Is the Empire collapsing?

Empires end. History offers no exceptions to this rule, only variations in mechanism. Climate stress, in particular, has a well-documented record as a driver of civilizational collapse, and it is worth revisiting that record before asking whether Europe is now entering its own version of the same cycle.

Climate and the fall of empires

The Late Antique Little Ice Age coincided with the Western Roman Empire’s final unravelling in the 3rd-5th centuries AD, compounding the pressures of plague, fiscal exhaustion and military overextension that were already stretching the empire past its limits. Tree-ring and sediment records from Central America show that a sequence of severe droughts in the 8th-9th centuries AD placed unsustainable stress on Mayan agricultural systems, contributing materially to the classic Maya collapse. The fall of Angkor and the Khmer Empire in the 15th century is now strongly linked by dendrochronological evidence to decades of monsoon failure alternating with catastrophic flooding, which overwhelmed the empire’s elaborate hydraulic infrastructure. And the decline of the Indus Valley Civilization is tied by most current scholarship to a weakening of the monsoon system and the shifting of the Ghaggar-Hakra river network, compounded by the breakdown of long-distance trade routes that had sustained its cities. Across each of these civilizations, climate stress did not act alone -- it layered onto existing political, fiscal or military fragility and turned manageable strain into terminal decline.

The colonial-industrial inversion

The modern era tells a more familiar story. From the 18th century onward, European powers -- and subsequently North America -- built a two-century lead through colonial extraction, first-mover industrialization, and control of the financial architecture that governed global trade and capital flows. Asia, Africa and Latin America spent much of this period as suppliers of raw material and labour rather than as originators of capital or technology, absorbing the costs of an order they had little hand in designing. That order defined the last two hundred years. The question worth asking now is whether it still holds.

The tide turning

Over the past two decades, the balance has visibly shifted. China, India and the Gulf oil economies have re-rated on the global stage -- in GDP share, manufacturing capacity, technological catch-up, and for the Gulf states, in sovereign capital accumulation that now rivals the balance sheets of Western institutions. Europe, over the same period, has stagnated. Growth has been anemic, productivity gains have flattened, and the continent that once led the industrialization of the world now lags in the technologies that will define the next several decades -- semiconductors, artificial intelligence, batteries and electric mobility among them.

Europe’s native demographics have deteriorated materially. Fertility rates across the continent’s largest economies sit well below replacement level, the working-age population is shrinking, and dependency ratios are rising in ways that structurally weigh on both consumption and long-term investment. Alongside this, Europe has faced large-scale immigration from poorer regions of Asia and Africa, driven by conflict, economic disparity and demographic pressure in the sending countries. The scale and pace of this migration have strained housing, public services and labour-market integration in ways that have become a defining feature of European politics over the past decade, feeding directly into the fiscal and social pressures the continent now carries.

Climate change has compounded these strains rather than acted as a separate force. Europe has experienced a sequence of severe summer heatwaves in recent years, part of a broader warming trend that has strained energy grids, agricultural output and public health systems built for a cooler climate. The loss of cheap Russian energy has added a further structural cost, raising input prices for European industry at precisely the moment competitiveness with Asian and American manufacturers matters most.

Political responses have leaned toward expanding social spending and protecting existing entitlements rather than funding the scale of investment needed to close the innovation gap. The result is visible in the data: European equity markets have structurally underperformed global peers over a two-year stretch of valuation derating, sovereign fiscal positions have weakened as debt-servicing costs have risen alongside social outlays, and private investment in research, technology and new industrial capacity has lagged both the United States and China. Europe’s genuine and substantial trade deficit with China -- concentrated in electric vehicles, batteries, solar equipment and consumer electronics -- is direct evidence of this competitiveness gap in exactly the technologies that will matter most over the next decade. Where the United States has poured public and private capital into semiconductors and artificial intelligence, and China has built dominant scale in batteries and clean-energy manufacturing, Europe has largely regulated its way through the same period, producing a dense rulebook rather than a comparable industrial base.

None of this is helped by the fragmentation of Europe’s own capital markets. A continent of national exchanges, national pension systems and national banking champions has struggled to concentrate capital behind its own technology companies at the scale needed to compete with Silicon Valley or Shenzhen. The result is a familiar pattern: European researchers and start-ups often build the early-stage innovation, only to sell out to American or Asian capital once meaningful scale is required, exporting the eventual economic value of the invention along with the intellectual property that created it.

Strategically, European capitals are recalibrating toward both Beijing and New Delhi -- not out of any inherited historical alignment, but out of economic necessity: supply-chain diversification away from an increasingly unpredictable US tariff regime, and a search for growth partners as domestic demand stagnates. It is a realignment born of weakness rather than choice, and it marks a meaningful shift from the transatlantic order that defined European strategy for the better part of a century.

