, in which geopolitical and economic issues are settled by confining powers geographically.
Hybrid warfare escalation is likely, with more attacks on subsea cables and infrastructure, particularly in Europe and Asia, as well as in space, while assaults could also increase in the United States. A Russian projectile could hit NATO territory without casualties and Russia would say it was a mistake, leading to increased tensions.
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