Geoeconomic Rebalancing after the Gulf Crisis

Spotlight

• The ongoing crisis in the Middle East underscores the enduring centrality of the region within globalisation.
• It has exposed significant vulnerabilities in the geoeconomic architectures of both China and the US.
• In the year that the US assumes the presidency of the G20, the crisis strengthens the case for renewed international competition—an outcome made more complex by fraught geopolitics and intense geoeconomic competition.

In 2012, a map produced by McKinsey predicted that, by 2025, the centre of gravity of the global economy would continue its south-eastward trajectory from the North Atlantic and lie just north of Kazakhstan—that is, near the boundary of the International Monetary Fund’s Middle East and Central Asia region. This steady shift reflected Asia’s rising economic weight, as China and India reclaim their historical share of global output.

In recent years, dynamics in the Gulf have mirrored this broader global movement. Western financial institutions have increasingly turned to Abu Dhabi, Doha, and Kuwait to access vast pools of sovereign wealth steadily accumulated through servicing Asian energy demand. Meanwhile Dubai has consolidated its position as a focal point of global logistics, mobility and trade, as reflected in the performance of its international airport and the Jebel Ali container port—two critical hubs of Afro-Eurasian connectivity.

The current crisis functions as a stress test for major economic powers, exposing both the resilience and the limits of their growth models, hedging strategies, and pursuit of strategic autonomy.

With the Middle East occupying such a pivotal position in globalisation, it is little wonder that the unfolding crisis in the region carries two implications of global significance. The first is a major, multifaceted shock—adding to a sequence that includes the COVID 19 pandemic and the Russia–Ukraine war. The second is a recalibration of the terms of the geoeconomic competition—primarily between China and the United States (US).

As a result, the current crisis functions as a stress test for major economic powers, exposing both the resilience and the limits of their growth models, hedging strategies, and pursuit of strategic autonomy.

An examination of pivotal sectors—particularly, artificial intelligence (AI) and cleantech—reveals that the very strengths underpinning the standing of major powers have also generated vulnerabilities, which the Iran crisis may intensify. As the global economy remains deeply interconnected despite ongoing geoeconomic fragmentation, addressing these vulnerabilities requires serious and constructive engagement. Yet, in a context of intensifying great power competition, such engagement is likely to be delayed, as major powers seek to consolidate their positions and maximise leverage over their rivals.

Double-Edged Swords

An examination of the capacities that China and the US have developed in the context of geoeconomic competition suggests that their very strengths embed significant vulnerabilities, which are exposed by the current crisis.

In the case of the US, dominance in AI has translated into tangible advantages, including enhanced military capabilities, as illustrated by the use of AI-enabled systems in recent operations in Iran.

Yet this same strength contributes to an increasingly imbalanced political economy. AI plays a disproportionate role in US growth, capital expenditure, and consumption. While the risk of an abrupt correction remains contained and tech stocks rallied after the announcement of a ceasefire between Iran and the US, such concentration creates exposure to sector-specific shocks. One way this could unfold is via sustained disruptions to the complex supply chains underpinning the AI ecosystem: for instance, Qatar produces about a third of global helium, an input for computer chip production. Moreover, rising electricity costs, which can account for up to 30 percent of data centre operating expenses, could affect the profitability of the AI industry—a recurring concern. Finally, while Gulf countries appear intent on upholding their commitments to US technology, the potential adverse effects of partial redeployment should not be underestimated. In a context of mounting anxieties over the quality of credit and stress in the US$ 22 trillion private capital industry, which have fuelled the capital expenditure of hyperscalers, the repercussions could be systemic.

An examination of the capacities that China and the US have developed in the context of geoeconomic competition suggests that their very strengths embed significant vulnerabilities, which are exposed by the current crisis.

An abrupt correction in AI valuations—the top 8 US tech companies have a cumulated market capitalisation of roughly US$ 20 trillion, about two thirds of US GDP—could wreak havoc at the heart of the US financial system, a central pillar of the international financial and monetary system. Confidence in US Treasuries—a US$ 30 trillion market—as reserve assets has already come under pressure, as reflected in rising yields, in a context of widening fiscal deficits further exacerbated following the adoption of the “One Big Beautiful Bill Act”.