The investment reading

For an Indian investor, the operative question is not whether Europe is collapsing in the dramatic sense of Rome or the Maya, but whether its relative economic weight will keep shrinking against Asia over the coming decade -- and it is difficult to build a credible case that it will not. The demographic arithmetic, the energy-cost burden, the innovation gap and the strain of managing large-scale immigration are all structural, not cyclical, and structural problems do not resolve on a market cycle’s timeline. This argues for a portfolio construction that leans structurally toward India, China and the Gulf capital pools, and treats European exposure as a value trap dressed in the language of stability rather than a genuine long-term compounding opportunity.

This is not a call to abandon Europe entirely. Pockets of genuine strength remain -- in luxury goods, specialty industrials, pharmaceuticals and select areas of aerospace -- where European companies still hold global pricing power built over decades. But these are increasingly exceptions carved out of a broader structural decline, not evidence against it. Portfolio construction should treat them as selective, name-specific bets rather than a reason to hold broad European market exposure at the weights an earlier era of global allocation would have justified.

A closing thought

Krishna’s counsel to Arjuna is that forms arise and dissolve, and that grieving the passing of a particular order mistakes the transient for the permanent. Rome fell and successor orders filled the vacuum it left; none of those successor powers imagined its own impermanence either. Europe’s twilight, if that is what this is, will not arrive as a single dramatic collapse but as a slow erosion of relative weight -- in growth, in innovation, in strategic weight -- while the world’s center of economic gravity continues its shift toward Asia. The task for the investor is not to wait for the headline moment of collapse, but to price the erosion that is already underway.

For those looking to obtain European passports to escape tax burdens in the US, India or elsewhere the task might be urgent and more important.

 

After the ceasefire: Why the uncertainty does not end here

Markets appear relieved. The US and Iran have reached an understanding to pause the hostilities that escalated earlier this year, and negotiations for a formal peace treaty are expected to unfold over the next two months. The financial world is, for the moment, pricing in stability.

I would encourage caution. As I argued in an earlier post (Exercise Caution in the Peace Trade), the probability is high that markets have already priced in the bulk of the peace dividend. What lies ahead is not a clear road to recovery but a landscape with multiple overlapping sources of tension — geopolitical, structural, and domestic. Investors would do well to incorporate these into their thinking.

This post is not a forecast. It is a map of the risks I think are being underweighted.

The MAGA domestic pivot

A ceasefire in West Asia does not suit every political narrative. For the Trump administration, the outcome of a conflict in which Iran appears to have extracted meaningful concessions — sanctions relief, asset releases, recognition of Strait of Hormuz leverage — may not sit comfortably with the Make America Great Again agenda. With US mid-term elections approaching, the political incentive to redirect attention is strong.

The most plausible redirections include a reignition of the tariff war, confrontation with NATO allies who did not participate in the Iran campaign, or attempts to exercise influence over Cuba and other near-hemisphere targets. Any of these would reintroduce uncertainty into financial markets.

A stronger Iran and a fragile West Asia

If early reports are accurate, Iran emerges from this episode with economic sanctions lifted and frozen assets released. More importantly, the conflict demonstrated to the world the latent leverage embedded in Iranian control over the Strait of Hormuz — leverage that Iran will not be inclined to relinquish quietly. How Tehran deploys this newfound strategic confidence will be critical to watch.

The two paths are clear. Iran pursues a Persian-imperial vision — enhancing support to Houthis, Hezbollah, Hamas and allied proxy networks — or it pivots toward economic pragmatism and regional co-existence. History suggests the former is more likely in the near term, even if the latter is in Iran's long-run interest. A rising Turkey, increasingly positioning itself as an alternative patron for these groups, complicates matters further.

On Israel, I will simply note what the June post observed: a meaningful and lasting peace requires structural change that goes well beyond a ceasefire. The depth of grievance on multiple sides — accumulated over decades and sharpened by recent events — means that conflict in the region will remain a background condition for years, not months.

Japan: The guilt fades, the ambition stirs

In November 2023, I wrote about the world shedding the guilt of the two world wars and gradually reverting to the competitive, nationalist norms that characterized the pre-1945 era. Japan is, in my view, one of the more significant expressions of this trend. There are faint but discernible signals that Japan — which carried the burden of WW2 guilt for eight decades — is beginning to reassert a martial identity. Shinzo Abe's assassination in 2022 accelerated political shifts in that direction; subsequent defence budget expansions and the revision of Article 9 constraints have continued that trajectory.

If Japan's strategic ambition continues to harden, the Indo-Pacific becomes a materially more volatile neighborhood. For India, which is simultaneously managing Chinese pressure on its northern and maritime borders, this is not an abstract geopolitical observation — it has direct implications for defence budgets, alliance posture, and the cost of maintaining strategic autonomy.

India's unfinished preparations

Near home, China continues to expand its presence in the seas around India, arming and supplying neighbours including Pakistan and Bangladesh. South Asia is unlikely to be a quiet region regardless of what happens in West Asia.

