The Horizon: Geopolitical Volatility Accelerates
Signals: week ending week of 7 March 2026 - Energy geopolitics intensifies in the Middle East, European industrial strategy, and Iceland's referendum on halted EU membership talks
Top Signal: Iran War Signals Ever-Present Energy Geopolitics
This week, the escalating war involving Iran, with joint US and Israeli strikes since last Saturday and Iranian threats around the Strait of Hormuz, has pushed global benchmark Brent crude oil prices above roughly the $80-a-barrel mark with intraday spikes even above that level, and analysts are now openly discussing scenarios of $100+ if the disruption persists.
The core risk here is not just the price, but also the potential for extended interruptions to supply through the Strait of Hormuz, a key chokepoint which separates the Persian Gulf and the Gulf of Oman, and through which one-fifth of the world’s oil is reported to flow by tanker. Gas supplies from the region have also been disrupted. Qatar’s liquefied natural gas production (which reportedly includes the world’s largest LNG plant and is the world’s second largest LNG exporter after the US) announced a temporary halt in production this week following Iranian attacks, sending prices soaring. Stock markets also experienced heightened volatility, as airlines and the tourist industry in the region also faced significant disruption.
This week’s developments, in many ways a throwback to an earlier era of geopolitical volatility, are a textbook case of how hard power eruptions can travel quickly through markets and then into business and consumer prices, especially in those countries exposed to fuel costs. (I, for one, witnessed queues at the service station this week as news filtered through about the potential for higher fuel prices. Prices were up over 20 cents (€) a litre the following morning.) The average price of a gallon of gas in the US was reported at about $3.25 on Thursday.
Earlier this week, the US administration seemed willing to acknowledge higher domestic fuel prices to pursue its foreign‑policy objectives. Speaking in the Oval Office this week, alongside the German Chancellor, Friedrich Merz, President Trump said that:
“If we have a little high oil prices for a little while…as soon as this ends, those prices are going to drop, I believe, lower than even before.”
This underscores that, at least rhetorically, the administration is willing to trade some short-term price pain for broader strategic objectives. However, the US Secretary of the Treasury, Scott Bessent, also signalled this week that the US will make announcements about how the administration can support the oil trade in the region.
An extended disruption to energy supplies in the Middle East could amplify inflation and FX pressures, especially for more import-dependent regions such as Europe and Asia, with renewed input‑cost volatility for many sectors, especially in transport, chemicals, heavy industry, and agriculture. China is particularly vulnerable to energy supply disruption from Iran. These developments also follow the recent disruption in its supply from Venezuela. It was reported this week that Chinese authorities asked refiners to halt new fuel export contracts and cancel existing shipments.
Agile businesses with the capacity to hedge and diversify their energy sourcing are naturally better placed to navigate this current environment. Depending on how long this conflict lasts (and if it grows legs), these recent developments are also increasingly likely to focus the minds of many business decision makers on energy matters, particularly in reassessing their approach to the green transition agenda at a time when it has started to lose support in some sectors, such as the automotive industry (see last week’s edition).
However, while some firms may double down on diversification and renewables, others (depending on their location) may view this week’s developments through a security lens and lobby for more domestic fossil capacity to reduce dependence on the Middle East. Reuters Reuters+1 Politico CNBC NYT CSPAN via YouTube
Key Signals
Made in EU Industrial Policy Shift
This week, the EU Commission advanced the Industrial Accelerator Act proposal (often framed politically as part of a ‘Made in EU’ or “Made in Europe” strategy), which is a strategic industrial policy designed to strengthen Europe’s industrial base by boosting manufacturing, growing businesses, and creating more jobs within the EU.
The aim is to boost demand for low-carbon and European-made products and net-zero technologies, enable faster and simpler digital permitting, and ensure major inward foreign direct investments actually generate added value in defined strategic sectors through criteria such as technology transfers and partnerships with EU entities.
The goal is to reinforce resilience and competitiveness, and to increase the manufacturing sector’s share of EU GDP to 20% by 2035. It is a signal that the EU is pivoting from what might be described as a pure neoliberal single-market narrative and evolving toward a more geoeconomic approach that assumes elements of a “European preference “ and takes a more proactive stance to increase its economic security.
The proposal was announced last year in the Clean Industrial Deal and also delivers on the Draghi report by creating EU demand for clean “Made in EU” products and key technologies through public procurement and support schemes.
