Missiles fired from Iran are pictured in the night sky over Jerusalem, Israel, on June 14, 2025.

Middle East and North Africa

The third quarter of 2025 will be defined by disruptive trade policies fueling supply chain volatility and the persistent risk of escalation in major conflicts.

Quarterly

This picture taken on Nov. 6, 2018, shows Chinese and U.S. flags at a booth during the first China International Import Expo in Shanghai.

Global Trends

The United States will likely reach limited trade deals with key partners to pause some reciprocal tariffs, but the continuation of sectoral tariffs, the vagueness of the trade deals and the unpredictability of the White House&#39;s strategy will keep business uncertainty high and the risk of new tariff hikes alive. Negotiations between the United States and its main <a href="/article/perils-and-pitfalls-trumps-trade-strategy">trading partners</a> will intensify ahead of the self-imposed deadline, currently set for July 8-9 (but which could be delayed), for countries to reach deals with the United States or face possible <a href="/article/us-launches-largest-trade-war-modern-history">higher tariffs</a> on pause since April 9. While the United States will probably move forward with some of the higher tariffs, the Trump administration will likely reach deals with large trading partners, such as the European Union and South Korea, that, at the very least, temporarily delay the imposition of higher tariffs. These deals are unlikely to be substantial; instead, most will include vague and/or narrow terms on issues like buying more U.S. goods and reducing tariffs and nontariff barriers on U.S. goods. Concurrently, the White House will press ahead with its sectoral tariffs on goods like automobiles, steel and aluminum. While some deals to suspend them are possible, they will be few and far between, and involve countries agreeing to impose export quotas. Regardless of any deals, business uncertainty caused by U.S. trade policy will remain high. Negotiations will be fragile, and a brief implementation of high tariffs across the board remains possible, albeit less likely.

The U.S. Extends Some Tariff Reprieves, but Tariff Risks Remain

Global markets will face growing economic headwinds this quarter as trade tensions, elevated interest rates and weakening demand undermine investor confidence, depress commodity prices and slow growth across manufacturing- and resource-dependent countries. In addition to <a href="/article/perils-and-pitfalls-trumps-trade-strategy">trade policy</a>, U.S. economic policies will be a major driver of U.S. and global economic and financial uncertainty during the third quarter. U.S. tariffs already in place will increasingly put upward pressure on inflation, and U.S. fiscal policy will keep interest rates elevated. Concerns about weakening U.S. creditworthiness, combined with other destabilizing economic policies, such as the discriminatory taxation of foreign investors and companies, risk weakening confidence in the U.S. economy. Trade restrictions, particularly vis-a-vis China, increase the risk of further economic slowdowns &mdash; especially U.S. and Chinese economic slowdowns &mdash; even if Washington and Beijing reach a lasting deal and avoid further conflict. All this is negative for the global economy, and especially for emerging and developing economies. Higher U.S. tariffs and a costly <a href="/article/economic-upshot-us-republicans-budget-reconciliation-bill">budget reconciliation bill</a> will help keep interest rates elevated, while an impending U.S. tariff-induced slowdown in China will weigh on both commodity prices and Chinese imports from commodity-producing <a href="/article/trumps-tariffs-will-hit-developing-economies-hard">developing economies</a>. <a href="/article/lessons-1930s-avoiding-second-great-depression">Chinese trade diversion</a> will meanwhile put pressure on manufacturing-oriented emerging and advanced economies in East and Southeast Asia as well as Europe. Amid a deteriorating global economic outlook and trade tensions, Europe&#39;s already weak economic outlook will weaken further. This will mitigate the impact of European Central Bank monetary easing and increased <a href="/article/economic-impact-germanys-debt-brake-reform">German government spending</a>. The risk of conflict in the Middle East and potential escalation that results in Iranian airstrikes on regional oil and gas infrastructure will add another risk to the global economy this quarter, as the ceasefire between Israel and Iran is likely to be extremely fragile.

Global Economic and Financial Risk Persists

The risk of another disruption of Chinese exports of rare earth and other raw materials will grow over the quarter, threatening more disruptions for companies and forcing them to explore and implement contingency plans. The June agreement between China and the United States, according to which China will expedite approvals for rare earth exports in exchange for U.S. concessions on its technology export controls, is fragile.&nbsp;After the wake-up call the May-June rare earth shortage delivered, Western companies will stockpile <a href="/article/trade-war-us-china-finds-pressure-point-magnet-restrictions">rare earth magnets</a> and other critical raw materials imported from China and implement contingency plans to deal with another shortage. Any new shortage would result in aerospace, defense, electronics and especially auto companies having to slow or shut down production if they do not have stockpiles of magnets and other necessary parts. While another shortage is unlikely to occur in the first half of the quarter because of a June deal, the likelihood will increase over time, particularly if the 90-day U.S.-China pause in trade hostilities expires Aug. 12 or the United States ratchets up more technology restrictions &mdash; which is likely eventually, if not necessarily this quarter &mdash; that China views as significant enough to merit more rare earth restrictions in retaliation. European and Asian companies are more likely to avoid major disruptions than their U.S. counterparts, as part of the reason for the shortage earlier in the year was due to administrative constraints by Chinese regulators, an issue likely to be resolved.

Supply Chains Remain at Risk of Critical Raw Materials Disruptions

Policy divergence between the United States and its European allies will grow as a full trade agreement putting tariff concerns permanently behind them remains elusive and the United States keeps support for Ukraine limited. The Trump administration will press the <a href="/article/previewing-2025-nato-summit">European Union</a> and other European countries to abandon their data privacy, pro-DEI, pro-climate change and technology restrictions in the third quarter. The growing ideological gap between the United States and Europe will complicate trade negotiations and diminish coordination on global issues such as climate change and, most notably this quarter, the Ukraine war. Russia and Ukraine remain far from reaching a durable peace deal, and any ceasefire agreements will likely be temporary or localized. With the prospect of significant new U.S. sanctions low, the Kremlin will still likely stick to its strategy of stringing along the White House, maintaining some level of talks with Ukraine and the United States while largely maintaining its maximalist demands. With a full agreement elusive, the United States is likely to keep support for Ukraine limited. This will force Europe, at both the national and supranational levels, to take the lead this quarter on pressuring Russia and maintaining some financial assistance for Kyiv, but this is unlikely to be enough to erode Russia&#39;s negotiating power over the long run.&nbsp;

