Mission Grey Daily Brief - June 17, 2025
Executive Summary
The last 24 hours have seen global markets and geopolitics rocked by the rapid escalation of direct military confrontation between Israel and Iran. Both countries executed major missile and airstrikes over the weekend, with casualties in the hundreds and key infrastructure – including nuclear facilities and ports – targeted. Despite the unprecedented intensity of the conflict, financial markets have shown notable resilience, with initial surges in oil and gold prices retreating somewhat as investors bet against wider regional escalation. The crisis, however, has already generated significant energy security anxieties, especially for major importers like India and Egypt, who are scrambling to secure supplies and review contingency plans. In parallel, ongoing US-China trade friction shows no lasting resolution, with tariffs and rare earths export controls still threatening global supply chains. Meanwhile, major Western economies brace for the possible inflationary shockwaves from both the Middle East crisis and sustained trade protectionism. The week ahead will be shaped by high-stakes summits – the G7, central bank meetings, and US-China trade talks – as the world navigates an era of multiplying risk.
Analysis
1. Israel-Iran Escalation: New Dangers for Global Energy and Stability
The world is witnessing the most dangerous phase yet in the longstanding enmity between Israel and Iran. Israel launched Operation Rising Lion, deploying over 200 fighter jets in coordinated strikes against Iranian nuclear and military facilities late last week, killing senior military leaders and nuclear scientists and inflicting widespread destruction, including at critical sites like the Natanz and Fordow plants. Iran's response was immediate and massive: Operation True Promise III saw waves of ballistic missiles and drones targeting Israeli urban centers and strategic sites. The fighting has resulted in at least 78 fatalities and more than 320 injured in Iran, and several deaths and dozens wounded in Israel, with notable damage to residential areas and the Haifa port – vital for regional shipping and Indian business interests [Iran, Israel Se...][Investors on ed...][Govt must urgen...].
The international community is alarmed, warning that further escalation could engulf the Middle East – and with it, much of the world – into a broader crisis. Egypt's government, for example, is mobilizing contingency plans to ensure energy security due to feared gas import disruptions, while India's trade think tanks are urging a rapid review of energy and trade risk scenarios. The sheer scale of Iranian threats to close the Strait of Hormuz, through which 20% of global oil flows, has positioned this waterway as the most acute chokepoint risk in decades [Govt must urgen...]. Even as the price of Brent crude surged by more than 7% to $74/barrel (its sharpest jump since 2022), there is a consensus that the real risk – a total maritime shutdown or regional war – would easily send prices above $100/barrel and trigger a global inflation shock [What analysts s...][European stock ...].
Interestingly, markets have so far not fully priced in the possibility of sustained disruption. Oil and gold both jumped on news of the initial strikes but have retraced slightly as signals of “cooling” have surfaced, including unofficial messages from Iran indicating a willingness to end hostilities for now [What analysts s...]. Yet, energy experts warn that much of the current calm reflects a significant risk premium; actual disruption would trigger far steeper economic consequences and could derail the recent market optimism in both advanced and emerging economies [European stock ...].
2. Market and Macro Reactions: Resilience, Volatility, and Shifting Risk
Despite the chaos across the Middle East, global stock markets showed surprising resilience to the dual shocks of war and surging energy prices. On Monday, major US and European indices opened higher – after initial sharp falls on Friday – while commodity prices moderated. The pan-European Stoxx 600, the S&P 500, and Asian indices all advanced, buoyed by investor hopes that the fighting will not significantly hinder economic growth or inflation unless the Strait of Hormuz is closed or oil exports are truly disrupted [What analysts s...][Mounting Israel...][European stock ...].
