Global Oil Price Volatility

The Iran-Israel conflict and potential closure of the Strait of Hormuz threaten to sharply increase global oil prices, potentially reaching USD 200-300 per barrel. Indonesia, as a net oil importer, faces rising fuel import costs, inflationary pressures, and fiscal strain from energy subsidies, impacting trade, production costs, and overall economic stability.

Inflation and Monetary Policy Outlook

Inflation in Russia has decreased to 9.6% as of mid-2025, with expectations to reach around 7% by year-end. The Central Bank has eased interest rates to 20% to manage inflation and economic overheating. These monetary policies affect domestic consumption, investment costs, and overall economic stability, shaping business operating environments.

Canada's Defence Spending Surge

Canada's $9.3 billion increase in defence spending aims to reduce U.S. reliance by boosting domestic aerospace, manufacturing, and IT sectors. Despite ambitions for self-sufficiency, Canada remains dependent on U.S. military equipment, including $tens of billions for 88 F-35 jets. This investment impacts supply chains, procurement policies, and domestic industrial growth, influencing international trade and defence partnerships.

Supply Chain Vulnerabilities in Rare Earths

China's export restrictions on rare earth magnets pose significant risks to India's automotive and electronics sectors, especially electric vehicle production. With over 80% of rare earth magnet imports sourced from China, delays and export licensing issues threaten production continuity. India is actively building alternative supply chains, boosting domestic production, and exploring strategic reserves to mitigate long-term supply risks.

State-Owned Enterprises’ Financial Distress

State-controlled entities like ÇAYKUR are experiencing mounting debt burdens and financial mismanagement, exacerbated by political appointments. This undermines operational efficiency and market confidence, potentially requiring government bailouts that strain public finances and distort competitive markets, impacting sectors reliant on these enterprises.

U.S. Trade and Tariff Pressures

U.S. trade faces significant pressure from Middle East instability and Trump administration tariffs, disrupting export markets, especially in lumber and timber. Uncertainty over tariff policies has led to reduced foreign demand and operational challenges for manufacturers, impacting supply chains and international business relations, particularly with key markets like China and Mexico.

Public Trust Deficit in Institutions

Surveys reveal a significant portion of the Turkish population expresses distrust in key institutions, including judiciary and government bodies. This societal skepticism can translate into social unrest, policy resistance, and challenges in implementing reforms, thereby increasing operational risks for businesses and complicating the investment climate.

Corporate Governance and Business Conflicts

The violent dispute over the Pha Le sand mining company in Quang Nam underscores risks related to corporate governance, legal disputes, and organized crime influence in Vietnam's business environment. Such conflicts can disrupt operations, damage investor confidence, and highlight the need for stronger legal frameworks and enforcement to protect business interests.

Cybersecurity and Preemptive Defense Measures

Japan is advancing a proactive cyber defense strategy, enacting legislation to mandate private sector cooperation and enhance infrastructure protection. The government aims to implement a full preemptive defense system by 2027, addressing threats from state-backed hackers and criminal groups. This focus on cybersecurity is critical for safeguarding supply chains, industrial data, and maintaining business continuity.

Ceasefire and Easing of Domestic Restrictions

The recent ceasefire between Israel and Iran has led to the lifting of Home Front Command restrictions, enabling resumption of normal business activities, reopening of schools, and revitalization of commercial sectors. This transition improves economic productivity and stabilizes domestic supply chains.

Regional Security and Border Control

South Africa's intensified border security operations, such as the SANDF's successful vehicle theft interdiction in Mpumalanga, demonstrate efforts to combat transnational crime. Effective inter-agency coordination enhances national security and protects trade routes. However, porous borders remain a vulnerability, affecting investor confidence and supply chain integrity, especially in cross-border trade with neighboring countries.

Supply Chain Disruptions and Export Competitiveness

Rising shipping insurance premiums and freight costs due to geopolitical tensions increase export costs, particularly impacting textiles, chemicals, and edible oils. Supply chain interruptions threaten industrial production and export volumes, exacerbating trade deficits. Strategic measures to stabilize logistics and diversify trade partners are vital to sustaining Pakistan’s export-driven sectors.

