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:
Geopolitical Realignment and Trade Risks
Brazil’s foreign policy under President Lula is shifting away from the US towards China, Russia, and Iran, straining traditional alliances. This realignment impacts trade relations, digital governance, and political ties, risking reduced access to Western markets and technology. The pro-Iran stance and digital censorship requests heighten geopolitical and business uncertainties.
Regional Research and Innovation Collaboration
Indonesia is advancing scientific and technological cooperation within ASEAN by proposing nine research partnerships, aiming to strengthen its regional leadership in innovation. This initiative supports sustainable development goals, including green industry leadership, and enhances Indonesia’s global positioning amid geopolitical and economic uncertainties.
Geopolitical Tensions and Middle East Conflict
Escalating conflict between Israel and Iran significantly impacts global oil markets, driving crude prices higher and increasing volatility. This geopolitical instability threatens supply chains, energy security, and investor confidence, with potential disruptions in critical shipping routes like the Strait of Hormuz. Canada faces indirect effects on trade costs, energy prices, and market sentiment amid these tensions.
Climate Change Adaptation Costs
Canadian businesses face rising costs adapting to climate change, with sectors like utilities, insurance, and industrial services most affected. Investments in resilience infrastructure, such as floodways and buried power lines, are critical but challenging to finance. Opportunities exist in ESG-linked financing and catastrophe bonds, influencing long-term capital allocation and operational strategies amid increasing climate risks.
Geopolitical and Security Risks
Israel faces persistently high geopolitical risks, especially due to conflicts with Iran and Hezbollah. Moody's maintains a negative outlook on Israel's credit rating, citing potential economic and fiscal deterioration from ongoing regional conflicts. These risks impact investor confidence, increase defense spending, and threaten economic growth, influencing international trade and investment strategies.
New UK Trade Strategy and Export Support
The UK unveiled its first comprehensive trade strategy in decades, aiming to boost exports by unlocking £5 billion for businesses and expanding export finance to £80 billion. The strategy addresses challenges from global protectionism, including US tariffs, and seeks to enhance market access, digital trade, and trade defense mechanisms to protect domestic industries.
Labor Rights and Supply Chain Risks
A landmark lawsuit against BYD and subcontractors for alleged human trafficking and slave-like labor exposes vulnerabilities in Brazil’s labor enforcement and global supply chains. This case underscores reputational and legal risks for multinational companies operating in Brazil, emphasizing the need for rigorous compliance and monitoring to avoid sanctions and social backlash.
Strategic Energy Sector Partnerships
The acquisition of a 10% stake in Israel's Tamar offshore gas field by Azerbaijan's SOCAR for $1.25 billion exemplifies deepening international energy cooperation. This deal enhances Israel's energy security, diversifies foreign partnerships, and has geopolitical implications strengthening ties with Azerbaijan and the broader region.
Global Trade Relations and US Engagement
Pakistan is actively negotiating trade agreements with the US to recalibrate economic ties and reduce high tariffs. Efforts include expanding imports of US goods and attracting investment in sectors like mining. Successful deals could improve trade balances, enhance market access, and boost foreign direct investment, critical for economic growth.
China's Control Over Critical Minerals
China's dominance in rare earth and critical minerals essential for military hardware and clean energy technologies presents a strategic challenge for Australia. The Australian government is actively litigating against China-linked companies to protect its critical minerals sector, vital for defense and economic sovereignty. This geopolitical tension influences foreign investment policies and supply chain security in Australia.
International Diplomatic Responses and Sanctions Risks
Global reactions to US and Israeli military actions against Iran’s nuclear facilities include condemnation from regional actors and calls for unified resistance. Iran’s appeals to international organizations highlight concerns over violations of international law and maritime security. These diplomatic tensions increase the risk of sanctions, trade restrictions, and legal uncertainties for foreign companies engaged with Iran.
Political Instability and Government Crisis
Prime Minister Paetongtarn Shinawatra faces mounting political turmoil following a leaked phone call with Cambodian leader Hun Sen. The scandal has fractured her coalition, triggered mass protests, and led to criminal complaints and potential Constitutional Court actions. This political instability risks policy paralysis, undermines investor confidence, and raises the specter of another military coup.