Here is the EU Executive Vice President, Prosperity and Industrial Strategy, Stéphane Séjourné (translated):
“Today, “made in Europe” is making its grand entrance into European law.
What I am presenting to you today is more than a simple change in modus operandi, it is a change in doctrine - still unthinkable only a few months ago…
Because without a strong industrial base, there is no European social model, no climate transition, no strategic autonomy.”
Such an explicitly preference‑based EU industrial policy may have seemed politically unthinkable to some until relatively recently (it is after all one of the world’s most open markets), but now arises within a changed international landscape driven by international trade disruptions, such as US trade measures, increased imports from China (such as electric vehicles), and the broader breakdown in the US-led liberal trade order that had relied on long and open international supply chains.
With this policy proposal, the EU wants to encourage greater reciprocity and more balanced economic outcomes among trade partners. It is an approach that some of its major trade partners already take. There had been reported concern earlier in the week in some quarters about how China might react to these developments (given its dominance in clean technology and potential perceptions about discrimination against Chinese clean‑tech exports and investment). On Friday, the Chinese commerce ministry reportedly expressed “grave concern” over the proposals and will now closely monitor the legislation process of the act and its potential impact.
The policy proposal will now enter institutional negotiations with both the European Parliament and the Council of the European Union (which means it could be watered-down or sharpened) before its expected adoption and entry into force. EU Commission EU Commission+1 RFI Reuters
Iceland Government Proposes Continuing Halted EU Membership Talks
Also, this week, the Icelandic government announced that it had decided to put a motion to parliament proposing to hold a referendum on 29 August 2026 on whether the Nordic island, situated between the Arctic Ocean and the North Atlantic Ocean, should resume accession talks with the European Union.
Iceland, with a population of almost 400,000 people, had initially applied to join the EU back in 2009, in the aftermath of the financial crisis. Accession negotiations had taken place during 2010–2013 before they were halted. However, the international economic context is different today and poses new challenges and opportunities from when Iceland first applied for membership. The geopolitical environment is also significantly different in Europe, and the Arctic region is emerging as one of the most strategically important regions of the 21st century.
There is a growing list of countries that want to join the EU. However, Iceland is already allied to many EU member states through its membership of NATO. Moreover, it is already part of the European Economic Area. So, this referendum signals that the government is open to the possibility of even stronger institutional anchoring within Europe.
State media, RÚV, reported this week that recent polling suggests that there is a majority support among Icelanders for the holding of this referendum, while a poll in February, also published by the public broadcaster, reportedly suggested that the electorate was evenly divided.
Here’s what the European Commissioner for Enlargement, Marta Kos, said:
“Iceland has announced holding a referendum on whether to restart EU membership negotiations.
A significant decision now lies ahead for the Icelandic people.
Iceland is already a strong and trusted partner.
In a world that is changing fast, the European Union offers an anchor in a community of values, prosperity, and security.
Accession negotiations always reflect the specific realities of each candidate country.”
The specific reality (to borrow the Commissioners’ phrase) of an Icelandic candidature may come down to finding a compromise on sensitive areas such as its exclusive economic zone and fishing rights within it.
In announcing the decision, the government signalled a double safety mechanism for voters in its announcement this week (perhaps a lesson learned from observing the Brexit referendum experience in the UK):
“If the outcome of the proposed referendum in August is to resume negotiations, and negotiations are subsequently concluded, there will then be a second referendum putting the question to the Icelandic voter whether Iceland should, in fact, join the EU.”
If voters approve in the second referendum, then membership would give Icelanders a direct say in EU decision-making and eventually lead to the adoption of the euro currency. It would also mean a stronger European approach to developments in this Arctic region. Government of Iceland RÚV Marta Kos on X Reuters Le Monde EU Candidate Countries
Strategy and Systems Insight
Taken together, this week’s signals offer more evidence of the ongoing change in the international system. We are increasingly moving away from an era defined primarily by economic efficiency, open markets, institutional authority, soft power, and stable energy flows toward one that is increasingly shaped by great power politics, hard power, the search for resilience, and geopolitical alignment.
The escalating confrontation in the Middle East involving Iran, Israel, and the United States (but with knock-on effects for Iran’s neighbours) is a reminder that energy remains one of the most powerful transmission channels between geopolitics and business outcomes.
The threat to the Strait of Hormuz, where roughly one-fifth of the world’s oil flows, just illustrates how a localised conflict in the Middle East can rapidly cascade into global price shocks, with the uncertainty bringing elevated market volatility due to supply disruptions. It is illustrative of