And India's own preparations for a more contested world remain incomplete. Energy security is a work in progress. Our external balances are heavily dependent on services exports and remittances from the West — both structurally exposed to disruption. We rely materially on China for critical chemicals, minerals, and APIs that underpin our pharmaceutical and electronics export industries. Defence indigenization, while underway and accelerating, is a decade or more away from delivering genuine self-reliance.

None of this is to be pessimistic about India's long-run prospects. It is to be clear-eyed about the gap between where we are and where we need to be.

What this means for investors

The short conclusion is this: a secular bull market in Indian equities is not around the corner. The macro environment will stay complex, headlines will remain stress-inducing, and the temptation to make large directional bets on peace, normalization, or a global risk-on cycle should be resisted.

That said, decent wealth compounding opportunities are always present, even in difficult markets. They are just not at the index level. The more productive approach is to focus on specific businesses with growth and earnings visibility that is not dependent on a benign macro outcome.

Volatility will stay elevated and stress inducing. Brace for it, and invest accordingly. 

Exercise caution in the peace trade

Markets are growing complacent

With each passing day, global markets appear to be becoming increasingly sanguine about the situation in West Asia. A growing chorus of analysts and business leaders are expressing confidence that the conflict will wind down soon, and that energy markets will revert to their pre-war equilibrium within a matter of months. Some have gone further, predicting that energy prices could settle at materially lower levels than those that prevailed before hostilities began — a scenario premised on the easing of American sanctions on Iranian and Russian crude, alongside a ramping up of production by Venezuela and the UAE, which now operates outside its OPEC quota constraint.

I would suggest investors approach this “peace trade” with considerably more caution than current sentiment suggests. The probability is high that markets have already largely discounted the peace dividend — including the normalization of commercial traffic through the Strait of Hormuz. Positioning for a windfall that is already in the price is not a trade; it is a hope.

Energy prices will not snap back instantly

Even if the Strait of Hormuz were to reopen tomorrow, a return to pre-conflict energy price levels is far from assured. The physical infrastructure damaged during the conflict may take several months to restore to operational pre-war capacity. Beyond the supply mechanics, the fiscal break-even levels for crude oil in several Gulf states — notably Saudi Arabia and Bahrain — may have risen materially during the conflict period, driven by expanded defence and welfare commitments. Producers at elevated break-evens have little incentive to flood the market.

For the world’s major energy importers — concentrated in Asia and Europe — a sustained period of higher energy costs leaves a lasting imprint on the terms of trade, keeping inflationary pressures elevated long after a formal truce is announced. The inflationary overhang, compounded by the fiscal pressures that governments have taken on to cushion the economic blows of war, has pushed the timeline for meaningful policy rate cuts further into the future.

Bond markets are, accordingly, struggling. A truce in West Asia is unlikely to offer them immediate relief. For India in particular, the case for near-term rate hikes — rather than cuts — may in fact strengthen in the months following any ceasefire, as the rupee finds its new level and imported inflation feeds through domestic price indices.

Equities: Resilience has limited the upside

The behavior of risk assets throughout the conflict has been, in a word, surprising. Equity investors’ appetite for risk has held up with a tenacity that few would have predicted when hostilities began. That resilience is admirable from a behavioral standpoint, but it carries a practical cost: it has substantially compressed the room available for a dramatic post-truce rebound in equities and other higher-risk instruments.

In my view, returns in the post-truce environment will be primarily a function of earnings growth rather than multiple expansion. A broad macro trade — the kind of re-rating that follows a genuine risk-off episode — is unlikely to materialize in the near term. The case for an immediate PE re-rating is simply not there.

The more productive tactical opportunity is likely to emerge from sector rotation rather than from an index-level trade. Sectors that have been beaten down during the conflict — IT services and FMCG chief among them — may outperform the currently favored themes: power infrastructure, data centers, and defence. However, this rotation trade is not without risk: IT services faces a structural headwind from AI-driven efficiency pressures on technology budgets, while FMCG grapples with volume growth in a consumer environment compressed by negative real wages.

India’s problems run deeper than the war

This brings me to the more uncomfortable argument. A meaningful segment of investors appears to believe that India’s market difficulties are substantially, if not primarily, a product of the West Asia conflict, and that resolution of that conflict will provide a correspondingly powerful tailwind. I think that view is mistaken, and potentially costly.

India is contending with a multitude of structural problems that will not dissolve with a ceasefire. On the macroeconomic front: the current account deficit has widened under the weight of elevated energy import costs; net FDI has turned negative; FII outflows have been persistent and large over multiple years; the rupee has been among the worst-performing major currencies; and the government’s fiscal space is contracting simultaneously from multiple directions — expanded defence spending, subsidy commitments, and weakening tax revenue in a slowing economy.