The Western Alliance Fragments Further

The fragile Iran-Israel ceasefire will remain in place during the early weeks of the quarter, but unproductive U.S.-Iran negotiations and Tehran&#39;s likely resumption of its nuclear program will increase the risk of new Israeli attacks later in the quarter. Israel&#39;s and the United States&#39; <a href="/article/israel-begins-major-air-campaign-against-iran">June strikes</a> on Iran appear to have set back Iran&#39;s nuclear program by several months, at the least, but did not destroy Iran&#39;s nuclear enrichment capabilities, leaving many underlying U.S. and Israeli concerns in place. While U.S. President Donald Trump will likely press Israel to <a href="/article/iran-israel-ceasefire-will-remain-fragile-amid-unresolved-disputes">hold off on attacks</a> at the beginning of the quarter as the United States seeks new <a href="/article/assessing-potential-regime-change-iran">nuclear talks with Iran</a>, U.S.-Iran talks are unlikely to make significant headway unless Iran or the United States offers concessions on the issue of uranium enrichment, which neither have signaled an intent to do. Over time, Iran&#39;s resumption of its nuclear program, attempts to rebuild its air defense systems and repairs to its damaged military-industrial base will likely eventually lead Israel to carry out limited strikes. Such strikes could occur as early as the third quarter and will become increasingly likely as time passes. Any fresh Israeli strikes on Iran will lead to Iranian retaliation against Israel, though this retaliation would be less likely to target the regional oil and gas industry if the United States successfully dissuades Israel from targeting Iran&#39;s oil export industry. Regardless, another large-scale sustained Israeli campaign against Iran is unlikely this quarter, as most facilities in Iran remain damaged and new operations will take weeks or months to plan.&nbsp;

Cracks To Emerge in Israel-Iran Ceasefire as Time Goes On

Israel and Hamas are unlikely to agree to a permanent ceasefire in the third quarter, though short-term pauses remain possible. Despite U.S. pressure for a ceasefire, neither Israel nor Hamas is likely to soften its position in the Gaza war to allow for a permanent ceasefire, as <a href="/article/gaza-destined-another-israeli-occupation">Israel&#39;s government demands</a> that Hamas lay down its arms and go into exile, while Hamas seeks at least some level of political victory over Israel. However, <a href="/article/regional-implications-gaza-ceasefire">short-term ceasefires</a> could take place, especially with the United States pressuring Israel to end the conflict and as the Israeli government tries to navigate internal divisions and prevent a collapse of the coalition. Short-term ceasefires would improve humanitarian conditions temporarily, but they would ultimately collapse absent an unlikely shift in the position of Israel or Hamas. As a result, the Houthis will continue their campaign against Israel, and Israel will continue its strikes on Yemen, keeping regional tensions elevated.&nbsp;

In Gaza, War Continues as Political Wills Are Tested

Turkey will advance constitutional reform efforts to expand President Recep Tayyip Erdogan&#39;s reelection prospects and the institutional influence of his Justice and Development Party, or AKP, while maintaining the Kurdish peace process through limited concessions. The AKP&#39;s legal team will begin drafting a new constitution that will likely increase its influence over the judiciary. The reforms are likely to include cultural and linguistic concessions for the Kurdish minority, as the AKP needs their political support to enable Erdogan to call an early election or push for a constitutional referendum, Erdogan&#39;s two pathways to reelection. The peace process with the <a href="/article/what-pkks-disbandment-means-turkish-politics-and-security">Kurdistan Workers&#39; Party</a>, or PKK, will continue, and Ankara will likely make concessions such as increased freedoms for the PKK&#39;s imprisoned leader and pledges to release some imprisoned Kurdish leaders. Still, small-scale attacks by hard-line splinter groups seeking to derail the process are possible. Turkey will likely continue sporadic strikes against Kurdish targets in northeastern Syria to pressure the <a href="/article/uncertain-future-us-backed-kurds-syria">Syrian Democratic Forces</a> to integrate into the Syrian army. Turkey will also expand its economic influence in Syria, with some Turkish companies &mdash; in addition to Gulf Arab states &mdash; benefiting from the 180-day U.S. sanctions waiver to expand business operations and provide key goods to Syria. Additionally, <a href="/article/turkey-poised-reap-benefits-new-order-syria">Turkey will expand its military influence in Syria</a> through counterterrorism efforts against the Islamic State in conjunction with Jordan and Syria, and increase efforts to establish naval and air bases in Syria.

Turkey Drafts a New Constitution, Kurdish Peace Process Continues

The Israel-Iran conflict will prompt Gulf Cooperation Council countries to balance localized investor concerns with efforts to maintain macroeconomic stability and diplomatic engagement with Iran while reinforcing their defense ties with the United States. GCC countries may face mild, localized economic impacts from the Israel-Iran conflict &mdash; such as disruptions to investment and business deals &mdash; but their broader macroeconomic outlook will remain anchored to oil prices and global trends, provided the ceasefire holds through the quarter. Still, investors and businesses will ask new questions about the region&#39;s security, especially given the <a href="/article/telegraphed-attack-us-base-qatar-iran-offers-ramp-ease-tensions">Iranian attack on Qatar</a>, spurring GCC governments to consider new economic polices and incentives in their budgets for 2026 to overcome such hesitancy. Meanwhile, <a href="/article/finish-line-approaches-saudi-arabia-dials-back-its-vision-2030-ambitions">GCC countries will try to deepen trade</a> and diplomatic ties with Iran while quietly lobbying the United States to remain their security guarantor, in a bid to convince Tehran to remain restrained against them in case of future escalations, while hedging with U.S. air defenses should such efforts fail. As part of this latter effort, GCC states will debate this quarter how much to invest in U.S. arms purchases to convince the White House to maintain its security guarantor position in the GCC.&nbsp;

Gulf Countries Adapt to the New Middle East Reality

This photo taken on Dec. 25, 2024, shows an employee producing semiconductor chips for export at a factory in Binzhou, a city in China's eastern Shandong province.

Asia-Pacific

China and the United States are unlikely to reach a comprehensive trade deal this quarter, but a short-term extension of tariff relief and limited retaliatory measures will drive continued, narrowly focused trade negotiations. The broad range of trade issues at hand, temporary relief from ultrahigh tariffs and sweeping national security concerns will keep China and the United States from agreeing on a broader trade deal (e.g., for full and permanent tariff relief) during the quarter. Still, an extension of the 90-day relief period from 125% reciprocal tariffs beyond August is likely. In the likely event that the United States imposes additional, smaller tariffs on China to replace potentially outgoing International Emergency Economic Powers Act tariffs and/or new national security-related technology restrictions on China, Beijing will retaliate, particularly through <a href="/article/trade-war-us-china-finds-pressure-point-magnet-restrictions">curbs on exports</a> of critical industrial inputs like rare earths. This will risk a watering down of the <a href="/article/us-china-framework-implement-trade-deal-will-only-temporarily-ease-tensions">June deal</a> to resume such exports. The concomitant threat of industrial disruptions from new escalations will likely spur more narrow trade talks and short-term deals, but each side will maintain retaliatory firepower. China is, however, likely to streamline export licensing to reduce collateral damage to non-U.S. partners, particularly in Europe. Amid recent tariff relief and China&#39;s success in trade negotiations, Beijing will likely continue to <a href="/article/gauging-success-chinas-consumer-subsidies-program-one-year-later">avoid major economic stimulus</a> at home &mdash; such as cash handouts or structural policies to increase household income &mdash; restraining the growth of the Chinese consumer market and fueling elevated exports and stoking trade tensions with global partners. China will still try to warm ties with its regional neighbors, such as by curbing import barriers. But Chinese maritime aggression in the East and South China seas will largely impede significant deepening of regional trade and security ties.&nbsp;

