How the world is navigating global chaos amid wars

A stronger dollar means weaker currencies. All this means that the severance with the superpower is not complete and the journey is long 

Is the world more resilient than it ever was? A pertinent question to ask, considering that post-Covid there have been several disruptions in the form of wars and fairly idiosyncratic policies pursued by the USA. Yet, the world has not gone into a recession. Nor has there been runaway inflation in any geography. This is notwithstanding considerable volatility in the markets where currencies and bonds have been erratic, which have been superseded, contrarily, by stock indices, which have, in general, done very well. Just how does one piece this together?

The war between Russia and Ukraine led to an embargo on the former, with their forex reserves being impounded. There was a ban on dealing with Russia, though there were some allowances made in terms of time, especially for gas imports. Then came the Israel-Hamas conflict, which carries on quite frequently even today. There were no sanctions on Israel, however, with the world condemning the action but not willing to take any action against the genocide. In 2025, President Trump had all the countries running to the USA to strike deals to bring down the tariff rates, which were unilaterally raised with differential numbers for countries. 

The USA invaded Iran in 2026 even after claiming to have destroyed their nuclear facilities a year back. The world went silent, with meek protests from some European countries which refused to support but did not openly condemn. There was silence earlier when the US unilaterally picked up the elected head of state of Venezuela, exposing the rather ambivalent nature of the world. 

What exactly has been done by nations to buffer against these shocks? This is interesting because the world will be driven by these erratic forces where logic fails, and there will be fallouts on markets. Countries have to be more alert and must create buffers. 

First, the world has become less dependent on oil than before. Here two developments are taking place in parallel. The first is that there is a move to renewables, which covers not just power but also vehicles which are otherwise largely fuelled by refinery products. This has brought down the pace of growth in demand. Second, the USA is now the largest producer of oil, which, though it is more expensive than the crude coming from the GCC, ensures that it is self-reliant on this score. Therefore, global demand has been lowered from the rest of the countries. In fact, the USA has now started exporting oil in the wake of the recent conflict, which ensures that even if OPEC cuts output, there will be additional supplies from the US. Also, ethics have been bent by the US conveniently, as seen during the Iran War when temporary waivers on importing from Russia were announced. 

A fallout of the oil dynamics has been that the GCC countries, too, are relooking at their economic models. Today, most of these economies run on a single product, which is energy (crude oil and gas). Some, like the UAE, have evolved to global financial centres. As the world progresses towards using less of these products due to environmental issues mainly, there will be less demand for these products, which can affect growth. This has led to them working on welcoming more foreign investment. A necessity here is to have in place a freer society. This slow change has been witnessed in countries like Saudi Arabia and will tend to gather speed over time. This economic change will lead to change in politics too. 

Second, the breakdown in global cooperation has led to the germination of bilateral trade agreements. This has been a major fallout where like-minded countries have gotten together to further trade within these groups. Here, India has done very well by forging free trade agreements with several nations, including the EU and the UK, and is close to reaching an agreement with the US. As most countries do the same, there will be a different sort of cooperation at the global level which can lead to a more efficient global economic order. In fact, the Indian template can be pursued by other countries, as several such agreements do add weight to the overall trade. 

Third, countries have realised the major risk of being dollarised and are, hence, gradually sliding to alternatives. While trade will continue to look at hard currencies, such as the euro, yen or the pound, among others, central banks have moved over to diversifying their reserves into gold, which is interesting. Gold has advantages of value, though it can get volatile as the dollar behaves in a disruptive way. But it is not owned by any country as such and, hence, is a safe asset. This is a distinct change in thinking, and the fact that India is trying to work out arrangements with countries for rupee payment is constructive. It is the way to go, as the economic power of the US is no longer supreme, with the emerging countries being the major drivers of global growth today.

However, while countries have been working towards protecting their growth drivers, which is important, as well as inflation, which is required for macroeconomic stability, they are still a part of the market system, which is hard to dodge. Stock markets get connected through the flow of foreign investment funds. What happens to the Dow Jones still has an impact on the Sensex and NIFTY. Bond yields everywhere somehow get connected to the decisions taken by the Fed. Central banks say that their decisions are based on domestic factors. But the Fed actions have a bearing on the market for sure. Currencies are still driven by the dollar, and the dollar index impacts all. A stronger dollar means weaker currencies. All this means that the severance with the superpower is not complete and the journey is long.