Labor shortages and project delays

Acute worker shortages, especially in construction and infrastructure, are delaying projects and raising costs. Official reviews cited a construction shortfall of about 37,000 foreign workers, highlighting execution risk for real estate, transport and industrial expansion plans requiring dependable labor supply.

Regional conflict and security risk

Israel’s exposure to Gaza and Iran-linked escalation remains the primary business risk. Ceasefire implementation is fragile, Israeli strikes continue, and reconstruction is stalled, sustaining elevated political violence, insurance, compliance, staffing, and operational continuity risks for investors and multinationals.

US Tariffs on Exporters

New US tariff measures are offsetting the usual benefits of a weak yen for Japanese exporters, especially autos, steel and industrial goods. Analysts estimate profits are already under pressure, with investment, hiring and North America supply-chain localization decisions becoming more urgent.

Middle East Supply Vulnerability

Disruption around Hormuz and the Red Sea is intensifying UK supply-chain risk. Official planning suggests CO2 availability could fall to 18% in a severe scenario, threatening food processing, packaging, brewing, healthcare logistics and broader business continuity across import-dependent sectors.

US-China Strategic Economic Decoupling

Washington is deepening restrictions on China through Section 301 probes, tougher export controls and investment limits, while Beijing pursues countermeasures. Bilateral goods imbalances are shrinking, but trade is being rerouted through Mexico, Vietnam and Taiwan, complicating sourcing and market access.

Trade Costs Feed Inflation Risks

Recent tariff rounds have already lifted import costs and contributed to inflation persistence, with research cited in reporting showing most burden falls on US buyers. Higher input and consumer prices can weaken demand, delay rate cuts, and reduce margins for trade-exposed businesses.

Critical Minerals Trade Repositioning

A new US-Indonesia trade arrangement and Jakarta’s push to diversify beyond China are recasting market access for nickel and other minerals. Businesses face shifting investment conditions, local-processing requirements, environmental scrutiny, and potential changes to export restrictions and bilateral supply-chain partnerships.

Tax Reform Implementation Risks

Brazil’s dual VAT rollout began in 2026, replacing five indirect taxes through 2033. While simplification should improve long-term competitiveness, companies face immediate ERP, invoicing and compliance upgrades, with 62.2% still taking over 20 days to register invoices.

Energy Shock Hits Costs

Middle East conflict is pushing up oil and LNG prices, lifting Thailand’s power tariff to 3.95 baht per kWh and raising freight costs. Higher fuel and utility bills are squeezing manufacturers, exporters, transport operators, and margin-sensitive supply chains.

Egypt as Transit Hub

Cairo is actively repositioning Egypt as a Europe-Gulf logistics bridge through the Damietta-Trieste-Safaga corridor and temporary customs exemptions at key ports. The framework can reduce delays and logistics costs, benefiting time-sensitive sectors and supply-chain diversification strategies.

Fiscal Strain Lifts Market Risk

US public debt near $39 trillion, annual interest costs around $1 trillion, and possible war spending and tariff refunds are intensifying fiscal concerns. A wider deficit could push yields higher, weaken bond demand, and increase volatility in funding markets central to global business finance.

Energy Shortages and Gas Push

Energy security remains critical as Egypt's gas demand is about 6.2 billion cubic feet per day against production near 4.1 billion. New discoveries, including Eni's 2 trillion cubic feet find, may help, but near-term import dependence still raises costs and operational risk.

Energy Nationalism and Payment Delays

Mexico’s energy framework continues to favor Pemex and CFE, limiting private participation through permit delays, regulatory centralization and tighter operating rules. U.S. authorities also cite more than $2.5 billion in overdue Pemex payments, raising counterparty, compliance and project execution risks for investors and service providers.

Energy Nationalism and Pemex Exposure

Mexico’s energy framework remains a major investment constraint as U.S. officials challenge preferential treatment for Pemex and CFE, permit delays and fuel restrictions. Pemex’s overdue payments above $2.5 billion to U.S. suppliers and broader debt pressures raise counterparty, compliance and operating risks for energy, industrial and logistics investors.

Renewables Policy Uncertainty Chills Investment

Planned reforms would remove compensation for new wind and solar projects in constrained grid areas, putting roughly €43-45 billion of investment at risk. The shift increases financing uncertainty, may delay capacity additions, and complicates site selection for energy-intensive international businesses.

Trade Defenses Reshape Sourcing

Vietnam is tightening trade-remedy enforcement, including temporary anti-circumvention measures on selected Chinese hot-rolled steel at 27.83%. This signals tougher compliance for importers, higher sourcing complexity for industrial buyers, and greater pressure to diversify suppliers, documentation systems, and product specifications.

US Tariff Exposure Deepens

US tariff uncertainty is Japan’s top external business risk. A temporary 10% blanket tariff could rise to 15%, while autos, parts, pharmaceuticals and machinery face sector probes, pressuring exporters’ margins, investment planning and cross-border supply-chain redesign.

Ports and Reconstruction Constraints

Port Vila’s broader rebuild and geotechnical investigations highlight ongoing infrastructure rehabilitation after recent shocks. Although supportive over time, reconstruction can constrain port handling, utilities, contractor availability, and transport interfaces, affecting cruise-linked construction schedules, last-mile logistics, and service reliability for island developments.

