As War Exposes Global Dependencies, Self-Reliance Could Come at a Cost

The war in Iran illustrates that the foundation of the global economy engineered over the past few decades — built on broad global trade, global supply lines and low costs — is shifting. It reinforces lessons learned over the past decade, including from the Russian invasion of Ukraine, that geopolitical shocks quickly expose chokepoints that can impact global supply chains.

We believe the chokepoint exposed by the Iran conflict further confirms and accelerates The Global Shift to Self-Reliance, a theme in our Capital Market Assumptions (CMA) 10-Year Outlook. A complementary publication from our sustainable investing team, Sustainable Investing Trends for 2026, reinforces this theme, showing how resource constraints, tariffs, energy sovereignty and growing security self-reliance are impacting countries and causing investors to rethink their long-term investments.

While investors likely already acknowledge this shift, they may not fully appreciate the resulting potential for lower growth and higher inflation. Investors can adjust by staying nimble across asset classes and geographies as global events unfold. Further, longer term shifts toward sectors that contribute to self-reliance and resiliency — such as infrastructure, defense and renewables — may prove fruitful.

BREAKING THE CHAINS OF ENERGY DEPENENCY

The shutdown of the Strait of Hormuz shines a torch on resource dependencies for regions and individual countries. Even if the strait opens fully, it will likely take an extended period for production and shipping to return to pre-conflict levels. The U.S. Energy Information Agency states: “Just as we had never before seen the strait close, we’ve never seen it reopen. What exactly that looks like remains to be seen.”¹

While some countries have no choice but to import energy, their focus may shift to either diversifying their imports of specific forms of energy or diversifying their energy sources, including revisiting investments in renewables.

Europe is experiencing its second major energy shock in under five years — the first resulting from the 2022 Russian invasion of Ukraine. This will once again force the European Union to assess its energy sources, particularly given the extended timeline for some Middle East facilities to come back online. Fossil fuel imports account for about 60% of the European Union’s energy consumption, but renewable energy already is surging, especially wind and solar (Exhibit 1).²

EXHIBIT 1: EUROPE’S DEPENDENCY FUELS SHIFT TO RENEWABLES

Japan is a major importer of liquified natural gas (LNG) from the Middle East and was already in the process of revisiting their nuclear policy that led to all 54 reactors shutting down after the 2011 Fukushima Daiichi meltdowns. Fifteen operating nuclear reactors have restarted, three applications to restart additional reactors have received initial approval from Japan’s Nuclear Regulation Authority, and six more are under review.³ There are further calls from the opposition party to restart all 33 operable reactors.⁴ It is further likely that Japan will look to diversify sourcing of their LNG imports.

China has taken an “all of the above” approach to energy security, developing a massive global lead in renewable energy while still depending on oil, per our 2026 CMA special consideration Diverging Climate Approaches. While China imports oil from the Middle East, the country maintains a significant strategic oil reserve.

The shutdown of the strait also has pinched supplies of other key materials, which we believe will force countries to look inward or shore up more diverse and reliable supply chains. The Middle East produces more than a third of the world’s helium, critical for manufacturing semiconductors.⁵ It’s too early to tell, but a breakdown in the helium supply could slow the advancement of AI, a long-term driver of growth in our CMA research. The Persian Gulf states also account for a third of the world’s urea exports and half the world’s sulphur exports, both key ingredients in fertilizer.⁶ A lack of fertilizer can impact crop yields, therefore having a delayed inflationary impact on food prices.

THE PUSH FOR MILITARY SELF-RELIANCE INTENSIFIES AMID CONFLICT

The war has expanded already-existing fissures in the U.S.–European alliance and fears of more intense and longer lasting conflicts in the Middle East, prompting nations to re-evaluate how they maintain security in an increasingly volatile global environment. Worries over geopolitical instability had already boosted spending (Exhibit 2).

In the Middle East, Iran’s attacks on oil production, data centers and desalinization plants in Gulf countries have exposed their defense vulnerabilities. Those countries likely will increase military spending to better arm themselves for future conflicts. The war also raises concerns about the Gulf’s future as a hub for data centers.

In Europe, while the North Atlantic Treaty Organization (NATO) has pledged to increase defense spending from the current 2% of gross domestic product to 5% by 2035,⁷ nations increasingly are recognizing that they cannot rely on alliances for military support. Russia’s invasion of Ukraine already pushed the European Union to recognize they must bolster their own defense capabilities, but increased questions of the U.S.’s commitment to, or even total withdrawal from, NATO is hastening the process.

EXHIBIT 2: INSTABILITY BOOSTS DEFENSE SPENDING

PLAYBOOK FOR THE SELF-RELIANT GLOBAL ECONOMY

The global shift toward self-reliance marks a structural change in how economies allocate capital and manage risk, as energy security, defense capability and supply-chain control take precedence over efficiency.

For energy, fragmenting the supply chain could be a drag on growth, and infrastructure investments raise costs. Higher energy costs act as a tax on households, potentially weighing on consumer spending. Larger military budgets direct capital toward less growth-oriented uses, particularly when they stoke government deficits. Further, manufacturing more military equipment aggravates already tight supplies of advanced materials and energy, adding to inflation risk.

To address these risks, investors can consider some long-term shifts in their portfolios:

Techonology and Defense: Companies that develop and manufacture advanced semiconductors, robotics, autonomous transport, drones and AI-driven or other defense technologies may present opportunities. European institutional investors are revisiting restrictions on conventional weapons, which may drive changes to strategic allocations and investment policies that are favorable to the defense industry.⁸

Infrastructure: Industries that build energy infrastructure and components to modernize the power grid and improve energy transmission likely will benefit from energy independence.

Longer term progress toward self-reliance will be uneven across countries, sectors and time horizons. Staying nimble across asset classes and geographies allows investors to respond to shifting policy regimes, supply-chain adjustments and episodic dislocations as they emerge.

Footnotes

¹ EIA Press Release (04/07/2026): Hormuz closure and related production outages are key drivers in EIA’s latest forecast

² Source: Penn, M. “Daily Insight: The Price of European Power,” Absolute Strategy Research. March 20, 2026.

³ Source: EG PRACTICE LETTER, ENERGY: Iran war will permanently reshape global energy markets. March 17, 2026.

⁴ Source: Kantaro, K. and K. Golubkova. “Japan should use nuclear plants to offset Iran crisis, opposition party head says,” Reuters, March 8, 2026.

⁵ Source: OECD (2026), OECD Economic Outlook, Interim Report March 2026: Testing Resilience, OECD Publishing, Paris. March 26, 2026.

⁶ Ibid.

⁷ Note: This 5% of GDP is broken down by 3.5% for core defense and 1.5% for defense and security related spending (i.e., infrastructure, cyber, etc.).

⁸ Northern Trust Sustainable Investing Trends for 2026