A Comprehensive Trade Deal Eludes China and the United States

Japan&#39;s ruling party will likely retain power following upper house elections, after which a narrow U.S.-Japan trade deal is likely. Still, trade tensions will impede military cooperation, including on joint command operations to deter Chinese aggression. Political finance concerns and low public support suggest the ruling Liberal Democratic Party will lose seats in upper house elections&nbsp;on July 20, but public mistrust of the opposition and support for some LDP policies, such as food price remediation, suggest the LDP will perform better than in <a href="/article/japans-ldp-loses-its-majority-snap-ballot-portending-policy-gridlock">October 2024 lower house elections</a>. This modest loss will likely prevent <a href="/article/japans-pm-ishiba-survives-struggle-another-day">Prime Minister Shigeru Ishiba</a> from resigning and an opposition no-confidence vote. Before the election, Japan is unlikely to reach a <a href="/article/geopolitics-trade-impact-us-tariffs-south-korea-and-japan">trade deal with the United States</a> given public opposition to trade concessions by Ishiba. After the election, however, an extension of tariff exemptions expiring July 9 is likely, as is a narrow trade deal for tariff reductions on automobiles. Despite such limited deals, Tokyo&#39;s concerns about Washington&#39;s trade protectionism and zero-sum politics will likely impede deeper defense cooperation, including joint command coordination to deter Chinese aggression in Japan&#39;s near seas.&nbsp;

Despite Elections and Trade Barriers, Japan's Government Remains Intact

South Korea will likely reach a limited U.S. trade deal to reduce automobile and semiconductor tariffs and will work with the White House to reconfigure U.S. Forces Korea to deter China more effectively, opening the door to Chinese economic retaliation. <a href="/article/after-months-political-tumult-south-korea-elects-new-president">New President Lee Jae-myung&#39;s</a> top priority will be reaching a trade deal to remove all recent U.S. tariffs, but a moderate cut to reciprocal tariffs (suspended through July 9) or automobile tariffs or an extension of the tariff suspension is more likely. Court cases against Lee present a low-risk, high-impact scenario in which he winds up ousted, triggering another presidential election. To prevent this, lawmakers from Lee&#39;s party will propose bills to curb court powers, raising <a href="/article/yoons-impeachment-drama-reopens-fraught-issue-constitutional-reform">rule of law concerns</a>. During the quarter, Washington may restart talks about reconfiguring U.S. Forces Korea to better deter China, but concessions by Seoul on expanding the forces&#39; mission (likely made after the third quarter) risk Chinese economic retaliation and countering Lee&#39;s effort to warm ties with China. Lee will pursue diplomatic reengagement with North Korea, reducing the <a href="/article/rising-risk-military-clashes-korean-peninsula">risk of a border clash</a>, but Pyongyang&#39;s weapons development will continue apace, aided by Russian industrial support.&nbsp;

South Korea Seeks Stability at Home, Recalibration of Foreign Ties

U.S. tariffs will strain Australia&#39;s defense-industrial base, driving Canberra to diversify trade and security initiatives, with the AUKUS pact also in new jeopardy if not reformed. U.S. 50% tariffs on <a href="/article/albanese-returns-stronger-ever-following-australias-general-election">Australian</a> steel and aluminum will disrupt the country&#39;s defense manufacturing sector, raising costs and jeopardizing supply chains critical to AUKUS-related production. This threatens timelines and reliability in bilateral defense ventures just as infrastructure upgrades at RAAF Bases Tindal and Darwin ramp up to support expanded U.S.-Australia force posture initiatives. In addition, the <a href="/article/us-review-aukus-pillar-i-puts-pact-shaky-ground">Pentagon&#39;s review of AUKUS</a> submarine cooperation could see Pillar I &mdash; which is meant to provide nuclear-powered submarines to Australia &mdash; scrapped if it fails to meet certain milestones. Against this backdrop, Canberra will accelerate talks with the European Union to finalize a free trade agreement (helping mitigate defense industrial supply chain risks vis-a-vis the United States) and advance a parallel security partnership. Canberra may also attempt a politically sensitive buyback of the Chinese-leased Port of Darwin to secure its northern defense corridor, though an insufficient offer &mdash; such as one below the value of the remaining 89 years of the lease &mdash; will not be accepted, raising the likelihood of Canberra seizing the port and risking triggering Chinese trade retaliation or live-fire drills in nearby waters. Meanwhile, New Zealand&#39;s surveillance deployments to the <a href="/article/chinese-philippine-naval-confrontations-raise-stakes-south-china-sea-tensions">South China Sea</a> could similarly provoke Chinese retaliation.

U.S.-Australia Defense Ties Under Strain

While partial U.S. tariff relief is likely, Vietnam will face significant trade and administrative disruption as internal restructuring reshapes its governance landscape. Hanoi&#39;s export-driven economy is the most exposed in the <a href="/article/geopolitics-trade-us-tariffs-give-impetus-asean-trade-diversification">Association of Southeast Asian Nations</a> to proposed <a href="/article/trumps-tariffs-pose-structural-threat-vietnams-economy">U.S. tariffs</a>, with sectors such as electronics, textiles and machinery at immediate risk. Even with likely partial tariff relief &mdash; such as a reduction from the currently proposed 46% to around 20% &mdash; investor confidence in Vietnam will remain dampened as firms continue to diversify supply chains and factor U.S. trade unpredictability into their long-term planning. Compounding this is Vietnam&#39;s landmark administrative overhaul, which will approximately halve its provinces and eliminate all districts via reforms throughout July and August. These reforms are intended to <a href="/article/what-expect-following-death-vietnams-top-leader">streamline governance</a> and licensing, but will likely cause short-term disruptions, driving business risk during implementation in the quarter. ASEAN bloc cohesion will meanwhile weaken as members more exposed to tariffs, such as Vietnam, Indonesia, Malaysia and Thailand, pursue bilateral mitigation with Washington. Lower capacity economies such as Cambodia and Laos will deepen ties with China, while the bloc at large will turn to fallback options such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and Regional Comprehensive Economic Partnership trade frameworks and deals with the Gulf Cooperation Council.

Southeast Asia Reorients Trade Amid Tariff Risks

A worker prepares packages at Amazon Mex3 distribution center in Tepotzotlan, Mexico, on May 22, 2025.