Oil Price Volatility and Fuel Costs

Global oil price spikes, driven by Middle East tensions, have led to increased petrol prices in Australia, affecting inflation and consumer spending. The government monitors fuel pricing to prevent opportunistic hikes, but sustained volatility threatens supply chain costs and operational expenses across sectors reliant on energy.

Real Estate Market Dynamics

Regional tensions drive complex shifts in Egypt’s real estate sector, with rising demand as property is viewed as a safe haven amid crises. However, escalating construction costs due to energy price hikes and supply chain disruptions threaten project execution and pricing strategies, impacting investment decisions and sector stability.

Airspace Closures and Aviation Sector Impact

Escalations have led to the closure of Israeli airspace, severely impacting airlines like El Al and Israir, disrupting passenger and cargo flights. This constrains international trade logistics, tourism, and business travel, causing revenue losses and operational challenges in the aviation sector, with broader implications for Israel’s connectivity to global markets.

Geopolitical Risks from Middle East Conflict

South Africa's active stance on the Israel-Iran conflict, including legal actions and diplomatic efforts, highlights significant geopolitical risks. The escalating violence threatens regional stability and global supply chains, impacting trade and investment. South Africa's leadership in Global South coalitions and participation in G7/G20 forums underscores its role in shaping international responses, with potential repercussions for foreign relations and economic partnerships.

Middle East Conflict Impact

The escalating Iran-Israel conflict significantly affects Indonesia's economy through surging global oil prices, inflationary pressures, and supply chain disruptions. Indonesia's reliance on energy imports and open economic system makes it vulnerable to prolonged geopolitical tensions, impacting fiscal deficits, currency stability, and trade flows. The government is implementing fiscal-monetary coordination, energy diversification, and food security measures to mitigate risks.

Political Instability and Leadership Dynamics

Political fragmentation, exemplified by Floyd Shivambu's party departure and internal ANC tensions over leadership and reform, creates uncertainty. Such instability can deter investment, complicate policy continuity, and affect economic governance, influencing the business environment and international perceptions.

Japan-South Korea Diplomatic Relations

Despite historical wartime and territorial disputes, Prime Minister Ishiba emphasizes continued close communication and cooperation with South Korea. Strengthening bilateral ties is crucial for regional stability and economic collaboration, impacting cross-border trade, joint ventures, and supply chain integration between the two key Asian economies.

Trade Tariffs and Legal Challenges

U.S. courts blocked Trump administration's emergency tariffs on Mexican imports related to fentanyl trafficking, though some tariffs remain. Ongoing legal disputes create uncertainty for exporters and supply chains. Mexico seeks preferential trade treatment under USMCA, with tariff policies influencing bilateral trade flows and investment decisions.

Strategic Importance of Turkish Straits

The Hürmüz Strait's potential closure and regional conflicts highlight Turkey's critical position controlling key maritime routes. Disruptions in oil transit through nearby chokepoints can cause global energy price volatility, affecting Turkey's energy imports and export-dependent industries. Turkey's control over Bosporus and Dardanelles also enhances its geopolitical leverage but exposes it to regional tensions.

Climate Integration in Economic Policy

Pakistan’s economic planning currently marginalizes climate change, despite its severe impact on GDP, agriculture, and infrastructure. The lack of climate-adjusted growth metrics, risk assessments, and green investment frameworks limits effective policymaking. Integrating climate considerations across all economic sectors is imperative to build resilience, ensure sustainable development, and mitigate long-term economic risks.

China's Semiconductor and Tech Self-Sufficiency

Facing US technology sanctions, China is advancing domestic semiconductor capabilities, exemplified by Huawei's Ascend chips employing innovative methods to match global performance. This push reduces reliance on foreign technology, reshaping global tech supply chains and intensifying competition in critical high-tech sectors.

