Global markets, local pain: Geopolitics and the cost of living

Why political rhetoric around isolationism doesn’t match the reality of a deeply interdependent world — and why events in the Middle East prove the point.

Pick up a newspaper in 2026 and the story appears straightforward: the world is turning inward. Tariffs are rising, borders are tightening, and politicians across the Western world are competing to sound the most self-sufficient. The era of frictionless globalisation, we are told, is over.

It is a compelling narrative. It is also, in one important respect, wrong. Because whatever is happening at the political level, the physical world – the infrastructure of energy, minerals, and supply chains that underpins modern life – remains deeply, inescapably global. And the consequences of that gap between political rhetoric and economic reality are felt in the everyday cost of living.

Still hooked: The raw materials the world can’t let go of

Start with energy. Oil and natural gas are not domestic commodities that countries happen to trade internationally, they are global markets, priced in real time across more than 100 countries, shaped by OPEC+ decisions, shipping routes, and geopolitical risk. No government sets the oil price. No border controls it. When something disrupts supply anywhere in that system, prices move everywhere.

The current crisis illustrates this with unusual clarity. The Strait of Hormuz, through which approximately 20% of the world’s oil and liquified natural gas passes, has been effectively closed since late February 2026, following the escalation in the Middle East. [1] The International Energy Agency has described the disruption as the largest to global oil supply in history.[2] Fuel rationing has appeared in parts of Asia. The ambition of governments to manage energy prices domestically has rarely looked more limited.

Critical minerals tell a similar story, and one that is growing in importance. The global shift toward electric vehicles, renewable energy, and digital infrastructure has created surging demand for cobalt, lithium, copper, and rare earth elements. Unlike oil, which is a global commodity, China controls a dominant share of the processing capacity for many of these materials.[3] The International Monetary Fund (IMF) has warned that trade restrictions on critical minerals raise costs and slow the deployment of green technologies even when those technologies are otherwise cost-competitive.[4] This is not a theoretical vulnerability, it is an active structural constraint on the global economy today.

The geology problem no policy can fix

The political response to all of this has been a wave of economic nationalism. Since COVID exposed the fragility of just-in-time global supply chains, reshoring, friend-shoring, and nearshoring have become the dominant vocabulary of industrial policy. The CHIPS Act[5], the European Chips Act[6], and a sweeping array of subsidy programmes all reflect a genuine desire to reduce dependency on potentially hostile suppliers.

But here is the fundamental problem: the geography of the world’s resources has not changed. Oil, gas, lithium, copper, and rare earths are concentrated where geology put them – not where Western industrial policy would prefer them to be. Reshoring production does not relocate the underlying resources. It simply adds cost to the process of accessing them.

IMF research has found that large-scale supply chain de-risking would reverse decades of efficiency gains from specialisation, and risks being materially detrimental to growth. The world offshored production because it was cheaper. Bringing it back costs more – and those costs land on consumers.

The April 2025 US tariff regime – a 10% baseline levy on all imports, with far higher rates on goods from China and other major suppliers – is the most dramatic live experiment in economic nationalism in decades.[7] Its primary effect so far has not been to shield consumers from global price pressures. It has been to add a further layer of cost on top of them. Even where tariffs redirect trade flows, goods are typically rerouted through third countries rather than genuinely replaced by domestic production. The map of global interdependence proves remarkably resistant to redrawing.

How global becomes local: The cost of the conflict

The tension between the two previous arguments has a very practical consequence. On one side, governments are actively pursuing policies designed to reduce global dependency – tariffs, reshoring incentives, friend-shoring agreements. On the other, the physical infrastructure of the global economy cannot be meaningfully relocated in years, let alone months. That friction — between political intent and structural reality — does not sit neatly in a policy document. It shows up in the price of food, energy, and everyday goods.

When protectionist policies add cost to supply chains without actually reducing dependency on global inputs, consumers absorb both sides of the equation. They pay more because of the policy friction, and they remain fully exposed to the underlying global volatility the policy was meant to address. This is not a theoretical observation. UK food prices rose 37% between 2020 and 2025, compared with just 4.6% in the prior five years[8] — a period in which both global energy shocks and domestic policy costs were simultaneously feeding through to supermarket shelves. The escalation in the Middle East has kicked these fragile supply chains back into question and highlighted how the underlying dependency was never resolved, only temporarily obscured.

With the Middle East crisis ongoing, the US-China trade war unresolved, and global trade blocs continuing to fragment, the conditions for persistent inflation surprises remain firmly in place and difficult to navigate. Understanding the gap between how the world is described politically and how it actually functions economically sits at the front of investors mind.

What this means for investors

For investors, the key takeaway is that political efforts to reduce global dependency have not removed exposure to global risk. Energy, critical minerals and trade routes remain deeply interconnected, meaning geopolitical shocks continue to feed quickly into prices. This can increase the likelihood of inflation arriving in sudden, uneven bursts rather than following predictable cycles.

At the same time, tariffs and supply chain restructuring can add cost without necessarily reducing vulnerability. This combination can raise volatility, pressure margins and increase the importance of pricing power and resilience. In this environment, understanding how global systems actually function, rather than how they are described politically, remains central to managing risk and preserving real returns.