Speculating post-war world

The latest episode of the war in West Asia may end in the next few weeks. I would like to leave it to the academics, politicians and studio experts to declare the winner(s) and loser(s) of this two-month long episode. Nonetheless, I do believe that this war marks a watershed in global economics and geopolitics. After the Second World War (WWII), this war has perhaps affected most countries, geopolitically and/or economically.

As the troops return to barracks, warships anchor at the home ports, warplanes come to rest in their hangers, war managers get busy in making accounts of the losses and gains, and the governments of countries affected by this war shall go back to situation rooms and redraw their respective strategies to meet the challenges thrown by this episode and the challenges that might be presented by the subsequent episodes of this conflict.

Obviously, I do not believe that this conflict that started over three millennia ago with Persian empires (Achaemenid, Safavid, Afsharid) invading and plundering neighbors, including Greece, Egypt, India (Mughal Empire), Mesopotamia, Turkey (Ottoman Empire), Georgia, Oman and other regional Arab emirates; is likely to end anytime soon.

In my view, the end of the current episode of war will result in material changes in the global economy and geopolitics, with long term repercussions. Over seven decades of carefully constructed multilateral architecture — from the WTO to SWIFT, from Bretton Woods to Basel — has been quietly unraveling. This war may have simply accelerated what was already underway.

It might be little early to define the contours of the post 2026 world as of this morning as there are too many variables that need to settle first; nonetheless, I would like to speculate various alternative scenarios.

Scenario 1 - Deglobalization

This scenario assumes that countries respond to this conflict by turning inward? By trading only within trusted networks, building walls around their supply chains, and measuring security not by alliances but by self-sufficiency?

While it sounds extreme, there is substantial academic and historical precedent to suggest it is entirely plausible.

The era of hyperglobalization was always an anomaly. The world before 1914 and the world after 1973 both suggest that open trading systems are fragile, not inevitable.

Empirical studies

Dani Rodrik's 2011 work The Globalization Paradox outlined what he called the fundamental trilemma: you cannot simultaneously have deep economic integration, national sovereignty, and democratic politics. Something has to give. For two decades after the Cold War, nations compromised on sovereignty. The post-2016 world — Brexit, the rise of economic nationalism, trade wars between the US and China — suggested that sovereignty was being reclaimed at the cost of integration.

The Heckscher-Ohlin framework, which underpins most of our thinking about trade flows, assumes peace and stable property rights as preconditions. Neither is assured in the post-war environment. Barry Eichengreen's research on the interwar period (1919-1939) is instructive: a world that chose autarky and beggar-thy-neighbor policies after a period of deep trade integration did not simply slow down — it collapsed. The Great Depression was partly a deglobalization event.

More recently, researchers like Pinelopi Goldberg and Tristan Reed have documented the fragility of global value chains under geopolitical stress. The COVID-19 pandemic showed that a supply chain optimized for efficiency is catastrophic under disruption. The US-China semiconductor rivalry has since become exhibit B. A US-Iran war involving energy supply routes adds exhibit C.

The Architecture of a Fragmented World

In the Deglobalization scenario, the defining feature is not the absence of trade — it is the restructuring of trade into closed networks, each with its own currency, its own security umbrella, and its own technology stack.

Think of it as a world of three or four blocs: a dollar-bloc centered on North America and parts of Europe; a yuan-bloc encompassing China, much of Southeast Asia, and parts of Africa; a rupee or rial or rouble-adjacent bloc covering the non-aligned middle powers; and perhaps a fragmented collection of smaller economies that attach themselves to whichever bloc offers the best terms. For transactions between blocs, a neutral intermediary — perhaps a revived gold standard, perhaps a commodity basket, perhaps a BRICS-designed unit of account — fills the role that the dollar plays today in global settlement.

This is not a theoretical fantasy. The architecture of such a world already exists in embryonic form. India is conducting oil trades in rupees. China has expanded its Cross-Border Interbank Payment System (CIPS) as an alternative to SWIFT. The Gulf states have been quietly expanding non-dollar settlement mechanisms since 2022. The war may simply have provided the political cover for what was technically already possible.

Strategic Defense Becomes National Religion

In a fragmented world, no nation can outsource its security. NATO's relevance diminishes. The concept of collective defense gives way to national deterrence. We already see the early signs: South Korea has dramatically expanded its domestic arms industry and is now the world's fourth-largest weapons exporter. India's defense indigenization policy reflects the same impulse. Saudi Arabia's Vision 2030 includes a domestic defense manufacturing target.

