It’s been six years since we first wrote about the coming G-Zero world—a world with no global leader. The underlying shifts in the geopolitical environment have been clear: a US with less interest in assuming leadership responsibilities; US allies, particularly in Europe, that are weaker and looking to hedge bets on US intentions; and two frenemies, Russia and China, seeking to assert themselves as (limited) alternatives to the US—Russia primarily on the security front in its extended backyard, and China primarily on the economic front regionally, and, increasingly, globally.

These trends have accelerated with the populist revolt against “globalism”—first in the Middle East, then in Europe, and now in the US. Through 2016, you could see the G-Zero picking up speed on multiple fronts: the further deterioration of the transatlantic alliance with Brexit and the “no” vote on the Italy referendum; the end of America’s Asia pivot with the collapse of the Trans-Pacific Partnership and the Philippine president announcing a break with the US; the Russian victory in Syria after backing President Bashar al Assad through nearly six years of war.

But with the shock election of Donald Trump as president of the US, the G-Zero world is now fully upon us. The triumph of “America first” as the primary driver of foreign policy in the world’s only superpower marks a break with decades of US exceptionalism and belief in the indispensability of US leadership, however flawed and uneven. With it ends a 70-year geopolitical era of Pax Americana, one in which globalization and Americanization were tightly linked, and American hegemony in security, trade, and promotion of values provided guardrails for the global economy.
In 2017 we enter a period of geopolitical recession.

This year marks the most volatile political risk environment in the postwar period, at least as important to global markets as the economic recession of 2008. It needn’t develop into a geopolitical depression that triggers major interstate military conflict and/or the breakdown of major central government institutions. But such an outcome is now thinkable, a tail risk from the weakening of international security and economic architecture and deepening mistrust among the world’s most powerful governments. 

Eoin Treacy's view

Here is a link to the full report.

We live in an increasingly multipolar world where there is not one centre of gravity but a number and these are focused on major population centres or large geographical areas. Part of the reason is because of demographics. With large aging populations that require greater commitment of resources domestically there simply isn’t the appetite for global hegemony on the same scale as previously in the USA, Europe and Japan. Of course that doesn’t mean there won’t be competition. In fact it probably means we can expect even greater adversarial conditions because power vacuums will inevitably be filled by someone. 

Technology also plays a role. Services represent much larger components of developed market GDP today than in decades past. The global supply chain remains important but is declining relative to the value creation of the services sector coupled with software advances and technological prowess not least in artificial intelligence. There will obviously always be demand for resources, food and clothing but quite whether these are worth protecting with a vast global military infrastructure without the necessity of oil market security stabilisation is a big question. 

Concurrently China is intent on stamping its footprint on the global market and is buying its way into major infrastructure projects all over the world. With over a billion people, food and energy insecurity and a political imperative to continue to improve living standards China has a stronger requirement for robust energy and trade security than many other countries. Viewed from that perspective it is inevitable the country will continue to invest in its military. India shares many of the same challenges so it will have little choice but to attempt to act as a counterweight to China lest it be squeezed into a position of irrelevance geopolitically. 

Energy exporters like Russia and the GCC countries probably have at least a decade before the threat of substitution really bites but that is largely irrelevant since they are so dependent on high oil prices to balance their budgets. Desperation is a significant risk and while the world is focused on North Korea’s nuclear missile development the Saudi move to isolate Qatar, is an equally important development. 

Saudi Arabia is fighting a proxy war with Iran in Iraq, Syria and Yemen and just moved against a fourth country. How long before this proxy war goes main stream? Volleying missiles across the Persian Gulf would cripple oil exports as would using Iraq as a theatre to conduct a full scale conflagration. Oil prices would rocket higher but Saudi Arabia might calculate it has the financial resources today to press its advantage over Iran but that might not be the case in future if Iran’s position improves as it exports greater volumes. 

After decades of isolation Iran does not have the same bloated welfare state of other major exporters so countering its rise is no small task. However it represents a significant priority for Saudi Arabia and its regional allies. For me at least this represents a potential a black swan event that could derail the global expansion. There is no sign today of such an outcome but the situation is worth monitoring for how the deteriorating trend evolves because it is certainly trending downwards.