Short-term volatility remains high, highlighted by spikes in oil, gold (up 3.5% at one point), and the CBOE Volatility Index, but overall, traders are “not panicking.” Analysts ascribe this to OPEC’s ongoing production increases, strong recent economic data from China, and confidence in central banks to restrain inflation. Still, the mood is cautious: any escalation or supply shock would likely reverse the positive momentum and put emerging markets, energy-intensive industries, and global consumers under significant strain. Brazil’s B3 index, for example, fell nearly 0.5% last Friday, underlining how geopolitical and local fiscal challenges can combine to fade market optimism [Fiscal Strains,...][European stock ...].
Looking ahead, central bank policy is in a holding pattern. Rates will likely be kept on pause this week in both the US and UK, with the Federal Reserve and Bank of England eyeing energy-driven inflation risks. European and Asian economies, already struggling with growth headwinds, could see pressures intensify if oil prices remain high. Emerging markets are especially exposed to food and energy volatility, raising the prospect of political unrest or sharper fiscal tightening [European stock ...][Upcoming week w...].
3. US-China Trade Tensions: Fragile Truce and Global Supply Chain Peril
Amid the crisis in the Middle East, simmering US-China trade conflict continues to threaten global business stability. Senior officials from both countries met in London yesterday in an effort to secure fragile agreements on tariffs and rare earth supplies, a flashpoint for the global auto, electronics, and defense sectors. While Beijing has temporarily resumed some rare earth exports, US trade representatives have accused their Chinese counterparts of “slow-walking” commitments and threatened new export controls [U.S. and Chines...].
Trade volumes are already feeling the impact. Chinese exports to the US were down 34.5% year-on-year in May, while American confidence and GDP have been hit by the ongoing tariffs war. OECD forecasts now see world growth slowing to 2.9% this year (from 3.3% in 2024), with major economies like the US and UK especially exposed to fallout from protectionist measures and rising costs. For exporters and manufacturers, uncertainty around supply chain security, inflation, and further tit-for-tat sanctions has quickly become the “new normal” [The Tariff Down...][Reeves urged to...].
The global business environment is thus navigating a dangerous double-bind: the risk of armed escalation in the world’s most critical energy corridor, and the slow burn of strategic decoupling and protectionism in the world’s top two economies. This dynamic makes diversifying supply chains and hedging for political risks more urgent than ever.
Conclusions
The events of the past 24 hours underscore how quickly geopolitical and economic risks can move from the headlines to the heart of business strategy. Conflict between Israel and Iran has redefined risk calculations in the energy sector, global logistics, and for every business dependent on Middle Eastern stability. Even if fighting stops short of all-out war, the threat to the Strait of Hormuz alone is likely to keep energy markets and inflation expectations on edge for the foreseeable future.
Meanwhile, policymakers and businesses face the ongoing challenge of US-China friction and rising global protectionism, which threatens the very foundations of international supply chains. As the G7, central banks, and trade negotiators deliberate this week, decision-makers should ask themselves: Are they prepared for a world where geopolitical risk is a constant, not a shock? Are their supply networks sufficiently diversified and resilient to withstand either a shipping blockade or a new trade war front? Above all, how can businesses balance the need for growth with the imperative to manage the unpredictable risks of a fragmenting world order?
In the face of these rapid shifts, vigilance, ethical awareness, and commitment to robust risk management will be the watchwords for resilient international business.
Further Reading:
Themes around the World:
Renewable Energy Market Growth
Mexico's wind energy sector is expanding rapidly, supported by government commitments to generate 35% of electricity from clean sources by 2024. Favorable wind conditions and energy reforms attract private investment, though regulatory uncertainties and grid infrastructure challenges remain. Growth in renewables presents opportunities for foreign investors and supports Mexico's energy transition goals.
Financial Market Reforms and Innovations
Taiwan's futures exchange is raising margin requirements and launching weekly stock options to enhance risk management and trading precision. These reforms aim to improve market stability and provide investors with sophisticated hedging tools, supporting Taiwan's ambition to become a leading Asian asset management hub and attract international capital.
