By Mark Patrick, Global macro risk expert; Fmr. Foreign Service Officer, U.S. Dept. of State; Council Member, Council on Global Competition and Innovation – CGCI
Recent geopolitical developments, including the escalation of direct conflict involving the United States and Iran, mark a potential turning point in global power dynamics. The U.S. decision to attack Iran – whatever one’s view of its strategic merits – is not an isolated event but part of a broader realignment. It is a punctuation mark in a longer sentence that the world has been writing for years.
The rules‑based international order that supported seven decades of relative stability, shaped by U.S. leadership and a broad commitment to institutional norms, is undergoing a profound transformation that is reshaping how it functions in practice. That order was never perfect or evenly applied, but it provided a shared frame of reference for allies, markets, and adversaries alike. What replaces it is still taking shape, and that ambiguity is itself the central risk.
The world is becoming less predictable, more dangerous, and more openly organized around power, leverage, and precedent rather than shared rules. Great power competition is no longer a distant theoretical concern for strategists. It is a present-tense variable in every boardroom, every risk committee, and every investment model that touches global markets.
The fragilities compounding this shift are structural. Fiscal space in most advanced economies is severely constrained, limiting the capacity of governments to absorb shocks, fund security investments, and maintain the social contracts that sustain political legitimacy. With many Western democracies experiencing wider income disparities and demographic changes over the last several decades, frustration with political and economic elites has grown. The seemingly unshakeable global march of liberal democracy at the turn of the millennium has slowed and, in some cases, reversed course, evinced by the current rise of populism. That populism is not an aberration; it is a signal that large portions of the electorate believe prior arrangements were not working for them.
Institutions that once served as shock absorbers – multilateral bodies, treaty alliances, independent regulatory frameworks – are under stress, their credibility questioned and their stabilizing function diminished. Some of this pressure reflects legitimate reassessment of institutions that have not kept pace with geopolitical and economic realities.
Security challenges are rising simultaneously across multiple theaters, from Europe’s incomplete rearmament to intensifying debate over U.S. commitments in the Indo-Pacific, where regional cohesion remains limited and the probability of localized conflicts is climbing. Demographic pressures in key economies are straining public finances and labor markets. And climate-related disruptions, though unevenly priced by markets, represent a category of tail risk that interacts with every other fragility on this list in ways that are nonlinear and difficult to model. For investors, this is less about ideology and more about physical asset risk, insurance exposure, and the reliability of energy and infrastructure systems over time.
Compounding all of this is a domestic political environment in the United States that is itself under considerable stress. The ability of the American political system to generate durable policy responses to these challenges – whether on defense investment, allied burden-sharing, fiscal consolidation, or long-term infrastructure and energy resilience – faces increasing tests amid a complex domestic environment. Intense competition over these priorities is now a permanent feature of U.S. politics, rather than a temporary anomaly. Midterm election dynamics, institutional erosion, and the heightened polarization of foreign policy debates all reduce the predictability of American statecraft at precisely the moment when clarity and consistency matter most to allies and adversaries alike. At the same time, this contested environment creates room to rethink outdated assumptions and to press allies, competitors, and institutions toward fairer and more sustainable arrangements.
In this environment, American companies – and particularly those in the financial services industry – cannot afford to operate as though the frameworks of the past remain intact. For the financial sector, this shift touches funding costs, counterpart risk, regulatory trends, and where the next wave of durable growth will come from. Markets have shown remarkable resilience in recent years, but that resilience has been borrowed against an inherited architecture of institutional credibility and deep liquidity that is no longer being fully replenished. The rules of the game have changed. Firms that adapt their strategic and investment frameworks to geopolitical and geoeconomic realities as they actually are, rather than as they were, or as they would wish them to be, will be better positioned than those waiting for a return to “normalcy” that is unlikely to arrive. In practice, this means stress‑testing portfolios for contested supply chains, sanction regimes, and defense‑driven industrial policy, and building capacity to price those dynamics explicitly rather than treating them as exogenous shocks.
Adaptation now has a dimension that goes beyond traditional concerns of portfolio construction and risk management. American security and the optimization of allied relationships are foundational to the business environment. Defense spending across NATO and allied nations is rising, resiliency investment in critical infrastructure, energy, and supply chains is accelerating, and the U.S. government is under growing pressure to mobilize private capital in the service of national security objectives. The role of American financial institutions in meeting these needs will only grow. This is an opportunity, and a responsibility that will need to be met intentionally by management teams and board advisors. Crucially, it is a responsibility that aligns with shareholder value when capital is deployed into real assets, productive capacity, and technologies that strengthen U.S. and allied competitiveness.
Meeting that responsibility requires institutions and forums that can connect capital to these emerging security and resilience priorities. The Council on Global Competition and Innovation – CGCI is one such platform that was built for this moment. By bringing together leaders from industry, government, and defense, CGCI advances U.S. and allied competitiveness where it matters most – in a world where it is actively being contested. That work includes disciplined assessments of which institutions, alliances, and policy tools genuinely serve U.S. interests, and which need reform or replacement.
The path forward requires that we work together across sectors, across governments, and across the alliances that the United States and its allies choose to strengthen and reform, to ensure that American and allied economic capacity and security are not treated as separate problems. In a world where security will play an ever-growing role in shaping economic outcomes, they are the same problem. And solving it together is the only approach that will work.
