Red lines will drive geopolitical risks to business in 2025. Companies need to be ready for the risks that come with rapid changes in regional and global stability.
Geopolitical competition makes communicating, understanding and respecting red lines essential to preventing major power conflict. In the absence of this kind of diplomatic attentiveness, escalation thresholds are becoming a matter of interpretation and speculation. Around flashpoints in the Middle East, Europe and East Asia, leaders are taking escalatory steps calibrated to stop just short of red lines, even as those lines are increasingly uncertain and shifting – a classic recipe for miscalculation.
Geopolitical competition is also transmitting red lines globally. Regional conflicts are increasingly intertwined via geopolitical coalitions – crossing a red line in one arena risks triggering a reaction in another.
Companies will need to monitor three regions especially closely for red lines and trip wires in 2025:
The Middle East
The collapse of red lines is driving escalating conflict between Israel and Iran (and its regional proxies). With the “axis of resistance” decimated and direct attacks normalised, the question for 2025 is whether escalation is leading inexorably towards the Rubicons of weaponisation or pre-emption of Iran’s nuclear programme. This would send shockwaves through global energy markets, the global economy and global stability.
Europe
The war in Ukraine has trampled many supposed red lines over the last three years: invasion and occupation, weapons transfers, airspace violations, war crimes and long-range strikes. Repeated transgressions and muted responses are desensitising risk awareness, increasing risk tolerance, and incentivising escalation to re-establish deterrence. The risk to business in 2025 is being surprised when the next red line crossed triggers major blowback, such as asymmetric retaliation against critical or military infrastructure in Europe.
Asia
Long-dormant flashpoints that were once on the frontlines of the Cold War are heating up again in “Cold War II”. The risk of major conflict here in 2025 is low, but far more unpredictable than a few years ago. Military exercises in the Taiwan Strait, border provocations by both Koreas and non-lethal maritime clashes in the South China Sea are getting more frequent and ever closer to those invisible red lines. Risk of escalation due to accident or miscalculation is rising, even as all sides intend only measured aggression. Even assuming serious kinetic conflict is avoided, mini crises can catalyse economic conflict in the form of sanctions, trade and investment restrictions.
Other non-kinetic red lines include potential escalation of Western sanctions against Chinese companies over Beijing’s support of Russia, which will become increasingly plausible in 2025 as the conflict in Ukraine grinds into its fourth year. (The same goes for India, one of Russia’s largest oil customers.) Sanctions invite more direct retaliation against Western companies and supply chains and accelerate derisking, decoupling and diversification activities by multinational companies.
In the US, meanwhile, a closely divided Congress has repeatedly tiptoed up to the red line of US sovereign default – a risk that will almost certainly persist throughout the next administration.
What it means for business
Geopolitical situational awareness is key to managing red line risk and strategic surprise. Companies should ensure they are scanning the geopolitical horizon for other red lines and Rubicons that could trigger significant changes in the risk landscape.
Outlier scenarios are useful for stress testing business operations and strategy. Even if very unlikely, they often identify risks that should be incorporated into enterprise risk management plans, as well as gaps and vulnerabilities in crisis planning and risk management.