Taiwan Semiconductor Manufacturing Constraints
TSMC, Taiwan's semiconductor giant, confirms moving fabs off-island is impossible due to 80-90% production concentration in Taiwan. Despite geopolitical risks, Taiwan remains critical to global chip supply, especially for AI applications. Discussions with clients about relocation highlight supply chain vulnerabilities but underline Taiwan's irreplaceable role in advanced semiconductor manufacturing.
Geopolitical Dual Patronage and Strategic Risks
Pakistan's strategic position is defined by dual patronage from the U.S. and China, creating dependency on rival powers. This duality complicates sovereignty, with economic and military ties to China juxtaposed against security cooperation with the U.S., increasing geopolitical risks and limiting autonomous policy-making, impacting long-term stability and foreign relations.
Stock Market Volatility and Corporate Earnings
The Tadawul stock index shows mixed performance influenced by corporate earnings reports and oil price fluctuations. Key sectors like banking, petrochemicals, and utilities experience variable investor sentiment. Market volatility affects foreign portfolio investment flows and reflects broader economic confidence, influencing capital availability for businesses operating in Saudi Arabia.
Shipping Tariff Increases and Transport Sector Strain
Entrepreneurs in Indonesia's ferry transportation sector express frustration over outdated tariff regulations that fail to reflect rising operational costs and currency fluctuations. The fixed tariff structure hampers service quality and safety investments, potentially disrupting domestic logistics and supply chains critical for trade and economic activity across Indonesia's archipelago.
Currency Volatility and Won Depreciation
The Korean won has weakened significantly against the US dollar, exacerbated by US-China trade tensions and foreign investor sell-offs. The Bank of Korea has intervened verbally and through market measures to stabilize the currency, but persistent depreciation raises import cost inflation risks and challenges for monetary policy and external competitiveness.
Impact of US Trade Policy on India
Volatile US trade policies, including 50% tariffs on Indian exports, pose significant risks to India's export-oriented sectors, affecting textiles, gems, and seafood industries. These policies create uncertainties in exchange rates and inflation, yet India's large domestic market and diversified trade partnerships provide some insulation against these external shocks.
Energy Dependence on Russia and US Pressure
Despite US diplomatic efforts to reduce Turkey's reliance on Russian oil and gas, Turkish refineries remain heavily dependent on Russian crude due to refinery configurations and cost advantages. This energy dependence exposes Turkey to geopolitical risks and potential US sanctions, complicating energy security and international relations.
Balance of Payments Improvement
Egypt's current account deficit narrowed by 25.9% to $15.4 billion in FY 2024/25, driven by surging remittances (+55.3%), tourism revenue growth (+21%), and increased non-oil exports (+38.9%). Despite rising import bills, these trends enhance external sector stability and foreign exchange availability, supporting trade and investment flows.
Financial System Stability Amid Risks
Despite asset price inflation and market volatility, Japan's financial system remains stable with strong bank capital and funding. However, rising real estate prices and increased exposure to risky assets warrant vigilance. The Bank of Japan's cautious approach to monetary normalization reflects the need to balance growth with financial stability risks.
Investor Resilience Amid Sanction Threats
Despite repeated Western sanctions and geopolitical risks, international investors maintain exposure to Russian assets, attracted by strong public finances, low debt-to-GDP ratio, and high real interest rates. This resilience suggests a complex risk-reward calculus for investors, but also underscores potential vulnerabilities if harsher sanctions or financial isolation occur.
Supply Chain and Infrastructure Challenges
Canada faces structural challenges in supply chain reconfiguration and infrastructure development, with calls for improved port planning and expedited project approvals. Addressing these bottlenecks is essential to support trade diversification, reduce reliance on the U.S. market, and enhance competitiveness in global markets.
