Navigating a Fragmenting World

Key messages

1. Geopolitics is now a first-order economic risk. Since 2014 the world economy has absorbed sanctions, trade wars, a war in Europe, attacks on shipping, sweeping tariffs and, in 2026, a war in the Gulf that cut oil flows through the Strait of Hormuz to a trickle. Severe fragmentation of the global economy could cost up to 7% of world output.
2. Research has grown fast but narrowly. Of the 3,570 studies reviewed, 77% were published since 2022. Since 2018 research has increasingly treated geopolitics as a single measurable risk, captured by one news-based index. This has produced strong evidence on markets but left large gaps elsewhere.
3. The evidence is strongest where it matters least directly for people. Confidence is high that geopolitical shocks move financial and energy markets. It is low for food security, development and household welfare: food and agriculture account for only 3% of the literature.
4. How shocks travel is the weakest link. Nearly 3 in 10 studies name no transmission channel and only 7% test the channel they propose, yet the channel determines which policy instrument can respond.
5. Those who bear the costs are largely invisible. Studies measure consequences mainly for states, markets and firms; households are the focus of only 6%. The economies most exposed, including in the Middle East and North Africa, are often assessed with measures built from Western news.
6. Popular responses are largely untested. Reshoring, near-shoring and friend-shoring are at the centre of policy debate, but only 6 of the 355 studies examined in detail evaluate them. Diversification is a safer bet until the evidence improves.
7. Policy should be specific, channel-based, protective and evidence-building. The report sets out 22 recommendations for six groups of institutions and a three-phase roadmap that starts with no-regret measures and evaluates costly responses before they are scaled up.

Executive summary

A world economy reshaped by geopolitics

For much of the period after the Cold War, policymakers could treat geopolitics as background to economic policy. That is no longer possible. Over the past decade, the world economy has been hit by a sequence of geopolitical shocks, each arriving before the effects of the previous one had faded: the sanctions that followed the annexation of Crimea in 2014, the trade war between the United States and China, Russia’s invasion of Ukraine in 2022, attacks on shipping in the Red Sea from late 2023, sweeping US tariffs in 2025 and, in 2026, a war in the Gulf that cut oil flows through the Strait of Hormuz from around 20 million barrels a day to a trickle. These shocks are increasingly simultaneous, deliberate and persistent (Chapter 1).

This report asks what the research evidence can tell policymakers about the consequences of these shocks. It draws on a systematic review of 3,570 peer-reviewed studies published between 1990 and 2026, combined with a detailed classification of a representative sample of 400 studies according to the source of geopolitical pressure, the channel through which effects travel, the domain affected, who bears the consequences and how actors respond.

What the evidence shows

The evidence is strongest for financial and energy markets. Geopolitical shocks raise volatility, change how shocks spread between markets and move energy prices, especially in regionally segmented markets such as European gas. Evidence of medium strength shows that geopolitical risk raises inflation while depressing activity, disrupts trade and supply chains, and increasingly steers foreign investment towards political allies. The evidence is contested on whether geopolitical tension accelerates or slows the energy transition, and thin on food security, development and welfare (Chapter 2). The overall pattern is that the evidence is strongest where it matters least directly for people’s welfare.

How shocks travel and who pays

Geopolitical shocks reach economies through six channels: prices, physical disruption, uncertainty, policy responses, expectations and changes in rules and institutions. Each calls for a different policy instrument, but the channel is the weakest link in the evidence: 29% of studies name no channel and only 7% test the one they propose (Chapter 3). Research measures consequences mainly for states (51% of studies), markets and investors (23%) and firms (14%); households are the affected party in only 6%. Emerging and developing economies are among the most exposed, yet their share of research has fallen since 2022. The 2026 Gulf war illustrates the stakes: the UN Development Programme estimated that four weeks of escalation could cost Arab economies $120–194 billion and push up to 4 million more people into poverty (Chapter 4).

Blind spots that can mislead policy

Since 2018 research has increasingly treated geopolitics as a single measurable risk, a shift this report calls riskification. Studies treating geopolitics in this way rose from 2% before 2018 to 56% in 2022– 2026. This approach has real advantages, but it has created five blind spots: one number for many different shocks; measures built from other countries’ news; correlation read as causation, with 91% of quantitative studies correlational and about 3% using causal designs; responses recommended but rarely evaluated; and two research communities, in economics and in political science and geography, that share only two of their 100 most-cited works (Chapter 5). The report proposes a six-question checklist for using geopolitical research in policy.

What policy should do

Four principles follow from the evidence: be specific about the source of the shock; act on the channel through which it travels; protect those who bear its costs; and evaluate responses before scaling them up. On this basis the report sets out 22 recommendations (Chapter 6). Among the most important:

• Finance ministries should replace generic geopolitical risk with specific scenarios in fiscal planning and size fiscal buffers to energy and food import exposure.
• Central banks and supervisors should build channel-based scenarios into stress tests, communicate clearly when a geopolitical shock is a supply shock, and use more than one measure of geopolitical risk.
• Trade, industry and energy authorities should map critical dependencies and chokepoint exposure and favour diversification over relocation until evidence on reshoring and friend-shoring improves.
• Economies of the Global South, including in the Middle East and North Africa, should build their own indicators of geopolitical exposure, prepare social protection for price shocks and strengthen regional cooperation on food and energy security.
• International organisations, statistical agencies and research funders should integrate distribution into surveillance, support evaluations of fragmentation responses and fund research that tests channels and links shocks to household and firm data.

Chapter 7 turns these recommendations into a roadmap in three phases: no-regret measures that can start within a year, capacity building over one to three years, and structural reforms over a longer horizon, together with indicators to track progress.

What is inside

1. 1Why geopolitics matters nowA decade of compounding shocks, from the 2014 sanctions to the 2026 Gulf war, and why they are different.
2. 2What we know: the global consequences of geopoliticsEvidence on financial and energy markets, the energy transition, trade, investment, inflation, food and welfare.
3. 3How shocks travelSix channels of transmission, and why the channel decides which policy instrument can respond.
4. 4Who pays the priceUnequal costs, the exposure of the Global South, and how shocks reach households.
5. 5Blind spots that mislead policyFive blind spots in the research, and a six-question checklist for using it in policy.
6. 6Policy recommendationsFour principles and 22 recommendations for six groups of institutions.
7. 7From recommendations to action: a roadmapNo-regret measures, capacity building and structural reform, with indicators to track progress.

The report closes with an annex on methodology and a full list of references. Open the full report.

The data behind the debate

The report argues that many economies, including in the Middle East and North Africa, are assessed with geopolitical-risk measures built from other countries' news. The GPR Data Hub's indices address that gap: they are built from the regions' own news and are free to download for 122 countries.

How to cite

@techreport{iddouch2026report1,
  author      = {Iddouch, Karim},
  title       = {Navigating a Fragmenting World: The Global Consequences of Geopolitics and What Policy Should Do},
  institution = {GPR Data Hub},
  type        = {Policy Report},
  number      = {1},
  year        = {2026},
  month       = {nov},
  url         = {https://karimiddouch.org/reports/navigating-a-fragmenting-world.html}
}