Americas

Uncertainty around U.S. economic policy will sustain elevated volatility in both U.S. and global financial markets, weaken economic confidence, and increase the risk of an economic slowdown in the United States, especially as the dollar continues to decline. Congress will approve the <a href="/article/economic-upshot-us-republicans-budget-reconciliation-bill">budget reconciliation bill</a> in July, which will help prevent sharp tax increases from hitting the economy in 2026 and thus improve business confidence in the third quarter. Depending on the size of the tax cuts and spending measures, however, the bill will increase U.S. government debt and keep long-term interest rates elevated. Upward pressure on inflation will likely lead the Federal Reserve not to lower interest rates in the third quarter. This will lead U.S. President Donald Trump to increase the political pressure on the U.S. central bank, which could increase financial market volatility. Depending on its final wording, budget reconciliation could allow the president to impose taxes on foreign companies and investors in a discriminatory fashion. This would be negatively received by foreign investors, likely leading to a further investment shift out of the dollar. Slowing economic growth and relatively high short-term and elevated long-term interest rates in the context of a weaker dollar would set the stage for a further deterioration of the U.S. economic outlook in the subsequent quarters.

U.S. Economic and Financial Risks Remain High

Uncertainty stemming from U.S. policies will continue to undermine businesses in Mexico, but is unlikely to trigger protests, as a drastic hike in unemployment will be unlikely this quarter. Mexico will continue to face <a href="/article/buffers-will-help-mexico-navigate-tariff-turbulence">25% U.S. fentanyl tariffs</a> on goods that do not comply with the United States&mdash;Mexico&mdash;Canada Agreement, as well as sectoral tariffs on vehicles, steel and aluminum even if Mexico City secures exemptions. While Mexico will not face the so-called reciprocal tariffs, disputes over issues such as migration and cartels could lead Washington to impose tariffs on additional sectors, such as pharmaceuticals. Amid the Trump administration&#39;s unpredictable policymaking, domestic legal challenges and ongoing negotiations with other countries, businesses in Mexico will face uncertainty not only with regard to tariffs but also regarding the country&#39;s competitive advantage. Although disruption to trade will negatively impact the Mexican economy, a slowdown is unlikely to result in a significant spike in unemployment, meaning large anti-government demonstrations will be unlikely. Separately, all the judges elected in the country&#39;s <a href="/article/whats-stake-mexicos-first-ever-judicial-elections">first judicial election</a> will take office Sept. 1, but the business impacts of the new system will only materialize over time.&nbsp;

U.S. Policies Continue To Generate Uncertainty in Mexico

Despite some tensions with the International Monetary Fund, Argentina&#39;s macroeconomic stabilization will continue, as the government will enact further pro-business measures despite occasional demonstrations. Despite Argentina&#39;s challenges to meet <a href="/article/what-make-argentinas-latest-imf-deal">IMF targets</a>, both parties are interested in preserving their agreement, likely resulting in additional deadline extensions or waivers this quarter for foreign exchange reserve targets. Argentina will continue its macroeconomic stabilization efforts on the back of additional but limited spending cuts and deregulatory initiatives, including the elimination of thousands of bills, decrees or resolutions. These initiatives will help reduce bureaucracy further, but will fuel protests and strikes. These may lead to violence in some instances, but are unlikely to threaten government stability. Given <a href="/article/what-expect-argentina-after-mileis-first-year-office">President Javier Milei&#39;s</a> resilient popularity, the ruling Freedom Advances Party will likely perform well in the Buenos Aires province legislative elections on Sept. 7. Meanwhile, Argentina will host the <a href="/article/mercosurs-latest-meeting-highlights-its-growing-stagnation">Mercosur summit</a> July 2-3, which is likely to confirm an agreement facilitating members&#39; ability to unilaterally reduce tariffs on specific goods when engaging in trade deals with nations outside the bloc.

Argentina Continues Stabilization Efforts

The Brazilian government will struggle to pass legislation to increase state revenue amid a legislative gridlock, while its hosting of the BRICS+ summit will only have limited success. <a href="/article/brazil-lulas-obstacles-passing-economic-policies-continue-mount">Legislators will continue to oppose</a> Brazilian President Luiz Inacio Lula da Silva&#39;s administration&#39;s prioritization of revenue-driven measures, such as tax hikes and the elimination of fiscal benefits for companies, to balance the country&#39;s budget and will likely block or dilute tax or royalties increases or other similar measures. Structural measures to curb public expenditure are unlikely to be approved this quarter amid an ongoing legal dispute between Congress and the Federal Supreme Court over budget allocation transparency and accountability rules and a potential parliamentary investigation into a corruption scandal, which will likely dominate legislative efforts and contribute to policy paralysis. That will lead the economic team to resort to unorthodox measures and non-recurring revenues, such as oil and gas auctions or temporary taxes, which will sustain investors&#39; long-lasting concerns over the trajectory of <a href="/article/how-will-brazils-financial-crisis-evolve-2025">Brazil&#39;s indebtedness</a>. Brazil will host the BRICS+ summit July 6-7, and will advocate for the reduction of social inequality, energy transition and reform of multilateral institutions. One of the main concrete developments will be the adhesion of Vietnam as a partner country, while dedollarization rhetoric will likely be replaced by calls for increased trade in local currencies to avoid pushback from Washington. Still, divergence on big tech regulation and freedom of expression and legal developments around former Brazilian President Jair Bolsonaro are likely to worsen Brazil-U.S. diplomatic ties in the quarter, but this will have limited impacts on businesses.

Brazil's Legislative Gridlock Continues

Political instability and social unrest will persist in Bolivia amid an inconclusive presidential election, while Venezuela&#39;s municipal elections will allow the regime to tighten its grip. Bolivia&#39;s Aug. 17 presidential election will likely be decided only in a second round on Oct. 19 amid <a href="/article/rift-helm-bolivias-government-paves-way-more-instability">political fragmentation</a>, meaning that the country will continue to experience <a href="/article/bolivias-socioeconomic-crisis-will-spiral-ahead-its-presidential-election">heightened political instability</a>, widespread shortages of goods and recurring violent protests. Frequent roadblocks and isolated attacks on oil and gas facilities will likely disrupt cargo shipments and gas supplies going through Bolivia. In <a href="/article/what-trumps-policy-shifts-mean-venezuela">Venezuela</a>, the regime will use its control of the country&#39;s security apparatus and institutions to ensure its allies win most municipal races July 27 while preventing large demonstrations, allowing the government to <a href="/article/what-maduro-clinging-power-means-venezuela">extend its control</a> of the political and institutional landscape.

Bolivia and Venezuela Hold Elections

Russian officers ride T-14 Armata tanks during the Red Square military parade's rehearsal on May 7, 2025, in Moscow, Russia. 

