World: A new multipolar order in the making with a broad impact

The past two years have been marked by two major conflicts: the war in Ukraine since February 2022 and the war in Gaza since October 2023. While those geopolitical risks could fuel instability in their respective regions, increase uncertainty and harm the global economy, they also illustrate and accelerate the move towards a new multipolar order. Together with climate change, they will have profound long-term consequences on the world’s economic, financial, political and institutional foundations. 

More conflicts undermine world security and stability 

2023 offered further evidence of the new era of uncertainty and rising conflict risks. In October 2023, the war in Gaza, a resurgent latent conflict with wide geopolitical and economic ramifications, broke out, while the war in Ukraine, the first major conflict of this century, was still underway. Israel’s determination to erase Hamas, the severe humanitarian crisis in Gaza and the risk of regional escalation involving major powers (notably the USA and Iran), are making restraint and peace efforts very challenging. Like the war in Ukraine, the war in Gaza displays geopolitical game-playing, with Houthi attacks targeting western commercial ships in the Red Sea and a mainly western alliance fleet to defend them.

In addition to actual conflicts, the world is facing severe latent conflicts, with Asia as the epicentre. The region is the centre of attention, given its major role in world trade and economics, and the presence of China, which competes with the USA for world leadership. This century, the region has been witnessing a bigger and faster arms buildup, notably (but not only) aimed at developing defence capacities in the face of China’s rising regional assertiveness. As the riskiest bone of contention between the USA and China, Taiwan is the region’s top war risk. Since summer 2022, China has been intensifying military pressures in the Taiwan Strait. A peaceful outcome appears even less likely, since Taiwan’s elections in January saw the ruling independent party retain the presidency. Hence, the likelihood of a Chinese invasion, embargo or hybrid operations will continue to increase in the coming years. In the South China Sea, where many sovereignty disputes are unresolved, tensions have also picked up and led to frequent maritime clashes between Philippine vessels and China’s coastguards. Tensions and miscalculation risks look set to remain, given the inability to find compromises between China and other claimants. As for the Korean peninsula, Pyongyang’s advanced nuclear weapon capacity and the intensification of missile firing have led to a growing risk of conflict with South Korea and the USA.

A new world order that is multipolar and unstable by nature

The war in Gaza and Ukraine have in common the rapidly re-shifting world order. This allows frozen conflicts to materialise in an environment based on the balance of power, and where conflicts are increasingly solved by the use of force instead of international rules and diplomatic solutions. Azerbaijan’s flash military conclusion of the longstanding Nagorno Karabakh conflict in September 2023, and Venezuela’s threat of military intervention to seize Guyana’s oil-rich Essequibo region, would not have occurred until recently, while the USA was acting as the world’s police officer.

It is a fact that the multipolar world order puts the informal and heterogenous Global South in repeated opposition to the West on a broad range of issues and in demands for more influence, which will have wide consequences for global security, stability, economy, institutions and norms. The re-shaping of the new world order has translated into the expansion of BRICS (from five to eleven members since January, with more to follow in the future) and rising de-dollarisation in South-South trade and lending (mainly benefiting China’s renminbi). Moreover, the logic of a USA and China-led bloc environment, with a large non-aligned group of countries in between, allows enhanced military cooperation between Russia, North Korea and Iran. Furthermore, as a result of economic sanctions, Russia has become India’s primary oil supplier, whereas Chinese chip exports to Russia have soared and China is now Russia’s largest trade partner, replacing the EU.

Geoeconomic fragmentation underway

The new world order also translates into shifting global supply chains. The US-China trade and economic war, followed by the Covid-19 crisis, have triggered the process of geoeconomic fragmentation. As seen in recent years and looking forward, friend/nearshoring and de-risking strategies will configure new supply chains, trade and investment flows, especially for strategic goods and services. Amid high US-Chinese tensions, trade restrictions have been introduced on chips (by the West, led by the USA) and on critical minerals (by China), likely hindering future developments in the green and energy transition in both US and Chinese ‘blocs’. In addition, the EU investigation into Chinese subsidies for EVs could lead to future EU tariffs and probable Chinese retaliations. The rising trend of trade distortions worldwide seems set to continue in the new geopolitical context. All in all, navigating across trade and political obstacles will become more complex and riskier in the future and have consequences on investment, trade and business decisions.

Climate change: an additional game changer for the world order

Alongside geopolitical risks, climate change is the other prominent global risk which will impact the world order. 2023 was the hottest on record and, in combination with El Niño, saw a rising number of extreme natural events, from severe droughts in the Amazon, East Africa and Central Asia, to heatwaves in India, extended wildfires in Europe and Canada, and record climate disaster losses in the USA. COP28 once again confirmed a sad truth that the world remains at odds with the efforts required to mitigate and adapt to the unique climate change challenge, inevitably fuelling more economic, financial and political pain in the future. Slow progress is explained by multiple factors, such as resistance to change and short-termism, and obviously the unprecedented magnitude of the economic transformation and financing needs required over a short period. However, the lack of global cooperation is a major explanation, too, as high geopolitical tensions make it harder to agree on bold collective measures. In the emerging multipolar world order, big and middle powers will compete for a bigger share of the geopolitical and economic cake, or at least for preserving it, in the case of the West. They do not want to risk seeing their development eroded to the profit of other powers by an accelerated phasing out of fossil fuels, or by providing developing countries with immense climate financing due to their historically higher contribution to climate change.

Looking ahead, climate risks will have profound consequences on the world order in terms of access to natural resources (water, food, critical minerals), conflicts and the socio-economic damage to individual countries and their ecosystems. Therefore, today’s long-term economic and geopolitical projections might turn out to be very uncertain, depending on how climate risks unfold in practice in the long term. Climate change also has visible consequences on global trade flows via trade restrictions. Faced with the negative impact of climate change on domestic agriculture production, a rising number of countries have decided to restrict their exports of some basic foods, allegedly to protect domestic food security (e.g. India on rice and sugar exports). More generally, (medium and large) countries increasingly revert to food, energy and national security as policy goals justifying protectionist measures, which negatively impact global supply chains, access to key commodities, and push up global prices, notably of staple foods. Those developments will become increasingly frequent in the future. Hence building a diversified and reliable network of trade partners will be essential to ensuring every single country’s resilience, especially in the face of the fragmenting world order.

Analyst: Raphaël Cecchi – r.cecchi@credendo.com