Geopolitical Instability and Energy Risks
Regional conflicts, such as the Israel-Iran war and threats to the Strait of Hormuz, exacerbate global energy market volatility. Potential disruptions in oil and gas supplies impact European energy security, trade routes, and economic stability, with direct implications for Ukraine’s energy-dependent industries and broader international trade.
Trade Strategy and Protectionism
The UK unveiled its first comprehensive trade strategy in decades, aiming to boost exports, protect domestic industries from unfair foreign competition, and counteract global protectionism, especially in response to US tariffs. The strategy includes expanding export finance, enhancing trade defense tools, and pursuing multiple trade deals to secure market access and safeguard supply chains.
Judicial and Human Rights Challenges
Systematic violations of human rights and judicial independence have drawn international condemnation. The failure to implement European Court rulings and politically motivated prosecutions undermine legal predictability. This weakens Turkey’s international legal standing and may trigger sanctions or trade restrictions, affecting foreign direct investment and bilateral economic relations.
Ongoing Russian Military Offensive
Russia's sustained multi-front military operations in Ukraine, including offensives in Sumy, Kharkiv, Donetsk, and Zaporizhzhia regions, continue to destabilize the country. This protracted conflict disrupts supply chains, damages infrastructure, and creates significant security risks, deterring investment and complicating international trade and reconstruction efforts.
Shifting Foreign Policy and Geopolitical Alignments
Under President Lula, Brazil is distancing itself from the US, adopting a pro-Iran stance and strengthening ties with China and Russia. This realignment affects trade, digital governance, and diplomatic relations, risking alienation from Western markets and technology sources. The geopolitical shift introduces uncertainties for international investors and complicates Brazil’s global economic integration.
US Tariff Policy Uncertainty
US President Trump's ambiguous stance on tariff deadlines and willingness to negotiate introduces unpredictability in trade policies affecting Germany and the EU. This uncertainty complicates business planning, supply chain management, and investment decisions, emphasizing the need for agile strategies to mitigate tariff-related risks.
Impact of Tariffs on U.S. Economy
Tariffs have raised import costs, contributing to inflationary pressures and complicating Federal Reserve monetary policy. Manufacturing sectors report declining orders due to price uncertainty. While some corporations announce long-term investments, overall business confidence is dampened by unpredictable trade policies, leading to reduced capital expenditures and slower economic growth.
European Energy Supply Vulnerabilities
Europe's dependence on global LNG, including significant imports by France, exposes it to geopolitical risks from Middle East tensions. Disruptions in LNG shipments from Qatar and other suppliers could raise energy prices, increase inflation, and disrupt industrial operations, forcing France to accelerate energy diversification and resilience planning amid volatile global markets.
National Security and War Preparedness
The UK government has issued a stark warning about the increasing likelihood of direct attacks on British soil, including nuclear threats from Russia, Iran, and North Korea. This heightened security posture involves preparing for wartime scenarios, cyber-attacks, sabotage, and espionage, significantly impacting defense spending, supply chain resilience, and business continuity planning.
Strategic Energy Transit Risks
Turkey's proximity to critical energy chokepoints like the Hormuz Strait exposes it to global energy market volatility. Disruptions in these transit routes could spike oil prices and impact energy supplies. Turkey’s role as an energy corridor is both an opportunity and a risk factor for international energy trade and related investments.
Global Supply Chain Resilience
Supply chains remain fragile amid ongoing disruptions from pandemics, geopolitical tensions, cyber threats, and climate events. In 2025, reputational risk, inflation, and geopolitical risk dominate supply chain concerns. Businesses are prioritizing collaboration, strategic planning, and dual-sourcing to mitigate risks, underscoring supply chain adaptability as a critical factor for sustaining long-term business operations and competitiveness.
US-China Trade Relations Reset
Recent easing of export curbs between China and the US signals a tentative reset in trade relations, with key technology firms regaining access to Chinese markets. However, Washington's new trade deal with Vietnam, imposing tariffs on transshipped goods, risks provoking Beijing, potentially disrupting regional supply chains and complicating bilateral economic ties.