The demographic picture adds a longer-horizon concern. India’s Total Fertility Rate has remained below the replacement threshold of 2.1 for five consecutive years, standing at 1.9 in 2024. The urban TFR has fallen to 1.5 — a level comparable to ageing Western European societies. The window for harvesting a demographic dividend, in the economically dominant urban half of the country, has effectively already closed. This is not a cyclical problem that a peace settlement will address.

The climate emergency compounds these pressures. In April and May 2026, all fifty of the world’s hottest cities were located within India on multiple days. Agricultural output is under threat. Power grids are strained. Water scarcity has intensified. These are not episodic shocks; they are structural forces that will weigh on productivity, public finances, and social stability for the foreseeable future — independent of what happens in the Strait of Hormuz.

There are governance and institutional dimensions as well. Investor confidence in the consistency of regulatory enforcement, the independence of the judiciary, and the quality of economic policymaking has been eroding. Corporate India, despite tripling net profits between FY21 and FY25, has cut private investment as a share of GDP to a twenty-year low, with promoters opting to accumulate cash, establish family offices, and increase overseas allocations rather than deploy capital productively at home. This is not the behavior of a business community that is broadly optimistic about the domestic investment environment.

Conclusion: Price in the complexity

The peace trade is a legitimate market theme, and a ceasefire in West Asia would unquestionably remove a source of uncertainty that has weighed on global sentiment. But investors who expect that outcome to resolve India’s investment challenges are, in my view, underestimating the complexity of what lies underneath.

The macro headwinds are structural, not cyclical. The demographic dividend is narrowing. The climate crisis is intensifying. Institutional confidence is fragile. Corporate investment remains suppressed. A truce will not, by itself, resolve any of these. Position size your peace trade accordingly.

और भी दुख हैं ज़माने में मोहब्बत के सिवा

राहतें और भी हैं वस्ल की राहत के सिवा

— Faiz Ahmed Faiz

Speculating post-war world - 4

Continuing from yesterday - Scenario 3: A Multi-Axis World

Last week I shared some of my thoughts about what the world might look like after the latest episode of war in West Asia. I speculated the following three alternative outcome scenarios:

Scenario 1: Deglobalization

Scenario 2: The return of colonialism

Scenario 3: A multi-axis world

In my view, Scenario 3 is the most desirable, but Scenario 1 is the most plausible, under the current circumstances. And the world we actually get is probably a messy hybrid of the two, with regional flashes of Scenario 2 thrown in.

Why scenario 1 is most plausible

Deglobalization already has momentum. This is the critical point. The other two scenarios require discontinuous breaks from the current trajectory. Deglobalization does not — it simply requires the current direction to continue. The friend-shoring of supply chains, the CHIPS Act, MAGA, India’s PLI schemes, the weaponization of SWIFT, the rise of rupee-yuan-ruble trade settlement — these are not responses to the West Asia conflict. They predate it by years. The conflict is accelerating a trend, not creating one. When historians look back, 2018 (the US-China tariff war) may prove to be the actual hinge point, not 2026.

Scenario 2 is real but localized. Return of Colonialism-style behavior is already happening — in Ukraine, in the South China Sea, in Chinese debt infrastructure across Africa — but the constraints on it going global are still formidable. Nuclear deterrence is the biggest one. Great powers cannot annex each other or each other’s close allies without triggering escalation calculus that even the most reckless leaders fear. So, neocolonialism expresses itself at the margins — in small states, in failed states, in economic coercion rather than military occupation. Deeply worrying, but not a systemic reorganization of world order.

Scenario 3’s problem is the collective action trap. Everyone rationally prefers a well-functioning multilateral system. Nobody wants to pay the short-term political cost of reforming one. The UN Security Council has needed reform for forty years. The IMF quota system is visibly anachronistic. The WTO dispute mechanism has been broken since 2019. The reason none of these have been fixed is not ignorance — every policymaker knows what the problems are. It is that the beneficiaries of the current dysfunction (primarily the US and China, in different ways) have no incentive to change it, and the middle powers lack the coercive leverage to force change.

The India angle is worth thinking about carefully. India is the country with the most to gain from Scenario 3 and the most to lose from Scenario 1. A deglobalized world puts India’s IT services, its pharmaceutical export model, and its diaspora remittance architecture under serious stress. A Multi-Axis World, by contrast, is essentially designed for a country of India’s strategic positioning. This is probably why India’s foreign policy establishment has been among the most consistent advocates for multilateral reform — it is not idealism; it is self-interest correctly understood.

The uncomfortable conclusion is that the world drifts toward Scenario 1 not because anyone chose it, but because nobody chose otherwise forcefully enough. That is how most bad historical outcomes happen — not through malice but through the accumulation of individually rational, collectively disastrous decisions.

The question worth watching over the next three years: does the post-war period produce any serious institutional initiative — a genuine reform proposal, a new multilateral framework, something beyond rhetoric — or do governments simply return to their corners and manage the fragmentation? The answer to that question will tell us a great deal about which scenario we are actually in.