Robust Economic Growth Momentum
Vietnam's economy is exhibiting strong growth, with GDP surpassing 8% in Q3 2025 and forecasts from HSBC and Standard Chartered raised to 7.9% and 7.5%, respectively. This growth is driven by resilient exports, FDI inflows, and domestic demand, positioning Vietnam as a rare bright spot amid global economic volatility, enhancing its attractiveness for international investors.
Trade and Export Challenges
Germany's export sector faces headwinds from US tariffs, geopolitical tensions, and weakening demand, especially from the US and China. Exports have declined for consecutive months, eroding the trade surplus and industrial output. The automotive industry remains vulnerable, with regulatory uncertainty and tariffs increasing cost pressures, threatening Germany's export-led economic model.
Geopolitical and Policy Uncertainty
A record 47% of UK firms issuing profit warnings attribute earnings pressure to geopolitical and policy uncertainty, up from 17% a year ago. This persistent uncertainty affects investment decisions, disrupts supply chains, and heightens risks such as cyberattacks, undermining business confidence and complicating strategic planning in an already volatile global environment.
US-China Trade Tensions Escalate
Ongoing trade disputes between the US and China, including threats of tariffs up to 155% and export controls on critical technologies, have caused significant market volatility. These tensions disrupt supply chains, increase costs for businesses, and create uncertainty for investors, impacting global trade flows and corporate earnings, especially in technology and manufacturing sectors.
Stock Market Performance and Risks
Indian stock markets ended Samvat 2081 with gains driven by strong bank earnings, tax reliefs, and favorable trade negotiations. However, risks such as US tariffs, liquidity constraints, and delayed earnings recovery could dampen investor sentiment. Market optimism hinges on resolution of trade disputes and sustained domestic consumption growth during the festive season.
Russia’s Adaptive ‘Shadow Fleet’ Logistics
To circumvent sanctions, Russia employs a 'shadow fleet' of tankers and alternative maritime routes, enabling continued crude exports despite Western restrictions. This 'logistics of the shadow' reflects strategic resilience through informal networks and grey-market operations, reshaping trade geographies. However, increased enforcement and insurance refusals raise costs and risks, challenging Russia’s long-term export sustainability and complicating global supply chains.
Investment Climate Reforms
Egypt has implemented 60% of 300 targeted reforms to improve its investment climate, including digitization of business procedures, tax reforms, and infrastructure development. These reforms enhance transparency, reduce administrative burdens, and empower the private sector, fostering a more competitive environment that supports sustainable investment and economic diversification.
Monetary Policy and Inflation
The Bank of Israel maintains a cautious monetary stance, holding interest rates steady amid geopolitical uncertainty and rising inflation. The central bank signals that rate cuts are unlikely until 2025, reflecting concerns over economic risks, supply disruptions, and fiscal deficits, which collectively influence borrowing costs, investment decisions, and overall economic stability.
Cyber Insurance Market Growth
The cyber insurance market in Vietnam is expanding swiftly due to rising cyberattack incidents and stringent data protection regulations. Increasing digital adoption across sectors drives demand for comprehensive cyber risk coverage, especially in banking, finance, and e-commerce, highlighting the growing importance of cybersecurity in corporate risk management.
Impact on Global Commodity and Financial Markets
China’s economic deceleration and US-China trade tensions have triggered volatility in commodity prices, notably metals and energy, and influenced global financial markets. Gold prices have surged as a safe haven amid credit concerns and geopolitical risks, reflecting investor caution and the interconnectedness of trade policies and financial stability.
Economic Growth and Moody’s Outlook
Moody’s forecasts modest Mexican GDP growth of 0.3% in 2025, reflecting resilience amid external uncertainties and restrictive fiscal policy. Risks include US trade policy and the 2026 USMCA review. Mexico is projected to have the slowest growth in Latin America, with political dynamics and regional economic cycles influencing medium-term prospects.
International Law and Diplomatic Isolation
Israel faces growing diplomatic isolation driven by international legal scrutiny over its actions in Gaza. This has led to arms export restrictions by some European countries and increased reputational risks, affecting defense supply chains and international cooperation. The cumulative impact of legal and normative pressures shapes Israel's geopolitical and economic environment.
