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This edition of Geostrategic Analysis delves into the recent Iran conflict, which is reshaping the Middle East geopolitical landscape. The situation remains fluid, with potential implications for energy supplies, global logistics and defense investments. This edition also examines the life sciences sector, which is undergoing a potential realignment due to recent US policy changes affecting manufacturing and pricing strategies.
Other issues of interest include the intensifying geopolitical competition over critical minerals, the initiatives discussed at the BRICS Summit, and the evolving landscape of AI governance. The indicator of the month focuses on current US tariff rates, highlighting the complexities of global trade relations and supply chain dynamics.
In the monthly Geostrategic Analysis, the EY-Parthenon Geostrategic Business Group (GBG) provides its insights on key geopolitical developments. Each issue includes our take on recent or upcoming political risk events and what they mean for global business. Subscribe Now
Topic 1
Iran conflict resets Middle East landscape
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Read moreOn 12 June, a United Nations (UN) nuclear watchdog said Iran was not complying1 with non-proliferation obligations.
Between 13 and 24 June, Israel conducted airstrikes against Iranian military targets and energy infrastructure with a stated goal of halting Iran’s progress toward nuclear weapons capabilities. In response, Iran launched ballistic missile and drone attacks, with the stated goal to target strategic infrastructure in Israel. Military and civilian casualties were reported in both countries.
On 22 June, the US took military action against three sites in Iran linked to its nuclear research program. Iran then undertook what most commentators described as a limited attack on a US military base in Qatar.
A ceasefire went into effect on 24 June but tensions and escalatory rhetoric have continued.
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Read moreA near-term scenario of continued de-escalation of the conflict is most likely. The stated achievement of operational objectives by the US and Israel could limit their desire for further attacks. Tehran's decision to deescalate is likely driven by the limitation of its military capabilities and lack of support from allies, factors that are expected to persist.
In this scenario, the US is likely to push for continued negotiations on Iran’s nuclear program and potentially missile programs. How such negotiations play out depends on a variety of factors, including the Iranian government’s willingness to prioritize sanctions relief over its long-standing nuclear ambitions, the specific objectives of US negotiators and the potential role for Gulf states in these talks.
Another potential short-term scenario is for hostilities to resume and possibly escalate. Without diplomatic agreements, Tehran and regional proxies might accelerate covert activity as well as operations against Israel and possibly the US. Such actions could include renewed military attacks, targeted attacks via proxy groups or cyber-attacks on critical infrastructure or other targets. Given long-standing tensions in the region, any actions could be misinterpreted, leading to a risk of unintended escalations.
No matter which scenario prevails in the short term, recent hostilities will lead to lasting consequences for the Middle East. Israel’s cementing of its role as a significant regional power may encourage countries in the region to accelerate their relationship building with Israel. The durability of Iran’s regime and its external support may be called into further question, with the potential for domestic instability. Other regional powers, such as Türkiye, may seek to expand their influence and own defense spending. And recent events may motivate Brussels, Moscow and Beijing to recalibrate their own geopolitical posture in the Middle East – particularly given NATO members’ recommitment to collective defense at their recent summit.
Major sectors affected include energy and resources, hospitality, logistics and aerospace and defense.
Specific policy actions – such as tariffs – and more general policy volatility and uncertainty have contributed to downward pressures on US financial assets. At their lowest point during the administration’s first 100 days, US equity indices fell more than 12% and the US dollar declined by about 9% against a basket of international currencies – although both rose again by the end of the period. Business leaders should explore how different policy scenarios could impact markets in the coming months and seek to build financial resilience.
Higher tariff rates – particularly the bilateral tariffs between the US and China – could cause persistent supply chain disruptions and heighten inflationary pressures. In the short term, executives should assess supplier impacts, consider negotiating cost sharing, and conduct wargaming for pricing strategies. In the medium term, they should explore demand outlook scenarios and determine whether and how to proceed with capex and investment plans.
As debates unfold on trade, tax and other policies, there are opportunities for business leaders to help shape the agenda. As with any change of administration, executives should engage with stakeholders – including policymakers, regulators, civil society groups, employees, investors and customers – to inform policies and shape business strategy. Executives should continue engagement with industry associations or other groups on common policy topics.
Significant policy changes are likely to have long-term ripple effects across sectors and markets; and further policy shifts are expected in the coming months. The range of policy outcomes and business implications will therefore continue to expand, creating a volatile and uncertain global operating environment. Executives should use strategic foresight methodologies, such as scenario planning and tabletop exercises, to systematically manage this uncertainty to build resilience and have more confidence in their strategic decisions.