I shall be delighted to hear readers’ views on the post-war world, especially if someone foresees alternative scenarios far removed from the three scenarios I envisage.

Also read

Scenario 1: Deglobalization

Scenario 2: The Return of Colonialism

Scenario 3: A Multi-Axis World

 

Scenario 3: A multi-axis world

 Continuing from yesterday - Scenario 2: The Return of Colonialism

Scenario 3: A multi-axis world

A multi-Axis world is the most optimistic outcome of this war, in my view. Unfortunately, it may not be the most likely outcome. Optimism in geopolitics requires more than goodwill — it requires institutional capacity, distributed leadership, and the willingness of major powers to accept constraints on their own behavior in exchange for systemic stability. History suggests these conditions are rare.

Nonetheless, the Multi-Axis World scenario is not wishful thinking. It has strong intellectual foundations and some precedents in the existing architecture of global governance. More pertinently, it represents the trajectory that the world’s middle powers — including India — have the strongest interest in pursuing, and the most agency to shape.

The core argument of this scenario is that the US-Iran conflict, rather than destroying the globalized order, forces it to evolve. The shock is severe enough to delegitimize the old architecture — US-led unipolarity, dollar hegemony, a rules-based order in which the rules were largely written by the powerful — but not severe enough to collapse it entirely. What emerges is not a simpler world but a more complex one: a world of multiple overlapping coalitions, negotiated interdependencies, and reformed institutions that more accurately reflect the distribution of actual power.

What the Experts Say About Multipolarity

The Multi-Axis World draws heavily on the international relations (IR) tradition of complex interdependence, developed by Robert Keohane and Joseph Nye in the 1970s and refined through subsequent decades of scholarship. Their central insight — that in a world of deep economic integration, military force becomes less effective as an instrument of foreign policy, and the costs of disrupting interdependence become prohibitively high — remains one of the more empirically durable propositions in IR theory.

The argument is not that conflict disappears. Keohane and Nye were not naifs. Their claim was more specific: that certain types of conflict — interstate territorial war between economically integrated states — become rarer and more costly. The European Union is the most successful real-world experiment in this proposition. Despite deep historical enmities, Western European states have not fought each other since 1945. The mechanism is precisely the complex web of economic interdependence that makes the cost of war with a trading partner prohibitive.

More recent work by Erik Gartzke on the capitalist peace, and by Bruce Russett and John Oneal on the Kantian peace, adds further layers. Democratic governance, trade interdependence, and membership in international institutions are individually associated with lower conflict probability; together, they are strongly reinforcing. The Multi-Axis World scenario is essentially a bet that these mechanisms survive the shock of the West Asia war and reassert themselves in a reformed institutional architecture.

The Architecture of Overlapping Coalitions

The defining structural feature of the Multi-Axis World is not the absence of blocs — it is the overlapping and partially contradictory nature of those blocs. States belong to multiple groupings simultaneously, with different memberships for different purposes. Trade blocs are not the same as security blocs. Technology coalitions cut across both. Mobility frameworks — governing the movement of people — have their own logic entirely.

This is not a hypothetical. The current world already exhibits this structure in embryonic form. India simultaneously participates in QUAD (a security dialogue with the US, Japan, and Australia), SCO (a security and economic grouping dominated by China and Russia), BRICS (an economic forum that includes both China and the West’s adversaries), I2U2 (a technology and infrastructure forum with Israel, the US, and UAE), and G20 (the broadest legitimate forum for global economic governance). India is in all of these simultaneously, and its memberships create both constraints and leverage.

In the Multi-Axis World scenario, this pattern generalizes. Most major and middle powers build portfolios of overlapping memberships. The result is that no single great power can afford to rupture its relationships with others — because doing so would cascade through too many shared institutional memberships. This is complexity as deterrence: not military deterrence, but systemic deterrence. The cost of unilateral action rises with the density of the interdependence web.

Democracy Survives — But Changes

One of the more counterintuitive claims in this scenario is that democracy not only survives the post-war shock but actually strengthens over the medium term. This requires explanation, because the short-term trend clearly runs the other way: the West Asia conflict has boosted nationalist and authoritarian politics in multiple countries, as crises typically do.

The longer-run logic, however, draws on the democratic resilience literature. Research by Milan Svolik at Yale on the survival of democracies under stress suggests that democracies facing external threats tend to consolidate — both internally, as citizens rally around institutions, and externally, as democratic states deepen security cooperation with each other. The post-war period, in this scenario, becomes a catalyst for democratic solidarity rather than democratic retreat.

The more plausible mechanism is economic. The multi-axis world is one in which growth returns, trade recovers, and middle classes expand — particularly in the large developing economies that successfully navigate the transition. Historically, sustained economic development is the single strongest predictor of democratic consolidation. South Korea, Taiwan, and Chile all made democratic transitions at income levels that India, Indonesia, and Nigeria are now approaching. If the multi-axis world delivers development, democracy follows.

