Energy Shock Hits Logistics

Middle East conflict has disrupted shipping through the Strait of Hormuz, lifting US gasoline prices 12.3% in April and more than 50% since late February. Higher fuel, freight and input costs are filtering through transport, chemicals, metals and consumer goods supply chains.

EU Funding Anchors Stability

Ukraine’s ratified €90 billion EU package for 2026-2027 underpins macroeconomic stability, defence procurement and energy resilience. For investors, it reduces sovereign liquidity risk, but disbursements remain conditional on tax, customs, rule-of-law and anti-corruption reforms.

Oil revenue windfall versus volatility

Higher crude prices lifted Saudi oil export revenue to $24.7 billion in one month and Aramco’s first-quarter profit by 25.5% to 120.13 billion riyals. Yet extreme price volatility complicates procurement, budgeting, energy-intensive manufacturing, and inflation management.

Monetary Tightening Stays Restrictive

The central bank kept rates unchanged at 19% deposit and 20% lending as inflation stayed elevated at 14.9% in April. High borrowing costs, coupled with expected inflation volatility, constrain corporate financing, investment expansion, consumer demand, and working-capital management.

Regulatory Arbitrage and Local Fiscal Stress

Beijing’s campaign against abusive local enforcement, including cuts to 300,000 grassroots personnel, reflects mounting fiscal strain in local governments. While intended to reduce arbitrary inspections and fines, uneven enforcement and revenue pressures still create compliance unpredictability for firms operating across provinces.

Labor And Capacity Pressures

To address shortages, Taiwan approved 1,699 manufacturers by April under a scheme granting more migrant-worker quotas when local wages rise by NT$2,000. The policy helps expand capacity, especially in high-tech manufacturing, but signals persistent labor tightness and higher operating costs.

EU China Shock Countermeasures

European policymakers are preparing tougher instruments against Chinese overcapacity, subsidies and supplier concentration, including diversification rules and faster safeguards. Businesses trading through Europe face rising risks of new probes, tariffs, localization requirements and retaliatory action from Beijing.

Geopolitical Shocks Lift Costs

Middle East conflict and broader security tensions are feeding US inflation through energy and freight channels, amplifying pressure on transport-intensive sectors. For international firms, this raises hedging needs, margin stress, and contingency requirements for shipping, procurement, and business continuity planning.

China Deepens Trade Dependence

China remains Brazil’s dominant trade partner, with bilateral flows reaching US$170.9 billion in 2025. Beijing’s recognition of Brazil as fully foot-and-mouth-free should lift beef and pork exports, while stable Chinese fertilizer supplies remain critical for agribusiness and food-linked supply chains.

Regional conflict and airspace risk

Iran’s June missile strikes on Israel, subsequent Israeli retaliation, and temporary regional airspace closures sharply raise operating risk. Businesses face flight disruptions, insurance cost increases, shipment delays, and renewed contingency planning needs across aviation, logistics, and executive travel.

War Economy Crowds Out Investment

Defence and security spending now absorbs nearly 40% of federal outlays, squeezing civilian investment, raising taxes, and expanding domestic borrowing. The resulting fiscal imbalance is weakening non-military sectors, reducing growth prospects, and raising financing and policy risks for businesses.

Energy export infrastructure vulnerability

Russian refining and export systems face mounting pressure from sanctions and repeated Ukrainian strikes on refineries, terminals and related infrastructure. Disruptions to processing and logistics can tighten product availability, alter export flows and create volatility for buyers of Russian-origin energy.

South China Sea Risks Persist

Maritime tensions with China remain a structural business risk, especially for shipping, offshore energy and strategic planning. Vietnam and the Philippines now emphasize freedom of navigation as non-negotiable, underscoring continued exposure to security shocks across critical trade and energy routes.

Election-Driven Policy Volatility

US economic policy is increasingly shaped by political imperatives ahead of the November midterms, affecting trade negotiations, tariffs, industrial policy, and China strategy. International firms should prepare for abrupt regulatory shifts, headline risk, and politically motivated interventions across strategic sectors.

Energy hub role deepens

Turkey is reinforcing its role as a regional energy corridor through TANAP, TurkStream, Ceyhan and new Turkey-Greece-Italy pipeline plans. This improves long-term supply-chain resilience and industrial competitiveness, but leaves businesses exposed to regional conflict and energy-price volatility.

China Supply Chain Dependence

Germany remains heavily dependent on Chinese inputs in critical sectors despite derisking rhetoric. China supplied 66.5% of imported lithium batteries, over 92.6% of solar panels, 72.9% of antibiotics, and more than 85% of magnesium imports in 2025.

Tighter Russia sanctions compliance

The UK is expanding Russia sanctions to cover uranium, crypto-finance, industrial inputs, shipping, and construction services, while refining fuel-origin rules. Businesses face higher screening, due-diligence, and maritime compliance costs, especially in energy, metals, dual-use goods, and finance.

Automotive Rules of Origin Squeeze

The automotive sector faces acute pressure from proposed tougher origin rules and higher US-content thresholds. Industry groups warn compliance would be difficult given reliance on Asian inputs, potentially raising costs, delaying sourcing shifts, and undermining Mexico’s role in North American vehicle production.

