The Grey Swan Problem

In past years, some high-impact risks might have been overlooked because they seemed improbable. And in some cases, precisely because their impacts were seen as so great, they were assumed to be unlikely, such as a Russian invasion of Ukraine. In forecasting, these are known as grey swans.

The theme of Strategic Outlook 2025, our annual forecast of geopolitical and security risk, are these grey swan risks - which in the geopolitical future we forecast, are prone to turning white at unsettling speed. In this month’s edition of Dragonfly Dispatch, we are delighted to share with you an excerpt from the leader of Strategic Outlook 2025: The Grey Swan Problem, which expands on our key theme. We hope it helps you stay ahead of risks in 2025.

>>> To read the full leader, simply click here.

>>> To access the full Strategic Outlook 2025 report, click here.

Global businesses and governments alike face another year of geostrategic overload in 2025. Persisting volatility in nearly every region means that high-impact risks that might once have seemed highly improbable can no longer be safely disregarded. These are grey swan risks, and there are many on the horizon.

Geopolitical realignments, strategic competition, weaponised technology proliferation and climate change will almost certainly drive volatility in nearly every region in the coming year. And many states lack the capacity, and in some cases the interest, to reduce these risks. Interstate conflict, coups, hybrid warfare, terrorism and natural disasters: all are becoming features of a global order defined by tensions and crises.

In the interconnected and unstable world that we forecast in 2025, the potential for unforeseeable high-impact risks, or black swans, is high. But the immediate practical challenge for global businesses is determining which of the more foreseeable but seemingly improbable high-impact risks now demand serious attention. These grey swan risks, which may once have been overlooked for being unlikely, are increasingly prone to suddenly materialising.

Russia's invasion of Ukraine in 2022 and open conflict between Israel and Iran in 2024 were grey swans. We identify 20 flashpoints and faultlines to watch in Strategic Outlook 2025, including the Korean peninsula, the South China Sea, Libya, parts of Europe and critical maritime chokepoints. And we assess that almost a third of countries worldwide have a worsening security and stability outlook in 2025, including Colombia, Ethiopia, Pakistan and Tunisia.

Political transitions

The outcomes of many elections in 2024, particularly in India and Mexico, bode positively for the resilience of democratic governance in the face of rising populism and authoritarianism. But not so positively that 2025 will see fewer political crises. A pattern of coups and popular unrest since 2019, including in Bolivia and Bangladesh in 2024, shows that unconstitutional attempts to seize or retain power are one of the most important sources of instability and market disruption.

Countries undergoing political transitions are often vulnerable. But the most disruptive political crises are when long-standing regimes suddenly fall. These classic grey swans usually occur when multiple factors converge. Such factors typically include a regime losing political credibility, alongside some weakening of state repression, divisions in the ruling elite and acute hardships fueling discontent. In Russia and Iran several of these warning indicators are increasingly evident.

A new US administration

The 2024 US election marked an inflection point with Donald Trump’s return to office, injecting new uncertainties into the global order. While domestic issues will almost certainly be Trump’s priority, he faces a long list of geostrategic issues from which he cannot fully retrench. Trump’s inclination for unilateral deals may achieve some rapid diplomatic ‘wins’, but these will come with significant long-term risks.

Trump’s scepticism towards alliances like NATO, multilateral institutions and international treaty commitments suggests a return to a more isolationist ‘America First’ policy that prioritises domestic issues over global leadership. His unpredictable and transactional style, combined with scepticism towards traditional US multilateral commitments, means allies in Europe and Asia are bracing for an era of reduced American engagement.

The new administration’s most immediate foreign policy challenge is the war in Ukraine. Trump has promised a swift resolution, implying reduced US military aid and pressure on Ukraine to concede territory. Such a stance would meet opposition in the US, where public opinion is firmly against Putin. It would also unsettle European allies, who lack the resources to make up fully for reduced American support.

While a quick end to the Ukraine war aligns with Trump’s goal of reducing US entanglements, it risks emboldening Russia, weakening long-term European security and eroding US credibility as a defence partner. This raises the prospect that Trump may find there are too many political obstacles to imposing a peace deal on Ukraine, making a prolonged conflict favouring Russia in 2025 more probable than a swift resolution.