The Demography Dividend — Managed This Time

The demographic dimension of the Multi-Axis World scenario is among its most interesting and most practically important features. The scenario posits material demographic shifts driven by regulated immigration from developing to developed countries.

This is not just a hopeful extrapolation — it is a structural necessity. The developed world faces a demographic crisis of its own making. Europe’s total fertility rate has fallen to 1.5, well below the 2.1 replacement level. Japan’s population has been declining in absolute terms since 2008. South Korea’s fertility rate, at 0.72 in 2023, is the lowest ever recorded for any country. Without immigration, these economies face unsustainable dependency ratios: fewer workers supporting more retirees, with cascading effects on pension systems, healthcare, and GDP growth.

The developing world, meanwhile, has the opposite problem: abundant young populations and insufficient domestic capital and institutional capacity to employ them productively. The match is obvious in theory. The challenge is political. Immigration has been one of the most destabilizing political forces in Western democracies over the past decade, and for understandable reasons — rapid, unmanaged demographic change produces genuine social disruption.

The Multi-Axis World scenario’s bet is that the post-war shock creates the political conditions for a new social contract around managed migration. Not the chaotic, crisis-driven flows of the 2015 Syrian refugee wave, but structured bilateral agreements — skilled labor corridors, circular migration schemes, and portable social security arrangements — that meet the developed world’s labor needs while preserving the sending country’s human capital base through remittance flows and diaspora investment.

The Neutral Currency Question

Perhaps the single most consequential institutional change in the Multi-Axis World scenario is the emergence of a neutral global reserve currency — one that is not the liability of any single sovereign state and cannot be weaponized through sanctions or exclusion.

The dollar’s dominance has been both an extraordinary privilege for the United States and an increasingly resented asymmetry for the rest of the world. The use of dollar clearing as a sanctions mechanism — most dramatically against Russia in 2022 — has convinced virtually every non-Western central bank that holding reserves in dollars is a geopolitical risk as much as a financial asset. The search for alternatives is now serious and well-funded.

The academic literature on reserve currency transitions — including Barry Eichengreen’s work on the dollar’s exorbitant privilege — suggests that transitions are rare but not impossible. Sterling’s loss of reserve status in the mid-twentieth century is the relevant precedent. What replaced sterling was not another national currency — it was a multilateral institution, the IMF’s SDR system.

In the Multi-Axis World scenario, a reformed and genuinely representative IMF administers a reserve asset — whether an enhanced SDR, a commodity basket, or a jointly-managed digital currency — that provides a neutral settlement mechanism for cross-bloc trade. This is technically achievable. The political obstacles are formidable but not insurmountable, particularly if the US calculates that losing the reserve currency privilege through geopolitical overreach is worse than negotiating an orderly transition.

Reforming the Institutions That Failed

The United Nations Security Council structure, designed in 1945 to reflect the power distribution of a world that no longer exists, has been one of the most persistent sources of institutional dysfunction in global governance. A council in which the US, China, Russia, the UK, and France each hold a veto was barely functional during the Cold War and has been increasingly paralyzed in the post-Cold War era.

The Multi-Axis World scenario requires reformed global institutions that command genuine legitimacy — which in practice means institutions that give adequate voice to the world’s emerging powers. India, Brazil, Nigeria, Indonesia, and others have been making this argument for two decades without result. The West Asia conflict, by demonstrating the limits of the existing system so dramatically, may have created the political window for reform that decades of incremental advocacy could not.

What would reformed institutions look like? The proposals are not new — they have been debated in academic and policy circles for years. Expansion of the Security Council’s permanent membership to include regional powers. Weighted voting in the IMF that reflects current economic realities rather than 1945 GDP shares. A reformed World Trade Organization dispute settlement mechanism. A genuine global climate governance body with binding enforcement. The content of reform is less uncertain than the political will to achieve it.

What India Stands to Gain — and Lose

For India, the Multi-Axis World scenario is the most congenial of the three. It is a world that rewards India’s existing strategic architecture: a country too large and too democratic to be a client state, too pragmatic to be confined to a single bloc, and too development-hungry to accept the deglobalization scenario’s growth penalty.

India’s ambition to be a Vishwaguru — a civilizational anchor — fits naturally into a multipolar world where no single power dominates the normative agenda. India’s diplomatic tradition, from Nehru’s non-alignment through the current strategic autonomy doctrine, is essentially a bet on a world like this. India has been preparing for the Multi-Axis World for seventy years. If it arrives, India is better positioned than almost any other country to benefit.

The risks are internal rather than external. A Multi-Axis World that rewards institutional quality, democratic governance, and human capital development will expose India’s internal contradictions more sharply than either of the other scenarios. Governance quality, judicial independence, minority rights, and the rule of law are not just domestic concerns in a multi-axis world — they are competitive assets that determine how seriously other members of the system take you.

