Global Politics: Overexposed, Underexposed, Spot-on

Afbeelding

Headlines

Taiwan appears in frightening headlines almost weekly: Chinese fighter jets in the airspace around the island, naval maneuvers, and exploding defense budgets on both sides of the Taiwan Strait.

Taipei is increasingly aiming for a society in which defense, business, research institutes, and the rest of society are more closely intertwined through the so-called "whole-of-society defense" approach, in which even private airlines are signing up to carry out surveillance flights. 

The way in which all this news is often reported suggests that a large-scale war could break out at any moment, with the world on the brink of a direct confrontation between China and the US over Taiwan and thus on the verge of a global market shock.

Facts
Taiwan is indeed taking major steps. The proposed additional $40 billion in defence spending increases the budget to over 3.3% of GDP, with a target of 5% in 2030, the highest level in decades. The additional funds will go toward air defense, armed drones, maritime combat capabilities, and the digitization of command and control systems.

Meanwhile, China continues to increase military pressure, with repeated air and sea exercises around the island and a sharp escalation in rhetoric towards both Taipei and Washington.

However, there is an important difference between military pressure and actual invasion. Landing on and occupying Taiwan would be an operational and political mega-risk for Beijing, with enormous uncertainty about military success, international reactions, sanctions, and domestic stability.

Assessment
For the next one to two years, our baseline scenario remains that tensions will remain high, but within the range seen in recent years. That means more exercises, more airspace violations, more cyber activity, and other forms of muscle-flexing, but no full-scale invasion or prolonged blockade.

A more serious crisis – a short blockade, aggressive inspections of ships, a heavy cyberattack on Taiwanese infrastructure – is realistic, but remains an alternative scenario. This would cause severe market shocks worldwide, especially in the areas of semiconductors, Asian shares, and safe havens. 

The tail risk of a large-scale military conflict remains present, but Taiwan as an immediate war scenario is overemphasized: the tail risk is often given much more attention than the much more likely, prolonged status quo of tension.

Afbeelding

Headlines
If there is one theme that has shifted from niche to mainstream in recent years, it is the battle for critical raw materials: lithium, cobalt, nickel, rare earth metals, but also copper and graphite. Governments talk about economic security and strategic autonomy, companies about supply chain resilience, investors about the new oil.

Demand for critical raw materials for the energy transition and digitalization continues to grow, while investments are slowing down and refining chains are becoming increasingly concentrated. 

Facts
According to the IEA, investment in critical minerals grew by only around 5% in 2024, compared to 14% in 2023, partly due to lower prices and greater political uncertainty. At the same time, concentration in refining increased: the top three countries in a large part of the value chain now control an average of around 85% of the market. 

Regionally, the center of gravity is clearly shifting. Latin America, with its lithium triangle and copper reserves, has become a central battleground between China, the US, and Europe. 

In Africa, we see a similar dynamic: large reserves of cobalt, manganese, and other critical raw materials, combined with fragile governance, growing resource nationalism, and significant environmental and social tensions and problems. 

In almost all scenarios for the energy transition – even with somewhat lower growth – demand for these minerals and other critical raw materials will remain substantially above current planned supply capacity, unless investments accelerate and recycling plays a greater role. 

Weighting
The attention of markets and policymakers is entirely justified. No one doubts the strategic importance of critical raw materials. The broad outlines – increased demand, geopolitical competition for supply and refining, higher compliance and ESG risks – are largely priced into policy and many corporate strategies.

At the same time, the outcome is not clear-cut. The baseline scenario is that we will see a pattern of alternating periods of scarcity, sharp price spikes, and temporary surpluses, with high volatility per metal and region, but without a permanent supercycle.

An alternative scenario is that demand for EVs, grid reinforcement, and defense hardware picks up faster than expected, while politics and permitting continue to slow the rollout of new projects. This could lead to a mini-supercycle in a handful of metals and minerals.

A third scenario is that politics and technology slow down demand—for example, through less generous subsidies or through material efficiency and alternatives—causing some commodities to experience oversupply for a while. But even then, geopolitics remains a factor: the concentration of production in a limited number of countries makes security of supply structurally political.

In short, this is not a hidden risk, but an area where markets and policymakers have rightly picked up on the essence of the story. The real opportunities and pitfalls lie in the question of which metals and minerals, which regions, and which links in the chain are structurally undervalued or overvalued.