What are the key forces currently influencing markets and geopolitics?

International politics and global markets are at an interesting juncture. The world is in turmoil, primarily because America, still the dominant superpower, has become an unreliable player. President Donald Trump is actively dismantling the international order that the United States has created and led for the past 80-plus years. Despite this, financial markets are booming not only in the United States, but also in East Asia, South America, and many European countries. Are investors being misled, or is the picture more complicated than this apparent contradiction suggests?

While the situation is indeed complex, three main factors will shape global politics in the coming years. First, there are virtually no political constraints on the rapid development of artificial intelligence (AI), which has driven the growth of the market and which - for better or worse - will continue unchecked. The most important technological revolution in history (one that will create both incredible opportunities and unprecedented dangers) began during a "geopolitical recession", a moment when the existing global system is giving way to something new, although we cannot yet discern what that something new actually is.

Given the rapidly deteriorating relations between the governments of the leading countries, AI will be virtually left without any effective regulation. The companies that create the most advanced AI models today act as sovereign geopolitical players, because their inventions will be essential to our security and prosperity in the future. This is the law of the jungle, exploited in a ruthless (and extremely well-funded) technological competition. The AI ​​arms race currently involves not only the US and China, but also OpenAI, Anthropic and their competitors. There is no doubt that they have every incentive to grow, not to act cautiously.

Second, the market impact of the rapid growth of artificial intelligence will be mitigated by the persistence of political impositions on globalization. For half a century, the main driver of global economic growth has been the US’s drive to open markets to accelerate the cross-border flow of ideas, information, people, goods, services and, most importantly, capital. But America has ceased to be the driving force behind globalization. Instead, it is now at the forefront of exploiting trade and financial relationships for narrow political gain, forcing other countries’ governments to embrace protectionism to protect their economies and workers. (While Trump has accelerated this trend, it is worth recalling that Democrats began to retreat from free trade even before he arrived on the political scene.)

The result has been a profound shift in thinking: a shift from a positive-sum game to a zero-sum game. Yes, other countries are still not ready to abandon globalization, as recent breakthrough trade agreements involving the European Union, India, Mercosur (Argentina, Brazil, Paraguay, and Uruguay), China, Canada, and others demonstrate. Yet the global shift toward politically motivated protectionism has now become the new norm.

Third, the world is generating more and more “tail risks” and they are getting worse. These are truly revolutionary events that are still unlikely, but no longer seem as unlikely as they once did. The unreliability of a superpower is pushing traditional allies to diversify their security and economic risks, while rivals are simultaneously testing new limits of what is possible. Deepening disagreements between governments are raising the cost and obstructing the resolution of international challenges.

Consider the US-Israeli war with Iran. Trump's decision to attack the Islamic Republic was born of overconfidence, but it also stemmed from a crisis in America's relations with its allies - they had no influence on US decision-making. The result was the most serious disruption to global trade since the Covid-19 pandemic.

Yes, this war has not yet triggered a global economic recession. But whatever happens in the near future with the Strait of Hormuz or the next potential round of negotiations on Iran’s nuclear program, there is now a constant risk that hostilities could resume at any time, with even greater global consequences. The Middle East has become an even more dangerous region: unscrupulous actors have more room to operate, and a likely disproportionate US response will likely radicalize many – be they militant groups like the Houthis in Yemen, terrorist groups like ISIS and its followers, or “lone wolves” armed with dangerous new technologies.

The list of globally significant geopolitical risks does not end there. Ukraine appears to have taken the initiative in the war against Russian aggression. But it does mean that President Vladimir Putin will find himself in a dangerous state of increasing isolation. The closer Ukraine comes to humiliating the Kremlin, the greater the risk that Putin, in desperation and in an attempt to change the course of the conflict, will resort to tactical nuclear weapons or more aggressive and direct attacks on countries bordering NATO. This scenario has become more likely after the White House’s recent refusal to play any mediating role in ending the fighting.

The likelihood of all these dangerous scenarios is small, but it has become greater than many are willing to admit. And these are just the risks that are already apparent. The lack of regulation of artificial intelligence and other new weapons will make any future conflict less predictable and more dangerous. The lack of coordination in global health (the US government is reluctant to take the lead, and the World Health Organization is deprived of resources) increases the likelihood of another pandemic in the future and reduces the chances of containing it.

In other words, the technological breakthroughs that have led to market growth are likely to continue, but the risks of large-scale disruption are also increasing. Everything can go very well (or at least as expected), until suddenly it goes wrong.

The author is the founder and president of Eurasia Group and GZERO Media; is a member of the UN Advisory Body on Artificial Intelligence

Copyright: Project Syndicate, 2026. (translation: NR)