The Most Hopeful Bet

The Multi-Axis World is the hardest to achieve of the three scenarios. It requires institutional innovation, distributed leadership, and the willingness of major powers to accept genuine constraints. These are demanding conditions. But the alternatives are more costly, and the major powers know it. A deglobalized world imposes large economic losses on everyone. A neocolonial world risks escalation to great-power conflict. The Multi-Axis World, for all its complexity, is the outcome that all major powers can rationally prefer — even if none of them is willing to lead the way to it.

In 1945, after the worst war in human history, the major powers built the United Nations, the Bretton Woods system, and the Marshall Plan. These were imperfect institutions, designed partly to serve the interests of the powerful. But they also reflected a genuine, hard-won understanding that the alternative — a world of pure great-power competition — had just killed fifty to eighty million people.

The West Asia conflict has not killed tens of millions. But it has reminded the world of what unconstrained great-power competition looks like. That reminder may be enough.

Concluding part on 5^th May 2026.

Also read

Scenario 1: Deglobalization

Scenario 2: The Return of Colonialism

Speculating post-war world -2

Continuing from yesterday - Speculating post-war world-1

Scenario 2: Rise of colonialism

There is a moment in the decline of every multilateral order when the strongest player realizes that the rules no longer constrain them — and that being constrained while others cheat is simply irrational. We may be approaching that moment. The US-Iran conflict has demonstrated, for any remaining doubters, that international law and UN Security Council resolutions are effective only insofar as the most powerful nations choose to observe them.

This is the premise of this second scenario: a world in which the post-war environment triggers not a retreat into national fortresses, but an aggressive outward expansion by two or three major powers — a resource grab dressed up in the language of security, development, and alliance. A second scramble, this time for rare earth minerals, water, arable land, deepwater ports, and human capital, in addition to the traditional prizes of oil and gas.

It is the darkest of the three scenarios I am exploring in this series. It is also, historically speaking, one of the most precedented.

The Historical Mirror: 1885 and 2026

In 1885, the major European powers convened the Berlin Conference to divide Africa among themselves. There were no African representatives at the table. In roughly three decades, 90% of the African continent passed under European colonial rule. The trigger was not malice alone — it was industrial capitalism’s insatiable demand for raw materials combined with the military and technological superiority of European states over African polities.

The parallel to 2026 is not exact but it is instructive. The trigger today is not coal and rubber — it is lithium, cobalt, rare earth elements, and water. The technologies that the developed world is betting its future on — electric vehicles, semiconductor fabrication, renewable energy infrastructure — all depend critically on mineral inputs that are geographically concentrated in politically unstable regions. The Democratic Republic of Congo holds an estimated 70% of the world’s cobalt. Chile, Argentina, and Bolivia command the Lithium Triangle. China controls 85% of global rare earth processing capacity.

In a post-war environment where the fiction of a rules-based international order has been further punctured, the temptation to secure these resources through coercive means — military bases, puppet governments, debt traps with real teeth, or outright annexation — becomes more politically viable.

The Race for Resources: What We Already See

The Return of Colonialism scenario does not require an imaginative leap. Its infrastructure is already being built, quietly and methodically, by multiple actors.

China’s Belt and Road Initiative, now in its second decade, has created a network of infrastructure debt across Africa, Central Asia, and South Asia that critics characterize as a form of strategic dependency. The Hambantota port in Sri Lanka — leased to China for 99 years after Sri Lanka could not service its debt — is the most cited example, though scholars debate whether it represents a deliberate strategy or opportunistic exploitation of fiscal distress. Either way, the outcome is the same: a foreign power with effective control over strategic infrastructure in a sovereign state.

Russia’s territorial expansion — Crimea in 2014, eastern Ukraine in 2022, and its post-war positioning in the South Caucasus — follows a different but related logic. It is the assertion that geographic proximity plus military superiority confers the right to determine the political status of neighboring territories. This logic, once normalized, is extraordinarily difficult to contain.

The United States, meanwhile, has used financial infrastructure — SWIFT exclusion, dollar clearing dominance, secondary sanctions — to exercise a form of economic coercion that functions as soft annexation of policy space. The imposition of oil sanctions on Iran, Venezuela, and Russia are exercises of sovereign power over third-country economic decisions.

The Weaponization of Technology and Space

The Return of Colonialism scenario has a twenty-first century dimension that the nineteenth century version lacked: the race for technological and space dominance. The scholar Alfred McCoy, in his work In the Shadows of the American Century, argues that control of the global commons — sea lanes, cyberspace, and now space — is the modern equivalent of controlling trade routes. Whoever dominates these commons sets the rules for everyone else.

The US-China competition in semiconductors, artificial intelligence, and space capabilities is already a defining feature of the current era. The CHIPS Act in the US, the EU’s semiconductor sovereignty push, China’s Made in China 2025 and its successor initiatives — these are not merely industrial policies. They are assertions of technological sovereignty that carry unmistakable echoes of nineteenth century imperial competition for industrial advantage.