EU FTA Acceleration Push

Bangkok is pressing to conclude a Thailand-EU free trade agreement, with a ninth negotiation round due in Brussels in June. Faster progress could improve tariff access, attract European manufacturers, and strengthen Thailand’s competitiveness against Vietnam and Malaysia.

West Coast Pipeline Push

Ottawa and Alberta have advanced a framework for a new West Coast oil pipeline, with national-interest designation possible by October 2026 and construction as early as 2027. If realized, it would diversify export markets, reduce U.S. dependence, and reshape energy logistics.

AI Buildout Raises Operating Costs

Rapid AI infrastructure expansion is boosting demand for power, software and computing equipment, contributing to broader price pressures. At the same time, officials are highlighting AI-linked cybersecurity risks to financial infrastructure, increasing operating, resilience and compliance costs for businesses.

Tougher EU Trade Defences

France is pushing the EU to respond more forcefully to unfair trade practices, especially concerning Chinese overcapacity, subsidies and critical-material dependencies. This points to higher risks of tariffs, stricter reciprocity rules and regulatory shifts affecting sourcing, market access and industrial strategies.

Sticky inflation, high rates

Brazil’s inflation reached 4.64% annually in mid-May, above the 4.5% target ceiling, while market expectations for 2026 rose to 5.04%. With Selic at 14.5%, financing costs remain elevated, constraining investment, working capital, and consumer demand.

Tariff Regime Reconfiguration

Washington is rebuilding its tariff toolkit after court setbacks, proposing new Section 301 duties of 10%-12.5% on 60 economies and revising Section 232 metals rules. The shift raises landed costs, pricing volatility, customs complexity, and sourcing risk for global manufacturers and importers.

Export Control Compliance Tightening

Recent prosecutions over alleged Nvidia chip smuggling from Taiwan to China signal stricter enforcement of advanced technology export controls. Businesses handling servers, AI hardware, and dual-use components face rising compliance costs, greater documentation scrutiny, and higher legal and reputational risks across regional distribution networks.

Harder Screening for Foreign Capital

CFIUS scrutiny is intensifying for foreign investors in US critical technologies, including AI, semiconductors, biotech, and cybersecurity. Even small stakes can trigger review, delays, or mitigation, affecting cross-border venture flows, deal structuring, and timelines for international investors entering US assets.

Carbon Policy and Industrial Competitiveness

Federal review of industrial carbon pricing is creating uncertainty for manufacturers, energy producers and capital-intensive investors. Ottawa is weighing adjustments while provinces dispute competitive impacts, making emissions costs, project economics, and location decisions more difficult across Canadian industrial sectors.

Nuclear Restarts and Power Reliability

Japan is reviving nuclear generation to reduce LNG dependence, highlighted by Kashiwazaki-Kariwa Unit 6 returning to operation. Progress remains slow, with only 15 reactors cleared since 2013, leaving manufacturers exposed to elevated electricity costs and periodic uncertainty over long-term power availability.

Manufacturing And Localization Push

India is intensifying industrial policy through PLI schemes, semiconductor initiatives, defence indigenisation and EV localisation. Companies are expanding domestic sourcing and capacity, as illustrated by Hyundai’s plan to raise localisation from 82% to 90%, supporting India’s role as an alternative manufacturing hub.

Nuclear power as strategic advantage

France’s low-carbon nuclear electricity is becoming a core investment attraction, especially for data centers and advanced industry. For manufacturers and investors, this supports energy security and decarbonization goals, but may also create allocation tensions if power-intensive projects multiply rapidly.

Trade Policy Driven by Security

US commercial policy is increasingly fused with national security priorities, especially around China, Iran exposure, advanced technology, and telecom standards. For international business, this means more sanctions screening, regulatory fragmentation, and board-level attention to geopolitical compliance in investment and operating decisions.

Reservist mobilization hits labor supply

Repeated reserve call-ups are disrupting production, delaying projects, and reducing household incomes. The government authorized up to 280,000 additional reservists through July, while surveys show 31% reporting income declines, increasing workforce volatility for employers, contractors, and service-sector operators.

Cross-Border Capital Controls Intensify

Chinese regulators have launched a broad crackdown on illegal offshore investing and foreign brokerage access, imposing heavy fines and stricter account controls. This raises funding, liquidity and wealth-management constraints for firms reliant on mainland capital, Hong Kong channels or overseas portfolio diversification.

Coalition instability and election risk

The Knesset has advanced a dissolution bill that could bring elections as early as September. Political instability linked to ultra-Orthodox draft disputes raises uncertainty around budget execution, regulatory continuity, coalition bargaining, and the timing of economic and business policy decisions.

Industrial Policy and Localisation Push

Government’s R130.6 billion medium-term trade and industry allocation reinforces localisation, procurement activism, green industrialisation, and export development. International firms may find incentives and partnership opportunities, but should expect stricter local-content expectations, policy intervention, and closer scrutiny of procurement strategies.

Security Tensions Affecting Trade

Security and anti-cartel cooperation have become intertwined with trade talks as Washington links market access to law-enforcement collaboration. Bilateral friction over corruption allegations and sovereignty concerns raises political risk, complicates negotiations and clouds the operating environment for exporters and investors.