Mission Grey Daily Brief - June 16, 2025
Executive Summary
The global landscape entered a new phase of volatility following the rapid escalation of military hostilities between Israel and Iran over the weekend. Markets are responding sharply as oil prices soar and risk sentiment unravels, raising alarms across supply chains, energy security, and international trade. The G7 summit is underway in Canada, where world leaders must navigate geopolitical rifts—not only concerning the Middle East crisis but also rising trade tensions, especially between the US and China. Meanwhile, the global economy is feeling the impact of persistent tariff wars, slowing growth, and investor nervousness, all playing out against a backdrop of major political transitions and fragile diplomatic efforts.
Analysis
1. Israel-Iran Conflict: Regional Escalation and Global Fallout
The situation between Israel and Iran has reached a critical flashpoint. Over the weekend, both nations exchanged direct missile strikes targeting military, nuclear, and crucial energy infrastructure. Iranian and Israeli casualties are mounting, with civilian deaths reported on both sides—including the destruction of a 14-story residential building in Iran and civilian casualties in Israel—while major cities like Tel Aviv and Tehran have been rocked by explosions and fires. Importantly, these attacks have not remained isolated: Iranian-backed Houthi rebels from Yemen have launched missiles into Israel, signaling a wider regional spillover [Israel Calls fo...][World News and ...].
Markets have responded with a 7% spike in oil prices over the weekend, reaching close to six-month highs. Investors are watching the Strait of Hormuz and Red Sea with apprehension—any disruption could jeopardize nearly a fifth of world oil flows. Countries like India, whose energy needs and critical export routes depend on these waters, face heightened risk of inflation, shipping delays, and associated economic fallout. Central banks and policymakers, particularly across South Asia and the Middle East, are moving to secure energy reserves and assess contingency plans as prices surge and logistics reroute [Govt must urgen...][Iran-Israel Con...][Investors on ed...].
Volatility has also battered equity markets. Wall Street ended the previous session sharply lower, with the S&P 500 falling 1.13% and the Dow down 1.79%, largely as investors rotated out of risky assets and favored traditional safe havens like gold and the US dollar. The Cboe Volatility Index—often called Wall Street’s “fear index”—rose to its highest close in three weeks, reflecting investor nervousness over further escalation. Defence sector stocks, by contrast, outperformed on expectations of increased military procurement [Wall St ends sh...][Mounting Israel...].
The political and humanitarian risks remain severe. Israel’s strikes on Iranian nuclear scientists and command centers have led to warnings from Tehran of broader retaliation, while the risk of miscalculation or third-party intervention (including cyber or proxy attacks) increases by the hour. Diplomats and foreign investors express concern about sanctions, cross-border disruptions, and potential for conflict to spiral out of control. Ethical, legal, and human rights questions abound, given the scale of civilian impact and targeting of critical infrastructure [Israel Calls fo...][World News and ...].
2. G7 Summit: Unity Tested by Crisis and Trade Rifts
The G7 summit in Canada convenes at a highly charged moment. The primary agenda—peace, security, critical mineral supply chains, and job creation—has been hijacked by the Israel-Iran crisis. Leaders are under pressure to deliver unified responses, but splits between the United States and other partners on trade, foreign policy, and sanctions complicate matters. German Chancellor Merz emphasized avoiding escalation and supporting Israel’s right to self-defense, while the UK and France urge robust diplomacy to avoid regional conflagration. The summit notably avoids a joint communique this year, hoping to sidestep direct confrontation with US President Donald Trump, whose unpredictability and “America First” trade stance loom over the proceedings [G7 leaders meet...][UK walks a dipl...].
The G7’s response will be a litmus test for the relevance of Western multilateralism—and for the ability to coordinate sanctions, humanitarian aid, and economic stabilization efforts. Leaders from Ukraine, India, South Korea, and others are present, broadening the cross-section of interests and highlighting the interconnectedness of security, energy supply, and trade routes now imperiled by the Middle East conflict [G7 leaders meet...].