For more information, contact Courtney Rickert McCaffrey and Bridget Neill.
Topic 2
A potential policy-driven global realignment for the life sciences industry
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Discover how EY's Supply Chain Transformation solution can help your business move towards fully autonomous, connected supply chains that drive business growth.
Read moreIn April 2025, the oil markets were roiled by two major disruptions. First was the sweeping tariffs announced by the US on 2 April, followed by escalating tariff rates between the US and China.
The second was a day later, when OPEC+ announced its members would accelerate planned output increases.
This triggered significant price volatility. Brent crude prices fell from above $75 per barrel to a low of just below $63 on April 82.
The drivers of volatility remain fluid. A 90-day pause on most US tariffs may have contributed to short-term stability, but trade policy uncertainty remains.
Significant withdrawals of capital in oil markets may persist, as funds still invested have moved to new positions and strategies. Investors will likely seek investments deemed lower risk until there is greater clarity on trade dynamics as well as OPEC+ intentions.
US liquified natural gas (LNG) demand, however, may increase as some countries may increase US LNG imports as part of negotiations with the White House to reduce bilateral trade surpluses.
EY modelling of the tariffs in effect in mid-April suggests global real GDP growth could be reduced by 0.5 percentage points in 2025 and 0.7 percentage points in 2026. The modelled impact of the resulting lower oil demand and weakened market sentiment could exert downward pressure, with a price decline of 25%. Actual price setting will incorporate myriad factors, though, and OPEC+ actions will be critical in setting market sentiment in a period of weakening demand fundamentals.
Volatility is likely to persist until there is greater clarity on economic performance or OPEC+ policy. In response, oil and gas companies are expected to prioritize cost optimization, operational efficiencies, and supply chain reassessment. Capital spending on projects may be reviewed as project costs rise and downside price risks increase.
For companies in the US unconventional space planning to further consolidate positions or for players looking to replenish reserves through acquisitions, M&A may become more complex to execute as volatility may widen bid-ask spreads, potentially slowing deal activity.
For more information, contact David Kirsch, Marek Rozkrut, Daksh Tyagi.
Topic 3
Geopolitical competition over critical minerals, climate unity at BRICS Summit, AI governance developments
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Read moreIn an apparent response to the US imposition of tariffs on China, Beijing recently introduced new export licensing requirements on certain rare earth elements, such as terbium. These critical minerals are essential for supply chains associated with the energy transition and manufacturing semiconductors. While these requirements could ease as a result of US and Chinese trade negotiations, the move will likely prompt the US, EU and others to push for more substantial diversification efforts. A recent International Energy Agency (IEA) report4 highlights the geographic concentration of refining energy minerals has actually increased in recent years across nearly all critical minerals – from about 82% in 2020 to 86% in 2024.
Due to the high concentration of supply, companies relying on critical minerals for their products, including those in the renewable energy, automotive and electronics industries, are highly vulnerable to supply shocks. This highlights the need to review supply chains and consider diversification strategies. However, this is not always possible: for instance, China refines 91% of all rare earth products. Therefore, executives may consider stockpiling critical inputs to improve resilience to short-term supply shocks and advocating for more domestic mining and refining activities. Meanwhile, the growing urgency to diversify critical minerals supply chains provides an opportunity for mining companies to invest in new projects and markets.
For more information, contact Courtney Rickert McCaffrey.
How EY-Parthenon can help
EY-Parthenon strategy consulting services can develop growth, transaction or turnaround strategies to help organizations increase profitability and long-term value
Read moreChinese and European leaders have sought to improve bilateral ties to offset higher uncertainty in global markets. Various recent meetings – including between Chinese President Xi Jinping and Spanish Prime Minister Pedro Sanchez and between European Commission president Ursula von der Leyen and Chinese Premier Li Qiang – have highlighted bilateral willingness to work together to provide stability to the global economy. President Xi is planning to meet with EU leaders in July, likely to advocate for more cooperation amid US trade disputes. However, structural issues may stall material progress in resolving bilateral differences, in particular EU allegations of unfair state subsidies, which will likely be further exacerbated by fears of dumping as Chinese companies seek new export markets as alternatives to the US.