In space, the Artemis Accords — championed by the US and now signed by over 30 nations — essentially propose a framework for lunar resource extraction that mirrors the Berlin Conference logic: the major powers agree among themselves on the rules, and others are invited to accept them or be excluded. China has refused to sign and is building a parallel space architecture with Russia. The militarization of space, already underway with anti-satellite weapons testing by the US, China, Russia, and India, adds a military dimension to what was once framed purely as scientific competition.

Democracy’s Retreat

One of the most consequential features of the Return of Colonialism scenario is its impact on governance forms. The liberal democratic model assumed, for three decades after the Cold War, that it represented the end point of political evolution — Francis Fukuyama’s famous thesis. That assumption has been steadily eroding since 2016, and the West Asia conflict may have dealt it a serious blow.

The research of Larry Diamond at Stanford’s Hoover Institution documents what he calls a democratic recession — a global decline in the quality and scope of democratic governance that has been underway since approximately 2006. The Freedom House index has recorded seventeen consecutive years of declining global freedom. The post-war environment, characterized by security anxiety and resource competition, tends to favor strongman governance, where decisiveness and control are valued over accountability and rights.

Theocracy — which the author of the original text flags as potentially regaining prominence — deserves particular attention. In the Middle East and parts of South and Southeast Asia, the failure of secular nationalist models to deliver economic security has consistently strengthened Islamist political movements. The Iranian revolution itself was a response to the perceived corruption and Westernization of the Pahlavi dynasty. In Turkey, Egypt, Pakistan, and Tunisia, the pattern has repeated with variations. A post-war environment that further delegitimizes Western liberal values will strengthen these alternatives.

The Human Cost: Mass Death in the Periphery

Perhaps the most disturbing feature of the Return of Colonialism scenario is its demographic consequence. The nineteenth century scramble was accompanied by famines, forced labor, and population collapse across colonized territories. King Leopold’s Congo lost an estimated half of its population. The Bengal famine of 1943 killed between 2 and 3 million people under wartime colonial governance.

The twenty-first century version would not take the same form — there are no colonial governors and no official labor extraction regimes. But the functional outcome could be similar. A world in which the great powers prioritize resource extraction over human development, in which climate change is weaponized through food system disruption, in which war becomes endemic across multiple theatres simultaneously — this is a world where mortality in poor countries rises sharply.

The Lancet and WHO projections on climate-related mortality already suggest tens of millions of excess deaths by 2050 under high-emissions scenarios. Add armed conflict, disrupted food systems, and collapsed health infrastructure — all consistent with the Return of Colonialism scenario — and the demographic catastrophe in the developing world becomes very large indeed.

Meanwhile, the developed world faces the opposite problem. Low fertility rates in Europe, Japan, and South Korea have created structural labor shortages. In a neocolonial world, the solution is not open immigration — it is selective import of skilled labor under conditions that favor the receiving country and strip the sending country of its human capital. Brain drain, rather than population growth, defines the demographic story of the periphery.

What This Means for India

India occupies a peculiarly vulnerable but also strategically interesting position in the Return of Colonialism scenario. It is large enough that no great power can simply ignore it or coerce it into submission — 1.4 billion people with nuclear weapons and a credible military are not a compliant client state. But it is also resource-dependent enough — particularly on oil, critical minerals, and increasingly on semiconductor imports — to be vulnerable to supply-chain coercion.

India’s strategic response — the policy of strategic autonomy, membership in multiple overlapping groupings like QUAD, SCO, BRICS, and the G20 — is well-suited to a transitional world. But in a world that has definitively split into two or three imperial blocs, strategic ambiguity becomes increasingly costly. India will eventually face pressure to choose sides, and the terms of that choice will be set by others.

The optimistic reading is that India’s scale, its democratic legitimacy, and its geographic position make it an indispensable partner for any great power coalition — not a client but a swing state. The pessimistic reading is that a neocolonial world respects scale only when backed by coercive capability, and that India’s internal fractures — economic inequality, communal tension, institutional stress — reduce its effective bargaining power.

A World Nobody Should Want — But Might Get

The Return of Colonialism scenario is not inevitable. It requires a specific set of conditions: the failure of multilateral institutions to adapt, the escalation of resource competition to the point of military coercion, and the replacement of democratic governance by authoritarian alternatives across enough major states to normalize the new order.

But history’s lesson is that these conditions have been met before, and more than once. The first globalization ended in a world war. The interwar period produced fascism, Stalinist terror, and colonial famine. The comfortable assumption that we have evolved beyond these outcomes rests on institutions and norms that are, right now, under serious strain.

In the final post of this series, I explore the most hopeful of the three scenarios: a Multi-Axis World in which the conflict forces not fragmentation or domination, but a genuine restructuring of the global order around more equitable and durable foundations.

Also read

Scenario 1: Deglobalization

 

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.