Air connectivity severely constrained

Ben Gurion departures were cut to roughly one flight per hour, with outbound passenger caps near 50 per flight, prompting airlines to slash schedules. About 250,000 Passover tickets were reportedly canceled, complicating executive travel, cargo uplift, workforce mobility, and emergency business continuity.

Suez Canal and Shipping Disruptions

Regional conflict continues to disrupt maritime routes and depress canal traffic, with some estimates showing activity at only 30-35% of pre-crisis levels. This weakens foreign-exchange earnings, complicates routing decisions, and increases freight, insurance and delivery-time uncertainty.

Nuclear Talks Drive Policy Volatility

Ceasefire and nuclear negotiations remain fragile, with major gaps over uranium enrichment, sanctions relief, and frozen assets reportedly near $120 billion. Businesses face abrupt shifts in market access, compliance conditions, shipping rules, and political risk depending on whether diplomacy advances or collapses.

Defence Industrial Expansion Uncertainty

Higher defence ambitions could stimulate UK manufacturing, technology and exports, but delayed investment plans are creating procurement uncertainty. Reported funding gaps of about £28 billion are already affecting order visibility, supplier decisions and the pace of private capital deployment into defence-adjacent sectors.

High-Tech Investment Policy Support

The Knesset’s 2026 budget introduced new R&D tax credits to retain technology investment amid OECD Pillar Two reforms. Enhanced incentives for peripheral regions and large firms may support multinational expansion, hiring, and IP activity, partly offsetting geopolitical and financing concerns.

Energy Nationalism and Investor Retreat

Mexico’s state-favoring energy framework remains a major business risk. U.S. officials cite permit delays, shorter fuel permit terms and Pemex arrears above $2.5 billion, while 2025 foreign investment in oil, gas and power weakened sharply, undermining energy security and project confidence.

Gas infrastructure security risk

War-related shutdowns at Leviathan and Karish exposed the vulnerability of Israel’s offshore gas system. The month-long disruption was estimated to cost around NIS 1.5 billion, raised electricity generation costs by about 22%, and tightened export flows to Egypt and Jordan before partial restoration.

Middle East Cost Shock

Conflict-linked disruption in oil and LNG markets is lifting Taiwan’s input, freight and utility costs. Manufacturing PMI stayed expansionary at 55.4, but supplier delivery times worsened and raw-material prices climbed near two-year highs, squeezing margins across industrial supply chains.

EU Integration Regulatory Shift

Ukraine is under pressure to pass EU-linked legislation covering energy markets, railways, civil service, and judicial enforcement to unlock up to €4 billion. Progressive alignment with EU standards should improve transparency and market access, but also raises compliance requirements for companies entering early.

Agricultural Market Reorientation

Ukraine’s wheat exports fell 25% year on year to 9.7 million tons in the first nine months of 2025/26, pressured by an 18% rise in EU wheat output. Traders are shifting toward African markets, affecting route selection, storage demand, and agribusiness pricing strategies.

Ukraine Strikes Disrupt Exports

Ukrainian drone attacks on ports, refineries, and pipelines are materially disrupting Russian energy logistics. Reports indicate around 40% of crude export capacity was temporarily affected, increasing force majeure risk, rerouting costs, and uncertainty for buyers, shippers, and insurers.

Inflation and Rate Volatility

Inflation is projected around 7.9% in FY26, with renewed pressure from fuel and utility costs. Although policy rates had fallen to 10.5%, market rates are edging higher, creating uncertainty for credit conditions, consumer demand, working capital management, and long-term investment returns.

Strategic Energy and Industrial Deals

Recent agreements with Japanese and South Korean partners in LNG, renewables, carbon capture, and critical minerals signal continued foreign appetite. These deals create openings across energy, infrastructure, and processing, but execution will depend on regulatory consistency, domestic demand trends, and financing discipline.

North American supply-chain compliance squeeze

Canadian exporters have sharply raised CUSMA compliance to avoid tariffs, with declared preferential treatment rising from 35.5% in December 2024 to 78.7% by July 2025. While protective short term, stricter rules of origin would increase auditing, sourcing and financing burdens.

Energy market integration push

Legislation on electricity-market integration, renewables permits and energy liberalization is advancing Ukraine’s alignment with the European market. This supports future cross-border power trade and investment, but implementation remains vulnerable to war damage, delayed funding and regulatory slippage during accession-linked reforms.

Defense Spending and Export Liberalization

Record defense outlays, including ¥9.04 trillion in the FY2026 budget, are strengthening aerospace, industrial, and advanced manufacturing demand. Planned easing of arms-export rules could expand overseas sales, deepen allied industrial cooperation, and create new compliance and reputational considerations for suppliers.

Energy Shortages Constrain Industry

Iran’s domestic energy system is structurally fragile despite vast reserves, with gas shortages, power cuts, and attacks on South Pars and Asaluyeh threatening electricity and feedstock supply. Energy-intensive manufacturers face rising interruption risk, lower utilization, and greater uncertainty over export-oriented petrochemical output.

API Dependence Drives Resilience Push

The administration justified tariffs on national security grounds, citing reliance on imported pharmaceuticals and active ingredients. This reinforces strategic pressure to diversify away from concentrated overseas API production hubs, strengthen inventory buffers, and localize critical inputs despite higher operating costs.