4. Geopolitics: New alliances, state capitalism and a diverging electorate

New alliances
New alliances will be strengthened. The expansion of the BRICS is perhaps the clearest example of that as highlighted in last year’s Outlook. The four founding members (Brazil, Russia, India, and China) were joined by South Africa in 2010, Egypt, Ethiopia, Iran, and the UAE in 2024 and Indonesia in 2025. Trade links between the members can be expected to strengthen but it is certainly not a homogeneous grouping.

European security and the Russia–Ukraine war
Russia is facing economic, manpower and fiscal strains in its war with Ukraine. These could push it either toward negotiation or escalation. Europe itself is undergoing its largest rearmament in decades but cyberattacks as well as Russian drone, aircraft and shipping incursions into European NATO member territories are likely to continue to pose challenging threats. The cyberattack on British carmaker Jaguar Land Rover is a key example of this. The auto manufacturer was unable to produce cars for over a month and required government loan guarantees to support its supply chain. However, there are encouraging signs of European leaders coming together under the catalysing influence of President Trump.
 
Sanctions
Sanctions are set to continue, intensify and change in their nature. The US intends to impose higher tariffs or sanctions on countries that trade with Russia (especially those who import cheap Russian oil, as evidenced by increased tariffs on India) and encourage or pressure other countries to do likewise. Sanctions may well also, or alternatively, be on individual companies and their leaders rather than the countries themselves. While their effectiveness can be questioned, there is no doubt they can be harmful to the individuals involved, as they have been in the case of sanctioned Russian nationals.
 
Regional flashpoints and institutional strain
Multiple regional tensions remain. The experience of recent years is that these can flare up with little warning. US involvement has been successful in defusing many of these, a role which is ever more important as global institutions – such as the United Nations, World Trade Organization and International Monetary Fund – struggle to enforce norms and manage global challenges.

Trust and leadership
2026, we believe, will see a continued erosion in the trust that electorates have in their political leadership (Figure 5). A polarisation between increasingly far left and far right political options is evident in many countries, with the ‘middle ground’ often struggling. That tension is evident, for example, in France – with the result being a situation of virtual ungovernability. The electorate feel they are often choosing the ‘least bad’ option rather than a party or candidate they truly support. Too many leaders focus on reacting to crises without offering a coherent long-term direction.

Equally important is global awareness. Politicians who retreat into nationalistic policies and views ignore the reality of the deep interdependence in areas such as trade, technology and climate. A key watchpoint will be the US midterm elections which will be a test for Donald Trump as to whether his gamble on key policy initiatives such as tariffs and immigration have worked with the voting population. Recent political losses are a concern for the Trump administration and he may need to pivot to the domestic agenda.