3. US-China Trade Cold War: Tariff Wars and Fragile Truce
Simultaneously, the world’s two largest economies, the US and China, have been locked in a high-stakes trade war. After launching tit-for-tat tariff escalations this spring—most recently with the US imposing a 34% reciprocal tariff on all Chinese goods (and China responding in kind)—both sides reached a Geneva-brokered pause, suspending additional tariffs for 90 days and reverting to lower 10% baseline duties. This fragile truce holds for now, but business must plan for renewed volatility after mid-August [Hot Topics in I...][U.S.-China agre...].
Key sticking points persist: rare earth minerals, advanced technology exports, and US efforts to stifle Chinese technological advancement. Talks in London underscore the transactional nature of the relationship, with both sides using strategic resources as leverage. US companies remain highly exposed to the uncertain environment, while global investors are recalibrating supply chains, diversifying sources, and reducing risk to avoid future tariff shocks. Notably, the “decoupling” trend continues, with strategic advice clear: diversify, manage inventories, and use this window to adapt to evolving trade rules—especially for firms with exposure to China’s authoritarian regime [U.S.-China agre...][China has a val...].
4. Broader Economic Implications: Growth, Inflation, and Fragmentation
Zooming out, the World Bank has trimmed its global growth outlook to 2.3% for 2025, the slowest rate in decades, largely due to increased trade barriers and policy uncertainty. Developing countries—many of them highly dependent on imported energy and access to Western markets—will bear the brunt as capital flows reverse and commodity prices rise [World News in B...]. Already, spikes in oil and gas prices are triggering inflationary pressure: for every $10 rise in crude prices, countries like India see import bills rise by 0.5%, placing direct strain on their currencies and budget balances [Iran-Israel Con...]. Food and energy insecurity are at risk of worsening, as in famine-stricken Haiti and, potentially, in parts of Asia and Africa.
Meanwhile, an era of global “de-risking” is accelerating. The US is seeing Treasury bonds lose some of their safe-haven allure, with buyers like Japan repatriating funds over currency and yield concerns. Britain and North America—more stable and resource-rich—may benefit, but the world is clearly moving toward greater fragmentation and economic bloc politics, leaving authoritarian countries like China and Russia more isolated and less attractive for business partners [Global Reshuffl...][Hot Topics in I...].
Conclusions
As the world wakes up to the new realities of geopolitical risk, business and investors must prepare for a protracted period of instability, supply chain disruption, and regulatory uncertainty. The Israel-Iran conflict, though regional in scope, casts a long shadow over oil markets, trade flows, and diplomatic alignments. The G7’s actions this week may shape the free world’s response to both military escalation and the creeping spread of authoritarian values. Meanwhile, the US-China economic standoff serves as a potent reminder of the perils of overreliance on undemocratic regimes and the enduring importance of diversifying supply chains.
For leaders and strategic planners, the questions are clear—and urgent:
- Could current hostilities in the Middle East spill into a broader conflict, and are your supply lines ready for that scenario?
- Are you exposed to the next round of tariff escalations between the US and China, and do you have a plan for further decoupling and diversification?
- If global growth continues to slow and inflation picks up, can your business weather another round of commodity price shocks?
Now is the time to stress-test your risk portfolios, re-examine your ties to unstable or non-aligned markets, and double down on government and stakeholder relations. Are you positioned to thrive—or simply survive—in the new era of global fragmentation?
Further Reading:
Themes around the World:
Economic Growth Slowdown
South Korea's economy is projected to grow only 0.9% in 2025, marking the slowest pace since the pandemic shock in 2020. This sluggish growth is driven by external pressures such as US tariffs and internal political instability, impacting export-reliant sectors like semiconductors and autos, with ripple effects on global supply chains.
Robust Economic Growth Amid Challenges
Turkey's GDP growth outpaced major European economies in Q2 2025, driven by construction and IT sectors with a 4.8% annual increase. Despite political tensions and inflationary pressures, resilient domestic demand and investment growth underpin economic expansion, presenting opportunities and risks for investors and trade partners.