Eurasia

Ongoing diplomatic efforts to end the war in Ukraine will keep the door open to ceasefire agreements, but insufficient external pressure and conflicting strategic goals in Moscow and Kyiv mean that a comprehensive peace agreement is unlikely this quarter. Negotiations and <a href="/article/amid-us-pressure-russia-agrees-hold-talks-ukraine-peace-will-remain-elusive">diplomatic engagement</a> to end the war involving Russia, Ukraine, Europe and the United States will be intense during the quarter, but progress will be slow as Russia will maintain maximalist demands that Ukraine will reject. A multiweek ceasefire (or a succession of multiday ceasefires) is possible. Insufficient external economic and military pressure, however, will leave Moscow and Kyiv entrenched in their conflicting positions and reduce the likelihood of a comprehensive peace agreement during the quarter. Against this backdrop, Russia&#39;s combat operations will intensify, particularly in the eastern fronts across Zaporizhzhia, Kherson and Luhansk and in the northern front around Kharkiv and Sumy, where Moscow will attempt to extend territorial control ahead of the autumn rains. Benefitting from European financial and military assistance, Ukraine will likely conduct localized counteroffensives and defensive operations aimed at disrupting Russian supply lines and stalling territorial gains. Russian drone and missile strikes against major Ukrainian cities will continue at a steady pace, targeting infrastructure and morale, as will <a href="/article/implications-ukraines-audacious-attacks-russia">Ukrainian attacks deep inside Russia</a>. As autumn approaches, operational tempos will slow marginally due to weather and logistical strain, although Russia may push for last-minute tactical gains before terrain conditions worsen to further improve its position ahead of eventual peace talks.&nbsp;

An Elusive Peace in Ukraine

Russia&#39;s economy will slow because of weakening activity outside the defense sector, but this will not impact its war efforts, as Moscow will be able to absorb these costs in the short term. Russia&#39;s economic growth slowed in the first half of the year, a trend that will continue in the third quarter because of structural constraints and intensifying fiscal and industrial pressures tied to the war in Ukraine. The <a href="/article/role-economics-russias-war-strategy">reallocation of national resources toward the defense sector</a> will remain the primary driver of economic growth. In addition, high interest rates will negatively impact private investment and consumption, while social spending cuts and tax hikes will further erode household demand. Moreover, relatively low crude oil prices, if they persist, will result in continued revenue shortfalls from Russia&#39;s dominant oil and gas sector. Nevertheless, the Kremlin retains a substantial fiscal cushion through the National Wealth Fund, which holds roughly $40 billion in liquid assets. This reserve is likely sufficient to cover near-term fiscal deficits and maintain military expenditure at current levels. This means that during the third quarter, the Kremlin probably will not implement any cuts to war financing or defense procurement, even as the ruble weakens and consumer loan defaults rise, particularly in the housing sector. While the quarter will see a <a href="/article/end-russian-gas-ukraine-cements-europes-new-energy-landscape">decline in economic activity outside the defense sector</a> and an increasing budgetary strain for Moscow, Russia will be able to absorb these costs in the near term. Separately, should U.S. President Donald Trump detach himself from the peace process, lower ranking sectors of the U.S. government (such as the United States National Security Council and Congress) will take a more prominent role, increasing the likelihood of additional U.S. sanctions on Russia. Coupled with additional EU sanctions, this will negatively impact the Russian economy even if it does not impact Moscow&#39;s war efforts in the third quarter.

Russia's Economy Soldiers On

In Moldova, political polarization, foreign interference and social unrest will deepen ahead of a parliamentary election Sept. 28 that will see pro-Western and pro-Russian forces clash. President Maia Sandu&#39;s ruling Party of Action and Solidarity, which champions a pro-European, pro-Western platform, will frame the campaign as a decisive step toward Moldova&#39;s integration into the European Union. Conversely, an opposition bloc of <a href="/article/close-results-moldovas-referendum-raise-fears-pro-russian-government">center-left pro-Russian parties</a> will argue for a more balanced foreign policy, promoting better ties with Russia alongside continued cooperation with the West. This ideological split will be amplified by Russia&#39;s overt and covert efforts to influence the election&#39;s outcome. Moscow is likely to intensify its disinformation campaigns, deploy financial and logistical support to pro-Russian parties, and potentially attempt to sow instability through proxies. These efforts aim to undermine the Party of Action and Solidarity&#39;s narrative and discredit the electoral process in the eyes of Moldovan voters. Protests from both camps are likely throughout the quarter, escalating in late September. Pro-Western demonstrators may rally against Russian meddling and perceived threats to democratic institutions, while pro-Russian groups will accuse the ruling party of suppressing dissent and ignoring socioeconomic grievances. The election will set the tone for <a href="/article/previewing-moldovas-presidential-race-and-referendum-eu-membership">Moldova&#39;s strategic trajectory</a> in 2026 and beyond, with lasting implications for its domestic cohesion and international alignment.

A Turbulent Election in Moldova

Armenia-Azerbaijan relations will remain fragile, as stalled peace negotiations will heighten the risk of renewed military confrontation. Armenia-Azerbaijan relations will be tense during the quarter, with limited prospects for finalizing a peace agreement. While the March 2025 agreement text between the two countries marked a diplomatic milestone, <a href="/article/armenia-azerbaijan-peace-deal-progresses-though-hurdles-remain">Baku&#39;s subsequent introduction of preconditions</a>, including constitutional changes in Armenia, will continue to delay the signing process, as Yerevan will likely delay any politically sensitive concessions until after the general election in 2026 to avoid domestic backlash. As a result, <a href="/article/armenia-azerbaijan-negotiations-head-right-direction-have-long-way-go">the risk of military escalation will persist</a> during the quarter, especially as summer conditions are particularly conducive to military action. Sensing diminishing returns from negotiations and potentially encouraged by warmer ties with the United States and Russia, Azerbaijan may calculate that its objectives &mdash; particularly an overland corridor to the Naxcivan exclave &mdash; can be achieved more swiftly through coercion. While a full-on invasion of Armenia is unlikely given that Baku wants to avoid alienating the West, Azerbaijan&#39;s actions could include limited incursions into villages on the Armenian side of the border. In the meantime, Armenia&#39;s growing defense partnerships with France, India and Iran combined with political calculations ahead of the election would incentivize Yerevan to retaliate. This would raise the risk of a broader conflict that could lead to a high number of casualties and displacements and, in a low probability but high risk scenario, could evolve into a proxy conflict if regional players such as Turkey, Iran and Russia get involved.

Armenia-Azerbaijan Tensions Persist

German Chancellor Friedrich Merz converses with Polish Prime Minister Donald Tusk, British Prime Minister Keir Starmer and French President Emmanuel Macron in a meeting room at the Rzeszow-Jasionka Airport before they travel to Ukraine on May 9, 2025, in Rzeszow, Poland. 