China is likely to accelerate pro-business policies such as expanding market access and addressing some of the EU’s operational concerns such as IP rights and regulatory uncertainties. This will probably improve policy predictability, especially for European businesses in China. It could also limit downside risks of additional tariff or non-tariff barriers as both sides seek to signal positive business environments, particularly in previously targeted sectors such as manufacturing and agriculture. If progress can be made on resolving bilaterial differences, the appetite for Chinese investments in Europe is also likely to recover, particularly in strategic industrial sectors such as advanced manufacturing and technology.
For more information, contact Famke Krumbmüller.
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Read moreBrazil hosted the BRICS Leaders’ Summit in early July, at which the group presented the Framework Declaration for Leaders on Climate Finance5 as a guide for the flow of climate finance to developing nations. The BRICS+ countries are likely to promote this at the COP30 UN climate conference that Brazil will also host in November. The summit declaration6 supported further reforms in the multilateral development banks and the UN system, including expanding Security Council membership, and called for peaceful settlements in ongoing wars and conflicts. BRICS leaders also reiterated their support of the New Development Bank and efforts to “de-risk” strategic investments and facilitate cross-border payments using currencies other than the US dollar. The summit also celebrated the inclusion of new members, in particular Vietnam which joined the grouping as a “partner country” in June.
Continued expansion of BRICS members is likely to open up new sources for business financing and investment and lower trade barriers, through partnership with BRICS institutions like the New Development Bank and in priority sectors such as infrastructure financing. The Framework declaration could help drive consensus at COP30 and create opportunities for private financing of climate projects across BRICS countries and other emerging markets, particularly via the new Tropical Forest Forever Fund. Businesses operating in BRICS countries should monitor policy messages from the summit as they will likely provide an indication of priority sectors for government investment and focus areas for domestic reforms and market access, as well as potential changes in regulation and compliance requirements (such as new carbon measurement standards).
For more information, contact Angelika Goliger.
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Transactions and Corporate Finance by EY-Parthenon teams can help companies transform their business with confidence.
Read moreThe International Telecommunication Union, the UN agency for digital technologies, hosted the AI for Good summit7 in early July following the adoption of the Global Digital Compact on AI governance and digital cooperation in late 2024. The summit focused on exploring the ability of AI to advance sustainable development, including addressing concerns on global digital divides and climate change. The summit closely followed the recent G7 leaders’ statement8 on AI for prosperity and efforts to simplify EU AI Act requirements – both of which suggest a shift in focus from regulation toward innovation and economic benefits.
A recent EY study shows divergence across societies in terms of trust in and use of AI, while there is broad skepticism about how companies and governments will manage AI. These results underscore calls by some business leaders for clearer AI standards that address such gaps in trust and the growing risks of regulatory fragmentation. As AI governance and standards expand, businesses will increasingly need to adopt new processes and assurances over the effectiveness of their AI tools. Companies will also need to develop more robust advocacy and policy monitoring capabilities to influence complex policymaking environments and maintain awareness of regulatory and stakeholder requirements.
For more information, contact Adam L Barbina and Ansgar Koene.
Topic 4
US extends tariff pause, maintaining high tariff rates on China amid ongoing trade negotiations
One day before the end of the 90-day suspension of “reciprocal” tariffs on 9 July, the US announced the extension of the tariff “pause” until 1 August. Although the US agreed to trade deals with the UK and Vietnam, its bilateral trade negotiations with many other countries are still in progress, and more time is needed to reach a conclusion. China-US trade continues to face high tariffs, with the suspension of even higher tariff rates remaining in effect until 12 August, after which a 55% tariff is expected to be implemented in accordance with a newly established framework9. In aggregate, the average US tariff rate remains the highest since before World War II.
Tariff measures affect companies' operations and supply chains by changing the cost structure of supplier decisions. And tariffs are an indirect tax, so they also affect companies' finance and tax function. The shifting US tariff rates in recent months introduce challenges associated with uncertainty about prices and supply—which is adding complexity to global operations and supply chain strategy. Executives should prioritize supply chain resilience, monitor trade policy developments closely, and incorporate different tariff scenarios into strategic planning to mitigate potential disruptions and maintain competitive positioning.
Global trade shifts, EU energy policies, Asia-Pacific dynamics, the G7 summit and more
The business impacts of the Trump administration’s first 100 days will continue to reverberate and more
Outlook for the war in Ukraine, agricultural tariffs, minerals-for-security, Argentina’s outlook and more
The EY-Parthenon Geostrategic Business Group (GBG) provides its take on key geopolitical developments and the impact of these political risks on international business. Each monthly EY-Parthenon Geostrategic Analysis issue includes assessments of recent or upcoming geopolitical risk events and what they mean for companies across sectors and geographies.
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