Escalation of Russia-Ukraine Conflict and NATO Involvement
Recent incursions of Russian drones into Polish airspace mark a significant escalation, involving NATO directly for the first time since the conflict began. This raises geopolitical tensions, potentially destabilizing regional security and impacting European markets. While immediate market reactions remain muted, sustained conflict escalation could disrupt trade flows and investor sentiment across Europe.
Geopolitical Tensions Affecting Markets
Ongoing geopolitical conflicts, including Israel's military actions and NATO's responses to Russian threats, contribute to market volatility. Elevated oil prices and fluctuating currency values reflect investor uncertainty, influencing global trade flows and investment strategies, particularly in energy-dependent sectors and regions linked to Middle Eastern stability.
EU Support and Political Challenges for Ukraine
The EU emphasizes strengthening support for Ukraine, including defense investments and political solidarity with neighboring countries like Poland. However, internal EU politics, such as Hungary's veto on accession talks, complicate Ukraine's path toward European integration, affecting investor confidence and long-term economic cooperation.
Commodity Pricing and Mining Sector Reforms
The government eliminated mandatory benchmark prices for minerals and coal sales, allowing market-driven pricing while maintaining levy calculations based on benchmarks. This reform aims to enhance transparency and competitiveness in Indonesia's vital mining sector, attracting investment but also introducing price volatility risks for supply chains.
Banking Sector Resilience Amid Trade Tensions
Canada's major banks, including Royal Bank of Canada, Bank of Montreal, and Bank of Nova Scotia, have reported robust earnings despite tariff-related risks. Smaller-than-expected loan loss provisions and easing trade tensions have bolstered investor confidence, supporting the TSX index. The banking sector's resilience is critical for maintaining financial stability and facilitating investment in uncertain geopolitical climates.
Capital Market Development and Reforms
The Egyptian government is incentivizing large stock listings and expanding financial instruments, including derivatives and market maker mechanisms, to deepen liquidity and broaden investor base. New leadership at the Egyptian Exchange and fintech initiatives aim to enhance market efficiency and accessibility, supporting private sector growth and attracting both local and international investors.
Strategic Regional Headquarters Licensing
In Q2 2025, Saudi Arabia granted 34 licenses for regional headquarters, attracting nearly 600 multinational companies since 2021. The Riyadh Regional Headquarters Program offers tax exemptions and regulatory support, positioning the Kingdom as a Middle Eastern business hub. This initiative strengthens foreign direct investment inflows, corporate presence, and regional economic integration aligned with Vision 2030.
UN Sanctions Snapback Impact
The reinstatement of UN sanctions on Iran, triggered by European nations, threatens to severely destabilize Iran's economy. The snapback mechanism would freeze assets, restrict arms deals, and limit ballistic missile development, potentially causing inflation to soar up to 90%, currency collapse, and contraction in economic growth, severely impacting international trade and investment.
Revised Growth and Inflation Forecasts
The government lowered 2025 GDP growth forecasts to 3.3% and raised inflation projections to 28.5%, signaling a strategic shift prioritizing inflation control over expansion. Fiscal pressures from reconstruction efforts and new taxes add complexity to economic management and business environment.
Supply Chain Disruptions from Political Instability
Political instability, including Russia's invasion of Ukraine and shifting regulatory environments, has caused severe supply chain disruptions globally. Sudden policy reversals, export controls, and sanctions create uncertainty in sourcing, production, and compliance, forcing companies to adopt proactive legal and operational strategies to mitigate risks in Russia and beyond.
ASEAN Recycling Sector Amid US-China Tensions
US-China trade conflicts pressure ASEAN recycling industries, including Vietnam, through stricter rules of origin and customs enforcement to curb Chinese transshipments. This raises compliance costs, disrupts supply chains, and fragments global markets for critical materials like battery black mass, affecting clean energy supply chains and regional trade dynamics.