Europe

The European Union will likely reach a stopgap deal with the United States to prevent escalation in trade tensions and potentially limited deals with China that will not remove structural friction. International Emergency Economic Powers Act tariffs will remain in place until at least July 31, and Washington would pursue alternative legal tools to maintain pressure on the European Union even if they are ultimately overturned. But Brussels is unlikely to make more concessions, having gained tactical leverage from legal ambiguities and procedural delays. Still, both sides remain eager to avoid escalation, making a limited breakthrough likely during the quarter. Any deal would be a narrow, stopgap framework primarily designed to de-escalate tensions, involving selective tariff reductions, EU promises to buy more U.S. goods, and vague commitments to deepen cooperation in sectors like semiconductors and tech export controls. Such a deal would not resolve underlying trade disputes, instead serving as a political tool to manage domestic expectations and create space for further talks. Absent an agreement, the United States will impose higher tariffs, prompting <a href="/article/brussels-prepares-respond-latest-trump-tariffs">EU retaliation</a> and potentially leading Brussels to expand the dispute into services and digital trade using its Anti-Coercion Instrument. Meanwhile, the July EU-China summit will take place against the backdrop of deepening bilateral trade tensions, making major breakthroughs unlikely. Agreements to resolve issues like Chinese export diversion and <a href="/article/trade-war-us-china-finds-pressure-point-magnet-restrictions">rare earth export restrictions</a> are possible, while only limited progress is likely on tariff disputes such as EU duties on Chinese electric vehicles and China&#39;s investigations into EU pork and brandy. Any broader rapprochement remains out of reach amid entrenched mistrust and persistent <a href="/article/budding-eu-china-rapprochement-amid-us-tariffs-will-have-its-limits">structural frictions in the trade relationship</a>.&nbsp;

Brussels Seeks U.S. Trade Truce While Managing China Frictions

The European Union will sustain and expand political, military and economic support for Ukraine and sanctions on Russia while advancing Ukraine&#39;s EU integration path. The European Union will maintain support for Kyiv during the quarter. Planning will advance for a limited <a href="/article/weighing-options-european-deployment-ukraine">postconflict deployment in Ukraine</a>, likely a small European troop presence focused on training Ukrainian forces and serving as a tripwire deterrence supported by air cover and Black Sea patrols, while the <a href="/article/future-transatlantic-security-cooperation-part-1-view-washington">United States will remain reluctant to contribute</a> beyond intelligence support. No deployment is expected during the quarter or until a stable ceasefire is in place. Meanwhile, Ukraine is likely to open its first clusters of EU accession negotiations over the summer, with Brussels ready to adopt procedural workarounds to bypass eventual vetoes from Hungary or Slovakia. The bloc will also extend existing sanctions on Russia and impose additional measures targeting Russia&#39;s energy and banking sectors, bypassing eventual vetoes by reclassifying them as trade restrictions that do not require unanimity voting. Brussels will also advance plans to <a href="/article/end-russian-gas-ukraine-cements-europes-new-energy-landscape">phase out Russian energy imports by 2027</a>, including a zero-import gas quota enabling companies to exit contracts via force majeure, and sanctions against the Nord Stream pipelines.

EU To Sustain Support for Ukraine and Economic Pressure on Russia

France&#39;s government will face a heightened risk of collapse as fiscal tightening plans will likely provoke no-confidence motions, while Germany will begin implementing an expansive economic agenda combining tax cuts and industrial support to revive growth. <a href="/article/france-passes-its-2025-budget-political-and-economic-challenges-persist">Fiscal and political tension</a> will intensify in France as the government presents a deficit-cutting budget for 2026 in mid-July that includes spending cuts across health care, social security and local government and limited tax hikes. The proposed austerity measures will trigger protests from opposition parties and civil society groups, raising the threat of no-confidence motions in Prime Minister Francois Bayrou&#39;s minority government. While President Emmanuel Macron may threaten to hold early legislative elections to end the political gridlock, a vote remains unlikely this quarter. <a href="/article/le-pens-five-year-political-ban-sets-stage-renewed-political-instability-france">Political instability</a> might translate into market pressures, yet a financial crisis remains unlikely because of a credible European Central Bank backstop and resilient investor confidence. <a href="/article/german-election-results-position-center-right-retake-helm">Germany&#39;s new government</a> will begin rolling out its economic strategy through the 2025 and 2026 budgets during the quarter, combining <a href="/article/german-parties-propose-historic-overhaul-spending-defense-policies">debt-financed spending</a> and supply-side measures to revive growth. In parallel, parliament will approve large corporate tax cuts aimed at stimulating investment and supporting industry, with implementation potentially starting in 2025. The government will also begin drafting updated climate policy proposals forming the basis for a broader action plan expected next year.

France Braces for Difficult Fiscal Tightening While Germany Implements Growth Plan

Poland&#39;s growing political gridlock will stall reforms and increase policy uncertainty, while Romania&#39;s new government will be under EU and market pressure to reduce its large fiscal deficit. Poland will face growing political gridlock as <a href="/article/poland-braces-more-political-gridlock-following-nawrockis-presidential-victory">right-wing President Karol Nawrocki</a> (who will be inaugurated Aug. 6) will veto much of Prime Minister Donald Tusk&#39;s reform agenda. Tusk&#39;s coalition will remain intact to avoid early elections and a victory by the right-wing opposition, but internal tensions will trigger a Cabinet reshuffle to address stalled reforms and public frustration. Institutional deadlock could hinder fiscal planning, with Nawrocki possibly blocking budget laws while political considerations following the presidential election setback will discourage unpopular fiscal consolidation measures, delaying adjustments and increasing economic uncertainty. Romania will face mounting pressure to deliver credible fiscal consolidation plans to address its <a href="/article/financial-risks-romanias-twin-deficits">widening deficit</a> and avoid EU financial penalties and potential credit downgrades. The formation of a broad-based centrist coalition at the end of June will help restore political stability after months of growing tensions surrounding <a href="/article/romania-faces-turmoil-after-far-right-win-presidential-first-round">controversial presidential elections</a> and reassure investors, but divisions over pensions, public wages and rising defense spending could still delay reforms.

Poland and Romania Navigate Postelection Political and Fiscal Pressures

The United Kingdom will make progress in the implementation of recent trade deals with the European Union and the United States while deepening cooperation with France on migration and energy. Following the <a href="/article/uk-eu-deal-signals-strategic-recalibration-post-brexit-trade-and-defense-relations">EU-U.K. summit in May</a>, Brussels and London will hold talks to implement deals to align their sanitary standards and improve British access to EU electricity markets. They will also discuss ways to link their emissions trading systems to avoid the application of the EU carbon border tax on U.K. exports next year. An agreement on a youth mobility scheme is unlikely, as the issue is politically sensitive in the United Kingdom, while expedited immigration control for British tourists in the European Union is unlikely to arrive in time for this summer&#39;s travel season. Meanwhile, the United Kingdom will continue negotiating with the United States to fully implement their <a href="/article/trump-reaches-first-post-tariff-trade-deal-uk">May deal for tariff relief</a> on steel, aluminum and automotive exports. Finally, London will publish asylum reforms, and cooperation with France to curb crossings by small boats carrying illegal immigrants will advance, with potential progress announced at a July Franco-British summit that may also approve the Sizewell C nuclear power plant project with French energy company EDF.