Conversely, China dominates the cleantech stack. Upstream, it is by far the dominant player in mining and refining critical minerals, including rare earth elements, which are essential for both AI value chains, defence and the green transition: according to the international energy agency, China has an average market share of 70 percent for the refining of 19 out of 20 studied transition minerals. Downstream, it accounts for 70 percent of the global manufacturing capacity for cleantech. This dominance positions China to benefit from an acceleration of the energy transition, as countries seek to reduce dependence on oil and gas flows exposed to vulnerable chokepoints. China’s leadership in cleantech is embedded in a broader trajectory: an unprecedented industrial expansion that has resulted in the largest level of manufacturing value added in history. Sustained by massive fixed capital investment and state support—and increasingly augmented by the deployment of AI and automation—this industrial base has become a powerful geoeconomic lever. For instance, it may constitute a key competitive advantage in the AI race, as China can deploy the technology at scale for direct applications in physical processes.

However, China’s industrial strength may equally constitute a source of fragility. The country is grappling with what policymakers describe as “involution”: a dynamic of excessive competition and overcapacity that compresses prices and erodes profitability across sectors. Second, the economy remains structurally dependent on external demand to absorb excess capacity, creating immense vulnerability. These trends are acute in cleantech, which has accounted for over 90 percent of Chinese investment growth last year. A slowdown in the global economy could thus translate into acute domestic stress.

Grand Bargain

As we previously noted, the Iranian sequence should be understood within a larger dynamic of radicalisation of geoconomics, characterised by a normalisation of confiscation and resource grab. Controlling vast additional resources of oil and gas is a way for the US to strengthen its energy dominance—a key agenda of the current administration – notably in the face of Chinese superiority in cleantech. In particular, a swift US success in Iran capped by sudden capitulation of Tehran, would have considerably strengthened the US hand ahead of the Trump-Xi summit initially scheduled for late March, and now postponed to May.

As things stand, the opposite happened, and many have analysed the unfolding geopolitical sequence as a strategic win for China. There is some déjà-vu to the current crisis: while the US ventures into another Middle Eastern crisis at immense costs (US$ 8 trillion in the 20 years following the War on Terror), China consolidates its pre-eminence in critical technologies and associated value chains.

But Chinese excessive reliance on global demand and US fiscal woes point to another direction: the need to jointly contribute to rebalance the global economy. In recent weeks, major institutions and groupings including the Bank of England, the G7 and the IMF have documented the risks presented by the rise in global imbalances—the sum of the absolute value of current account positions as share of global output. Such imbalances, which were corrected in the years that followed the global financial crisis (GFC), are now reaching concerning levels, widening and persistent. As such, there is strong past evidence they pose serious risks to global growth, trade and financial stability, and could trigger a major crisis. Because imbalances are the result of mismatches in exchange rates, fiscal positions and growth models (e.g., consumption- or exports-driven), they are best corrected through policy coordination.

The setback suffered by the US in Iran, strong international demand for stability and sharp awareness of the need for reform in China and Europe could contribute to tilt the balance in this direction, at a time the US is assuming the presidency of the G20. It is the G20, after all, which served as a coordination platform to reduce the imbalances which resulted in the GFC.

But such course correction will be challenging. Recent events have demonstrated that power politics remains intense, and geopolitics highly fraught. In the first trimester of 2026, the US attempted twice to seize the oil resources of countries that supplied oil to China, deepening distrust toward Washington.

As a result, geoeconomic competition is likely to persist in the foreseeable future. It may even intensify, as countries seek to hold onto their geoeconomic advantage—possibly pushing their competitors to the brink. Yet the risks of such an approach are huge. If anything, the Middle East crisis may help major economies accelerate a pivot towards more cooperation—underscoring the renewed centrality of this region in the international system.

Akram Zaoui is an Associate Fellow, Geopolitics, at ORF Middle East.