In the Middle East, Trump will probably return to a maximum pressure policy against Tehran. His close ties with Israeli Prime Minister Netanyahu suggest a sustainable peace in Gaza will become even more elusive. This could also embolden Netanyahu to accelerate unlawful settlements in Palestinian territory and take further military actions against Iran and its proxies, sustaining the risk of broader conflict that could draw in the US. However, Trump’s ties with Saudi Arabia and interest in normalising Israel-Gulf relations may prove a counter-balance, as it would require him to persuade Israel to end its conflict in Gaza.

Competition with China is likely to remain the top US strategic priority, with rising tensions the most likely result. Trump's administration will probably intensify trade sanctions and impose tariffs. His selective and transactional commitment to allies may also embolden China to accelerate its efforts to bring Taiwan under Beijing’s political control. The possibility of a crisis over Taiwan is a prolific grey swan. Beijing's intent to control Taiwan is clear, but how and when much less so, and Trump’s unpredictability may even act as a deterrent.

Direct conflict between China and the US seems unlikely in 2025. But China’s rapid military expansion and the scale of its military drills against Taiwan suggest it is racing to give itself options and the US pause for intervening. Beijing testing the Trump administration's commitment to its allies in 2025 with military exercises at invasion force scale in the South China Sea would be unsurprising, and would probably prompt a short crisis. This would most likely take the form of a weeks-long naval standoff in the area, accompanied by major military and naval exercises as well as punitive economic sanctions.

Trump’s ‘America First’ policy is also likely to reinforce perceptions of US indifference among partners in other regions, especially if he proceeds with tariff increases and foreign aid cuts. Countries in Africa, Asia and Latin America may shift further towards the Chinese and Russian orbit if Trump weakens US partnerships and downplays foreign assistance. This would result in the long-term erosion of US influence in these regions, weakening its ability to compete in a global order of shifting alignments.

Shifting global alignments

US-China competition will remain central to global risk trends, drawing smaller powers into contests over influence, resources and technology. East and Southeast Asia, where many states are inclined to hedge relations, are likely to remain the epicentres of this competition. But regional shifts toward protectionism and a need for security guarantees, as China asserts territorial claims and faces an economic crisis, suggest alignments in 2025 should favour the US, provided Trump can upend expectations about US commitment to regional partners.

At a global level, despite being the dominant military and economic power, the US will find its ability to reduce conflicts is limited in 2025. This challenge is even greater for European states, whose lack of unity and coherence, and hence diplomatic influence, further weakens their capacity to address the numerous crises worldwide. Increased Western military spending has not translated into more credible deterrence, which has been undermined by concerns about escalation with Russia, failures to enforce red lines and inconsistency in upholding international law.

The waning efficacy and relevance of institutions like the UN also contributes to the more frequent emergence and longer duration of crises. Economic sanctions are becoming less effective as states bypass them by forging new trade relationships outside the Western-led rules-based order. The rise of alternative financial systems centred on China is also likely to further undermine Western dominance and diplomatic leverage globally.

Compounding these challenges is that China wields its economic and military power to advance much narrower self-interests. It is unlikely to play a leadership role in reducing conflict risks in 2025.

Rather, it appears to prefer letting the West bear the costs of maintaining stability and finding solutions to complex issues that affect the global commons. Bringing an end to attacks on shipping in the Red Sea is one such example where China could contribute more but arguably benefits from the disruption.

Amid these issues, a key trend to watch in 2025 is the growing assertiveness of middleweight powers. Democracies like Brazil, India, Indonesia and Mexico are likely to push for reforms in multilateral institutions to better serve their interests. However, some authoritarian states are playing a less constructive role through bilateral actions. Egypt, Russia, Turkey and the UAE, for example, have been meddling in regional conflicts to pursue narrow self-interests, prolonging instability.

Countries such as Afghanistan, Burkina Faso, Libya, Mali, Somalia, Sudan and Syria are conflict zones where middle powers are involved, yet effective mediation or roadmaps to greater security remain absent. These regions are becoming safe havens for extremism, which are likely to fuel the revival of terrorist networks in 2025 that threaten regional and global security.

>>> Continue reading the Strategic Outlook 2025 leader here — including sections on weaponised technology as a risk driver, economic vulnerabilities and building resilience.

>>> You can also access the full Strategic Outlook 2025 report here — including a forward-looking analysis of key global risk trends, detailed forecast and trend analysis for every region and stability outlooks for more than 200 countries.

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