U.K. Seeks Progress on Implementation of Recent EU and U.S. Trade Deal

Indian Border Security Force soldiers guard the entrance of the India-Pakistan Wagah border post, about 35 kilometers (about 22 miles) from Amritsar, India, on April 24, 2025. 

South Asia

While India and Pakistan will continue to pursue de-escalation, militant attacks or water-sharing disagreements could trigger a new conflict. India and Pakistan will continue their de-escalation efforts, including potential agreements on troop withdrawals along their shared border. While negotiations over the Indus Water Treaty will continue, <a href="/article/amid-india-and-pakistans-tenuous-ceasefire-future-flare-ups-remain-possible">the risk of attacks and retaliations</a> will remain, particularly if India continues to suspend the treaty, withhold critical water data or cause significant downstream disruptions in Pakistan. India will be interested in amending the treaty, largely due to its own mounting water scarcity. While Pakistan may temporarily agree to reduced water allocations to ease tensions, Pakistan&#39;s own water scarcity challenges, coupled with a lack of meaningful progress on treaty revisions, will likely remain a key driver of future conflict. These pressures could intensify over time as water demands rise on both sides, particularly if India makes significant progress on building dams and other water-holding infrastructure already underway. Additionally, India has threatened to retaliate against Pakistan kinetically in the event of future militant attacks, so continued militancy in India-administered Kashmir will sustain a lingering possibility of cross-border clashes. Given the precedent set by the May clashes, new rounds of escalation threaten to be more intense than in previous years, potentially involving deeper strikes into each country and the targeting of military assets, including those near or within major cities.

A Persistent Risk of India-Pakistan Escalation

India will push to finalize a trade deal with the United States to avoid tariff hikes, but agricultural disputes and shifting U.S. threats may delay progress, while EU trade negotiations and domestic reforms will advance slowly throughout the quarter. India will seek to finalize a <a href="/article/india-high-us-tariffs-offer-mixed-bag">trade deal with the United States</a> in July, though agricultural disputes could delay progress, particularly if domestic legal challenges to U.S. President Donald Trump&#39;s &quot;reciprocal&quot; tariffs embolden India to hold off on offering significant concessions. However, if the United States escalates its tariff threat, India may reassess its position by early August to avoid higher U.S. tariffs. In the absence of a deal, tariff pressure and escalating trade tensions would impose significant costs on key Indian sectors such as pharmaceuticals and gems and jewelry and stall progress in other areas of the bilateral relationship, including defense and energy. Separately, <a href="/article/geopolitics-trade-india">India&#39;s trade negotiations</a> with the European Union will continue, but officials are unlikely to reach a deal during the third quarter due to disagreements over agriculture, despite India&#39;s flexibility on issues such as immigration and carbon tax exemptions. During the monsoon parliament session from July 21 to Aug. 12, India will likely introduce an income tax bill, which will update the tax code to reflect the digital economy, gig work and cross-border transactions and seek to reduce business barriers. Parliament will also discuss the insurance amendment bill, which will raise the foreign direct investment cap in insurance businesses from 74% to 100%, aiming to attract more foreign capital, enhance competition and bring global expertise into India&#39;s insurance sector. As both bills have seen little resistance so far, they will likely pass.

India Negotiates Trade With the United States and European Union

Pakistan will implement a defense-heavy, IMF-aligned budget amid rising security tensions, while monsoon-related flooding will heighten risks to food security and economic stability. During the quarter, Pakistan&#39;s Parliament will likely adopt a budget for the 2025-26 fiscal year, which includes a 20% increase in defense spending, a 9% boost in projected tax revenue and a 7% cut to overall spending. The sharp rise in military expenditure reflects Islamabad&#39;s heightened security concerns following the May clashes with India. At the same time, efforts to tighten spending and expand revenue collection demonstrate the government&#39;s commitment to meeting the International Monetary Fund&#39;s benchmarks, despite the likelihood of public discontent. If conflict with India resumes but remains targeted and brief, it would be unlikely to derail Pakistan&#39;s IMF program; however, prolonged or escalated hostilities could delay critical reforms. Pakistan&#39;s budget for 2025-26 already reflects the IMF&#39;s key conditions for unlocking the next tranche of funds, including fiscal consolidation, a broader tax base and improved revenue collection. However, failure to fully implement these conditions could delay IMF funding and deepen economic instability. Meanwhile, the monsoon season will heighten risks to the agricultural sector. Heavy rainfall, particularly in the Indus basin&#39;s Jhelum and Chenab regions, combined with <a href="/article/geopolitics-water-regional-rivals-compete-south-asias-rivers">uncoordinated water releases from India</a>, could worsen flooding. This overlaps with the &quot;kharif&quot; crop cycle, covering rice, cotton, sugarcane and maize, leaving Punjab and Sindh especially vulnerable to waterlogging, with potentially severe consequences for food security and rural livelihoods.

Pakistan Faces Security and Climate Challenges Amid IMF Conditions

The risk of severe social unrest will increase in Bangladesh amid election uncertainty, mounting pressure to meet IMF reform conditions and pressure from U.S. &quot;reciprocal&quot; tariffs. The absence of a clear <a href="/article/how-bangladeshi-stability-depends-upon-prompt-election">electoral roadmap</a> will prolong friction between the government and opposition parties and will likely intensify protests and unrest, fueled by perceptions that the interim government is favoring the student-led National Citizen Party amid purges of the formerly governing Awami League party. Although interim leader Muhammad Yunus has announced an April election date, the Bangladesh Nationalist Party&#39;s swift rejection of the proposal signals sustained public distrust and continued mobilization. As a result, mounting pressure may push Yunus to call snap elections, or, if social unrest forces him to resign, create conditions for the military to intervene to restore order and avoid a prolonged power vacuum. Meanwhile, the disbursement of further tranches of Bangladesh&#39;s International Monetary Fund loan depends on critical reforms, including tax revenue enhancement and a fully market-based exchange rate. The national budget, which will take effect on July 1, prioritizes fiscal consolidation, increasing the likelihood of a deal with the IMF. Bangladesh faces the prospect of 37% tariffs from the United States, which will primarily impact the ready-made garments sector and, if implemented, likely drive buyers to diversify sourcing away from the country. While negotiations with the United States will continue, slowdowns in the ready-made garments sector (which accounts for 80% of Bangladesh&#39;s export earnings) risk deepening economic strain, undermining fiscal stability and further eroding investor confidence.