Nickel Industry IPO and EV Battery Supply Chain
Anugrah Neo Energy Materials plans a $300 million IPO to expand its nickel mining and processing operations, focusing on electric vehicle battery materials. Indonesia, as the world's largest nickel producer, is leveraging this to attract investment and strengthen its position in the global EV supply chain, enhancing export value and industrial diversification.
Energy Infrastructure Vulnerability
Russian missile and drone strikes have severely damaged Ukraine's energy infrastructure, including gas production facilities, reducing domestic output by over 60%. This disruption threatens Ukraine's energy security, increases dependency on costly imports, and risks spillover effects on European energy markets, especially during winter, complicating regional supply chains and energy pricing.
Foreign Investment Surge in Banking
Global financial institutions are investing billions in Indian banks, attracted by the country's stable financial system, rapid digital adoption, and large underbanked population. Despite past challenges, India’s banking sector is becoming a hotspot for foreign capital, signaling confidence in its growth potential and regulatory reforms aimed at boosting credit flow and risk management.
Semiconductor Industry's Global Centrality
Taiwan dominates global semiconductor manufacturing, producing over two-thirds of chips and 90% of advanced chips vital for AI and electronics. TSMC's pivotal role underpins global tech supply chains, making Taiwan a strategic flashpoint. Any disruption due to geopolitical tensions could trigger severe global economic consequences, emphasizing the industry's criticality to international trade and investment.
Gigaprojects and Infrastructure Development
Saudi Arabia's ambitious gigaprojects, including NEOM and Trojena, aim to diversify the economy and boost tourism and technology sectors. Despite delays and budget constraints due to low oil prices, these projects remain pivotal for long-term growth and global positioning, affecting supply chains, construction sectors, and foreign investment confidence.
Energy Market Transformation and Reorientation
Geopolitical tensions and sanctions have halved Russian gas supplies to Europe, prompting Russia to pivot its energy exports towards Asia. Despite challenges, Russia plans to maintain oil production levels within OPEC+ agreements, signaling a strategic shift in global energy markets with implications for supply security and investment flows.
Exit from FATF Greylist
South Africa's removal from the Financial Action Task Force (FATF) greylist marks a significant milestone, enhancing the country's financial system integrity and international reputation. This development reduces perceived investment risks, improves access to credit and international financial services, and is expected to attract increased foreign direct investment, positively impacting economic growth and job creation.
Ukraine's Wheat Export Disruption
Ukraine's wheat production and exports have sharply declined due to ongoing conflict, mined fields, damaged ports, and fragile Black Sea shipping routes. This disruption threatens global wheat supply chains, pushing importers to scramble for alternatives and driving up prices, especially impacting smaller economies reliant on imports, highlighting vulnerabilities in global food security.
Border Trade Disruptions with Afghanistan
Frequent closures at key border points like Torkham severely impact bilateral trade, stranding thousands of trucks and causing multi-million dollar losses. This disrupts supply chains for essential goods, undermines local economies, and threatens the transport and customs sectors critical for regional commerce.
Investor Sentiment and Sector Preferences
Investors remain optimistic about Brazil but shift preferences from interest-rate sensitive sectors to financial and defensive stocks. Foreign investors focus on concentrated portfolios in tech and e-commerce, while locals diversify more broadly. Political stability and delayed interest rate cuts influence market positioning, with fiscal policy risks and global uncertainties shaping investment strategies.
Currency Volatility and Yen Depreciation
The yen has weakened sharply against the dollar, nearing eight-month lows amid political uncertainty and expectations of prolonged monetary easing. While a weaker yen benefits exporters by enhancing competitiveness, it raises import costs and inflationary pressures, complicating monetary policy and affecting corporate and consumer costs domestically and internationally.