The deglobalization of security has profound implications for defense budgets worldwide. Research by the Stockholm International Peace Research Institute (SIPRI) shows global military spending hit an all-time high even before the West Asia conflict. In a post-war deglobalized world, that trend accelerates — not out of aggression but out of the rational pursuit of national deterrence. And military spending crowds out social spending, which has downstream consequences on demographics and human capital.

What Happens to Trade — and to Growth

The historical record on deglobalization and growth is unambiguous and brutal. The period from 1914 to 1945 — the last great episode of deglobalization — saw global trade collapse from roughly 30% of world GDP to under 10%. Per capita income growth stagnated or fell across most of the world. The benefits of comparative advantage — the productivity gains from specialization, the welfare gains from lower prices, the innovation spillovers from cross-border technology flows — evaporated.

Modern economists estimate that undoing the trade liberalization since 1990 would reduce global GDP by 5 to 8% in the medium term. For developing economies that are deeply integrated into global value chains, e.g., Vietnam, Bangladesh, Mexico, the shock would be far more severe. For energy exporters dependent on global commodity markets, the impact could be transmitted through price and volume volatility.

For India specifically, a deglobalized world presents a mixed picture. On the one hand, India has one of the world's largest domestic markets and a broad-based manufacturing base — conditions that would allow it to weather deglobalization better than more trade-dependent economies like Singapore or South Korea. On the other hand, India's IT and services sector, which is deeply integrated into global talent and capital flows, would face significant disruption. The BPO and GCC story assumes an open world.

Demographics in Reverse

One of the more sobering projections in the Deglobalization scenario concerns demography. The global population growth story of the past century was partly enabled by global trade in food, medicine, and technology. Norman Borlaug's Green Revolution depended on global seed and fertilizer supply chains. Modern vaccines are manufactured and distributed globally. The UNICEF and WHO's supply chain infrastructure is a form of humanitarian globalization.

In a deglobalized world, the most vulnerable populations — those in low-income countries that are net importers of food and medicine — face the sharpest declines in welfare. A combination of climate-related agricultural disruption, reduced access to global medical supply chains, and the withdrawal of international development finance would put enormous pressure on demographic stability in Sub-Saharan Africa, South Asia, and parts of the Middle East. The UN's medium fertility projections, which assume continued globalization, would need to be revised downward.

The socialist state — the welfare state model dependent on tax revenues from a growing, globalized economy — also faces an existential crisis. Without the growth dividend of open trade, the fiscal arithmetic of universal healthcare, public pensions, and social security deteriorates rapidly. Europe's generous welfare states were built on the assumption of perpetual GDP growth. Deglobalization undermines that assumption at the foundation.

Oil's Diminished Crown

There is a bitter irony at the heart of the Deglobalization scenario: the very war that may trigger it is a war partly fought over energy. Yet the post-war world is likely to be one in which oil's strategic importance diminishes. Not because the world becomes greener overnight — but because nations that have been humiliated by energy dependence will redouble efforts to achieve energy autonomy.

The post-war acceleration in energy transition has clear precedent. The 1973 Arab oil embargo triggered the most serious peacetime investments in energy efficiency, nuclear power, and renewable research in history. The current war is a far larger shock. IEA projections already show oil demand peaking in the mid-2020s under current policy. Under a deglobalized scenario with heightened energy security imperatives, that peak comes sooner, and the decline is steeper.

For oil-exporting economies — including several parties to this conflict — the deglobalization scenario is doubly dangerous: they face both lower demand and reduced ability to invest petrodollars in globally diversified assets.

The Bottom Line: A Smaller, Harder World

The Deglobalization scenario is not a comfortable one. It is a world of slower growth, smaller networks, and higher prices for tradeable goods. It is a world where the gains from specialization are sacrificed at the altar of security. It is a world where the developing country growth story — which lifted a billion people out of poverty in the three decades after 1990 — slows or reverses.

But it is not an impossible world. Humans adapted to the fragmented world of the interwar period. Nations rebuilt after 1945. And in the rubble of deglobalization, new regional champions emerge — countries that are large enough to sustain domestic markets, diverse enough to build self-sufficient supply chains, and politically stable enough to attract intra-bloc investment.

Whether India is in that category is the question worth asking. The honest answer is: it could be, if it makes the right choices in the next five to ten years. Defense indigenization. Domestic manufacturing depth. Agricultural productivity. Energy transition leadership. Demographic management. These are not abstract policy goals — they are the building blocks of resilience in a deglobalized world.

In the next post in this series, I explore Scenario 2: the Return of Colonialism — what happens when deglobalization is not peaceful, and the great powers decide that the most efficient way to secure resources is simply to own them.