National Investment Strategy Success
Launched in 2021, Saudi Arabia's National Investment Strategy has been pivotal in achieving Vision 2030 targets, including increasing private sector GDP contribution and non-oil exports. The strategy's reforms, incentives, and investor services have quadrupled FDI since 2017, fostering a competitive environment and attracting global companies to establish regional headquarters in the Kingdom.
South Korean Investment and Stock Market Optimism
South Korean investors have significantly increased holdings in Vietnamese stocks, driven by robust economic growth and reduced tariff uncertainties. The ACE Vietnam VN30 ETF saw strong inflows, reflecting confidence in Vietnam's market potential. Anticipation of Vietnam's upgrade from frontier to emerging market status by FTSE Russell further fuels investor enthusiasm, although market corrections remain a risk.
Investment Boost in Ukrainian Mining Sector
The American-Ukrainian Investment Fund has initiated pilot investments in Ukraine's mining sector, focusing on critical minerals like lithium and gold. This strategic partnership aims to rebuild infrastructure and integrate Ukraine into global supply chains for essential minerals, supporting economic recovery and attracting international capital despite ongoing conflict and sanctions.
E-Commerce Logistics Expansion
Australia's e-commerce logistics market is rapidly expanding, projected to exceed AUD 18 billion by 2030. Growth is fueled by rising online retail penetration, last-mile delivery innovations, and government support. This evolution demands significant infrastructure investments and offers opportunities for logistics providers to optimize supply chains and capture cross-border trade flows.
Political Unrest and Market Volatility
Indonesia's recent political protests, sparked by outrage over lawmakers' excessive housing allowances and economic grievances, have led to violent clashes and significant market disruptions. The unrest caused Indonesia's equity benchmark to fall sharply and the rupiah to weaken, unsettling investor sentiment and increasing equity risk premiums, thereby impacting foreign investment flows and market stability.
Geopolitical Risks and Trade Tariffs
U.S. tariffs, including a 10-15% baseline on European exports, weigh heavily on Germany's export-driven economy, particularly automotive and chemical sectors. The ongoing Russia-Ukraine conflict and geopolitical tensions exacerbate uncertainties, disrupting supply chains and dampening foreign demand. These factors contribute to volatility in orders and investment, complicating Germany's economic outlook and trade relations.
Geopolitical Strategic Positioning
Pakistan's unique geography as both a pivot and rimland state places it at the center of global power dynamics. Its proximity to South Asia, Central Asia, the Gulf, and China makes it critical for regional stability, trade, and energy corridors. This elevated geopolitical profile offers opportunities for diplomatic leverage but also exposes it to regional conflicts and great power rivalries.
Vietnam's Military and National Identity
Vietnam's large-scale military parades and national celebrations underscore its emphasis on sovereignty, defense modernization, and national pride. This reflects strategic balancing amid regional tensions, particularly in the South China Sea, and signals to investors the government's commitment to stability and security, which are critical for sustained economic development.
US-China Trade Tensions and Regional Pivot
Despite a temporary truce, US-China trade tensions persist with risks of tariff escalations. China is pivoting trade focus towards Southeast Asia and strengthening ties with BRICS nations to reduce US dependency. These shifts impact global trade flows, supply chains, and geopolitical alignments affecting international business strategies.
Trade Negotiations and Regional Agreements
Mercosur and Canada are resuming free trade agreement talks, signaling efforts to diversify trade partnerships amid U.S. tariff pressures. These negotiations could open new markets for Brazilian exports, mitigate tariff impacts, and enhance regional economic integration, offering alternative pathways for trade expansion and investment.
National Economic Development Narrative
Egypt launched a comprehensive economic narrative emphasizing private sector-led growth, debt reduction, and export expansion aligned with Vision 2030. The strategy includes restructuring state-owned enterprises, enhancing regulatory frameworks, and leveraging digital services to improve the business environment, aiming to boost investor confidence and sustainable economic development.
Economic Growth and Inflation Outlook
Thailand's economy is projected to grow modestly by around 2.2-2.3% in 2025, with inflation remaining subdued near 0.5-0.8%. Growth is supported by strong electronics exports and tourism spending but tempered by weakening private consumption and external headwinds. Fiscal stimuli and accelerated public investment aim to bolster growth, though risks from geopolitical tensions and domestic challenges persist.