Election Uncertainty and Economic Pressure Fuel Unrest Risks in Bangladesh

Senegalese soldiers prepare to embark on a mission to dismantle artisanal gold mining sites in the Kedougou region near the Malian border on May 11, 2025. 

Sub-Saharan Africa

Countries in sub-Saharan Africa will likely experience only modest slowdowns in economic activity due to global trade disruptions, but oil-producing countries may still expand fiscal consolidation measures amid concerns of an extended downturn in oil prices, which would raise the risk of unrest. <a href="/article/us-launches-largest-trade-war-modern-history">Global trade disruptions</a> will put downward pressure on African countries&#39; economic growth, but the impact will likely be moderate for most over the quarter due to their generally limited exports to the United States as well as the European Union and China&#39;s likely avoidance of a rapid deceleration in economic growth. Oil exporters will likely face comparatively higher risks as concerns about a global economic slowdown and <a href="/article/mixed-economic-impact-opecs-production-increase">OPEC+&#39;s lifting of crude oil production cuts</a> put downward pressure on oil prices. In turn, the governments of oil-producing countries such as Angola, Chad and Nigeria may expand fiscal consolidation efforts to grow their financial buffers, especially if ongoing <a href="/article/iran-israel-ceasefire-will-remain-fragile-amid-unresolved-disputes">tensions surrounding Iran ease</a>. While <a href="/article/can-nigeria-navigate-lower-oil-prices">Nigeria&#39;s economy</a> will likely prove relatively resilient during the quarter, Angola&#39;s already strained finances mean that it is more likely to advance efforts to secure an International Monetary Fund support program. Several other countries on the continent already facing high debt levels, such as Senegal and Mozambique, will also attempt to secure IMF support programs. Amid already high socioeconomic grievances across the continent, countries advancing fresh fiscal consolidation measures will see a heightened risk of potentially destabilizing protests.

Sub-Saharan Africa Broadly Resilient to Trade Uncertainty 

Jihadist groups in West Africa will likely leverage the growing season to strengthen their hold over local communities, while Mozambique&#39;s dry season will facilitate the conduct of more sophisticated attacks by jihadists in Cabo Delgado province. Al Qaeda affiliate Jamaat Nusrat al-Islam wal-Muslimin and the Islamic State Sahel Province will likely continue large-scale attacks in Burkina Faso, Mali and Niger despite both groups facing mobility constraints due to the rainy season. While <a href="/article/what-future-holds-russia-africa">Russia</a> will likely maintain its <a href="/article/whats-next-mali-russia-s-wagner-group-pulls-out">security assistance</a> to all three countries, high-profile attacks will temporarily heighten the risk of a military coup. Jihadist militants in both the Western Sahel and Nigeria will leverage the growing season to expand their <a href="/article/geopolitics-water-role-desertification-conflict-sahel">control over local communities</a> by providing protection services for agricultural activity and dispute resolution mechanisms. In Nigeria, this could pave the way for a strengthening of currently small jihadist groups based in the country&#39;s Middle Belt, such as Mahmuda. In Mozambique&#39;s northern province of Cabo Delgado, the dry season will ease mobility constraints on the <a href="/article/future-counterterrorism-efforts-northern-mozambique">Islamic State Mozambique Province</a> militants and facilitate the conduct of more sophisticated attacks. While French multinational energy company TotalEnergies appears increasingly likely to lift its force majeure on its $20 billion Mozambique LNG project, a high-profile attack by jihadist militants, or further maritime attacks along the coast, could lead the French major to delay the resumption of works beyond the quarter.&nbsp;

Mounting Jihadist Threats in West Africa and Mozambique 

The United States will focus on striking mineral deals with the Democratic Republic of the Congo and potentially Rwanda and advance mediation efforts between the two countries, but Congress is unlikely to fully reauthorize the African Growth and Opportunity Act, which will risk resulting in many African countries facing a sustained loss in duty-free access to the U.S. market. The Trump administration will intensify efforts to strike <a href="/article/what-expect-trump-20s-approach-africa">a minerals deal with Congo</a>, which would likely see Kinshasa grant U.S. companies preferential access and/or investment terms in exchange for U.S. security assistance. The United States will also advance <a href="/article/us-mediation-brings-congo-and-rwanda-closer-peace-deal">mediation efforts between Congo and Rwanda</a>, which are likely to finalize a peace deal during the quarter. Implementing the peace agreement, however, would prove highly challenging, with fighting likely to continue at least sporadically in eastern Congo between pro-government militias and the <a href="/article/m23-advances-goma-put-congos-president-tight-spot">Rwanda-backed M23</a>. Meanwhile, the U.S. Congress is unlikely to endorse a full reauthorization of the African Growth and Opportunity Act, which expires Sept. 30. While a renewal that narrows down AGOA&#39;s trade perks or requires eligible countries to expand market access to U.S. exporters is possible, the Trump administration is more likely to favor letting the deal expire to shift trade agreements to a bilateral level. While AGOA is already effectively defunct due to the Trump administration&#39;s 10% global tariff, its expiration would portend a sustained loss in duty-free access to the U.S. market for eligible countries even if U.S. courts rule against the Trump&#39;s use of the International Emergency Economic Powers Act, which provide the legal basis for the U.S. 10% global tariff.&nbsp;

Trump Zeros in on Minerals Deal With Congo as AGOA Nears Its End

South Africa&#39;s government will finalize the country&#39;s 2025 budget, advance efforts to expand private sector participation in the freight sector and attempt to secure a trade agreement with the United States, but tensions with the Trump administration mean that any deal would likely grant only limited tariff reductions to Pretoria. The <a href="/article/challenges-facing-south-africas-new-coalition-government">South African government</a> will finalize the country&#39;s 2025 budget after it faced major delays due to disagreements between the left-leaning African National Congress and the center-right Democratic Alliance. Spats between the two parties are set to continue, but the <a href="/article/what-democratic-alliances-exit-government-would-mean-south-africa">Democratic Alliance</a> remains unlikely to exit or be removed from the coalition government this quarter. The government will likely begin the bidding process for private sector companies to invest in and operate key rail corridors for commodity exports, while state-owned transport company Transnet may unveil successful private sector bidders having secured rail slots for commercial operations. These initiatives will not immediately alleviate South Africa&#39;s freight challenges, but transport bottlenecks may marginally ease owing to Transnet&#39;s recent acquisition of new transport equipment and a recent government bailout that will help the company advance maintenance work. South Africa&#39;s logistics sector will be exposed, however, to potential strike action by trade unions. South Africa will also attempt to reach a deal with the Trump administration to curb the impact of U.S. sectoral tariffs on exports such as steel and cars. While an agreement is possible, its scope would likely be narrow, and only involve limited tariff reduction due to <a href="/article/trump-turns-heat-south-africa">bilateral tensions</a>.

2025 THIRD-QUARTER FORECAST

Middle East and North Africa

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