Monetary Policy and Interest Rate Outlook
The Bank of Israel faces pressure to cut interest rates amid easing geopolitical uncertainty and inflation pressures. Interest rate adjustments will influence borrowing costs, consumer spending, and investment climate, affecting business operations and economic recovery post-conflict.
Vietnam’s Emerging Esports Market
Vietnam's gaming sector is witnessing rapid growth, exemplified by Tencent's launch of Delta Force and record-breaking player engagement on platforms like Roblox. This burgeoning esports ecosystem presents new investment opportunities, digital economy expansion, and potential shifts in youth consumer behavior, impacting Vietnam's tech industry and international digital trade.
Fiscal and Political Instability
Brazil faces significant fiscal strains with a rising deficit forecast of 0.51% of GDP and public debt nearing 79.8% of GDP in 2025. Political uncertainty, including President Lula’s potential fourth term and congressional resistance to reforms, undermines investor confidence, complicates fiscal consolidation, and increases market volatility, impacting investment strategies and economic stability.
Supply Chain Realignment and Friendshoring
The US-China rivalry is accelerating supply chain diversification, with countries like Vietnam, Malaysia, India, and Mexico benefiting from manufacturing relocation. Strategies such as 'China+1' and friendshoring aim to reduce dependency on China, reshaping global production networks. However, China’s outbound investment and infrastructure improvements sustain its supply chain influence despite competitive pressures.
Foreign Influence and Great Power Competition
Amid intensifying US-China rivalry, the UK is adapting its foreign influence policies by proposing tougher scrutiny on both powers. The government seeks to balance economic engagement with China while safeguarding against political interference, supply chain dependencies, and technological risks, aiming to maintain an autonomous foreign policy in a complex geopolitical landscape.
Defense Industry and International Partnerships
Turkey’s defense sector is expanding through partnerships like Baykar’s joint venture with Italy’s Leonardo, despite controversies over arms trade with Israel. These collaborations face domestic and international criticism, potentially impacting export controls and diplomatic relations. Defense industry developments influence Turkey’s technological capabilities and geopolitical leverage but also introduce reputational and regulatory risks for investors.
Germany's Evolving Ukraine Policy
Chancellor Friedrich Merz's recent lifting of range restrictions on weapons supplied to Ukraine marks a significant shift in Germany's military support amid the Russia-Ukraine conflict. This policy change impacts international arms supply dynamics, risks escalation with Russia, and influences Germany's defense industry and geopolitical positioning within NATO and the EU.
Private Equity Influence on UK Industry
Private equity firms have aggressively acquired UK companies, often leading to undervalued sales and weakened industrial capabilities, especially in defense and aerospace sectors. Recent shareholder resistance signals a shift, but the legacy of reduced R&D and loss of proprietary technology continues to impact the UK’s industrial base and national security.
European Negotiations with Iran
Germany’s active role in diplomatic talks with Iran over nuclear issues highlights its commitment to multilateral conflict resolution. Successful negotiations could stabilize regional energy markets and reduce geopolitical risks, positively affecting German exports and international investment strategies.
Escalating U.S. Tariff Policies
President Trump's tariff strategy involves imposing high reciprocal tariffs—up to 70%—on numerous trading partners, including allies like Japan and South Korea. These tariffs aim to pressure countries into trade deals favoring U.S. interests but have generated significant market volatility, increased costs for U.S. businesses and consumers, and heightened global trade tensions, disrupting supply chains and investment decisions.
Energy Subsidy Fiscal Pressure
Rising oil prices due to Middle East tensions are increasing Indonesia’s energy subsidy burden, with each US$1 rise per barrel potentially adding Rp1.5-2 trillion annually. The government faces budgetary risks, requiring adjustments to subsidies or expenditure cuts, which could affect public services, social safety nets, and overall economic growth prospects.
Economic Recovery and Sovereign Risk Reduction
Recent improvements in Pakistan’s sovereign default risk, with a significant drop in CDS-implied probability, signal renewed investor confidence driven by macroeconomic stabilization, IMF engagement, and structural reforms. This progress enhances Pakistan’s attractiveness for international investment and trade, although challenges remain in sustaining growth amid high public debt and fiscal constraints.