Monetary Policy and Bond Tapering

The Bank of Japan (BOJ) is actively managing its monetary policy with a focus on bond-buying tapering and tightening measures. Recent announcements include slowing bond-buying reduction to 200 billion yen per quarter, potential rapid taper risks unsettling markets, and plans to further reduce bond purchases from April 2026. These moves impact liquidity, interest rates, and investor confidence, influencing trade financing and investment strategies.

Investment Shifts Amid Geopolitical Uncertainty

Investor strategies are adapting to Middle East conflicts by favoring defense, cybersecurity, and technology stocks poised to benefit from increased government spending and security needs. Growth stocks in AI, surveillance, and energy storage sectors have seen significant gains, reflecting market recalibration towards sectors resilient to geopolitical shocks.

Social Stability and Public Safety Concerns

Incidents of public safety threats, such as attacks on students and urban crime, raise concerns about social stability. These issues can affect the business climate by influencing workforce security, consumer confidence, and the attractiveness of Vietnam as a destination for foreign investment and expatriate workers.

Fiscal Strains and Political Uncertainty

Brazil faces mounting fiscal deficits with a 2025 primary deficit projected at 0.51% of GDP and public debt nearing 79.8% of GDP. High interest rates (Selic at 14.75%) and political uncertainty, including President Lula’s potential fourth term and congressional resistance to reforms, create risks for investment, market volatility, and economic stability.

Security and Crime Risks Affecting Trade

Turkey's low ranking on the Global Peace Index reflects internal security challenges, including high crime rates and political instability. Additionally, increasing incidents of drug trafficking via Turkish-flagged vessels expose vulnerabilities in maritime security, potentially leading to stricter inspections, reputational damage, and increased costs for international shipping and trade.

Supply Chain and Commodity Stock Management

The government is actively managing strategic stocks of essential commodities to ensure market stability and food security. Coordination between supply ministries and food industries focuses on monitoring inventory levels, production rates, and distribution efficiency. Strengthening supply chains and logistics frameworks is critical to mitigating the impact of global economic challenges and maintaining accessible goods for citizens.

Tax Reform for Foreign Remittances

The Thai Revenue Department proposes a tax exemption on foreign income remitted within two years for tax residents, including expatriates. This policy aims to attract overseas investment, increase capital inflows, and align with OECD standards, enhancing Thailand’s competitiveness as an investment destination. The reform could stimulate economic activity by encouraging repatriation of substantial offshore assets.

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, such as infrastructure upgrades and sustainability-linked insurance, are increasing. Despite challenges in financing long-term adaptation, every dollar invested yields over tenfold benefits. This trend influences supply chains, risk management, and investment strategies amid growing climate-related disruptions.

Regional Peace Initiatives and Economic Opportunities

The recent peace deal between the Democratic Republic of Congo and Rwanda, brokered with US and African Union support, promises to stabilize the Great Lakes region. Improved security could unlock vast mineral wealth critical for global green energy supply chains, attracting foreign direct investment and boosting regional GDP growth by up to 2% annually, enhancing South Africa’s trade and investment environment.

Targeting of Foreign Business Assets

Russian attacks have deliberately targeted foreign companies’ infrastructure in Ukraine, exemplified by the strike on Boeing’s Kyiv offices and damage to warehouses of local and international firms like Gemini and Wacom. These actions threaten foreign direct investment, disrupt supply chains, and increase operational risks for multinational corporations.

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.

SPIEF 2025 Economic Forum Outcomes

The St. Petersburg International Economic Forum (SPIEF) 2025 is expected to generate up to $95.5 billion in contracts, emphasizing multipolar cooperation and export diversification. Participation by over 20,000 delegates from 140 countries, including high-level political and business figures, signals Russia's intent to deepen ties with Asia, Africa, and Latin America, impacting global investment flows.

Energy Price Volatility and Budget Risks

Rising global oil prices due to Middle East tensions pose a double blow to Indonesia’s economy, increasing import costs and straining the state budget. With Indonesia importing over 800,000 barrels daily, every $1 rise in crude oil price adds significant subsidy burdens. The government is urged to accelerate energy self-sufficiency and strategic reserves to mitigate fiscal vulnerabilities.