Digital Asset Tax Reforms to Boost Investment
Japan plans to introduce a flat 20% capital gains tax on digital assets and reclassify them as financial products, aligning crypto with traditional securities. This regulatory shift aims to stimulate digital asset investment, attract institutional participation, and enhance Japan's position as a global financial hub amid evolving blockchain adoption.
US Rare Earths and Critical Minerals Strategy
The US government's increased investment in domestic rare earth mineral production aims to reduce dependence on China, a dominant global supplier. This strategic shift supports national security and high-tech industries but involves regulatory and operational risks, affecting investment opportunities and supply chain configurations in critical mineral sectors.
Corporate Sector Performance and IPO Activity
Saudi companies have shown mixed financial results with some sectors reporting profits and others losses amid market volatility. Noteworthy IPOs include Jamjoom Fashion Trading on the Nomu market, indicating ongoing capital market activity. Corporate restructuring, capital increases, and strategic acquisitions reflect efforts to adapt to evolving market conditions and investor expectations.
Strategic Engagement in South Asia and Indian Ocean
Turkey's growing involvement in South Asia, particularly its close military and ideological ties with Pakistan, and expanding influence in the Indian Ocean region, raise regional security concerns. This geopolitical positioning affects regional stability and may impact trade routes and international relations involving Turkey.
Potential IMF Bailout Risk
Finance Minister Eric Lombard acknowledged the non-negligible risk of France requiring an International Monetary Fund bailout due to escalating debt and political deadlock. Such intervention would signal severe fiscal distress, potentially triggering austerity measures, market turmoil, and loss of investor confidence, with broad implications for Eurozone stability and global investors.
Labor Market Concerns and Employment Risks
Rising unemployment and job insecurity are increasingly affecting German consumer confidence and spending. The manufacturing sector's struggles, including layoffs and reduced hiring, exacerbate fears of job losses. Structural shifts and demographic challenges further pressure the labor market, potentially slowing economic momentum and increasing social tensions amid political uncertainties.
US Tariffs and Political Tensions
The US imposed a 50% tariff on most Brazilian imports as a political retaliation linked to legal actions against former President Bolsonaro. Despite the high nominal rate, exemptions and Brazil's commodity export profile limit economic damage. The tariffs have strained US-Brazil relations, pushing Brazil closer to China and strengthening President Lula's domestic position ahead of 2026 elections.
Stock Market Performance and Sectoral Variations
Australian equities reached record highs buoyed by miners and banks amid US rate cut optimism. However, consumer staples and select corporates like Woolworths and Wisetech faced setbacks. These mixed sectoral performances reflect underlying economic shifts and investor sentiment, influencing capital allocation and market volatility.
Trade Finance Market Growth and AI Integration
Saudi Arabia's trade finance market is projected to grow from $514 million in 2024 to $693.7 million by 2033 (CAGR 3.14%). AI technologies are revolutionizing trade finance through automated document processing, predictive risk analytics, and blockchain integration, enhancing operational efficiency, reducing transaction times, and supporting Vision 2030's digital transformation and economic diversification.
Currency Appreciation Pressures Exporters
The Taiwan dollar's sharp 12% appreciation in 2025 is undermining exporters' competitiveness and earnings, particularly impacting traditional manufacturers and smaller firms with limited hedging capacity. Leading companies like TSMC and Foxconn face margin erosion, while insurers incur foreign-exchange losses. Policymakers are cautious to avoid accusations of currency manipulation amid US tariff tensions.
Political Instability and Government Crisis
France faces severe political instability with Prime Minister François Bayrou's government on the brink of collapse amid a confidence vote on austerity measures. Opposition parties oppose the budget cuts, risking government fall and prolonged uncertainty. This instability undermines investor confidence, disrupts policy continuity, and threatens economic and fiscal reforms essential for stability.