Global security continued to unravel in 2025. Crucial tests are coming in 2026

Global security deteriorated in 2025 as nuclear proliferation, space-security threats and hybrid warfare accelerated and major conflicts — a fragile Gaza ceasefire, the wars in Ukraine and Sudan and rising tensions from Venezuela to the India–Pakistan border — remained intractable. Governments have responded with defence spending at levels not seen since the Cold War even as many Western countries cut international aid, degrading humanitarian response and early-warning systems and increasing the risk of spillovers and escalation. These dynamics set up crucial tests in 2026 for crisis management, escalation control and the resilience of international security institutions.

Analysis

The Chatham House piece reports that global security deteriorated in 2025, driven by accelerating nuclear proliferation, emerging space-security threats and expanded hybrid warfare; it cites a fragile Gaza ceasefire with mutual accusations of violations and persistent, intractable conflicts in Ukraine and Sudan alongside rising tensions from Venezuela to the India–Pakistan border. Governments have responded with defence spending described as being at levels not seen since the Cold War, while many Western countries have cut international aid, a combination the article links to degraded early-warning systems and higher risk of humanitarian and security spillovers. Market signals accompanying the article show a moderately negative sentiment (score -0.55) and a risk-off tone, while a market impact score of 0.35 implies moderate repricing pressures rather than systemic market shock. Thematically this centers on Geopolitics & War, Infrastructure & Defense and Fiscal Policy & Budget, implying near-term tail risks for emerging markets and commodity-sensitive sectors and a relative policy tailwind for defence and infrastructure-related revenues into 2026 as crucial tests of escalation control approach.

Key Decisions for Investors

• Consider selective overweight exposure to high-quality defense and security suppliers likely to benefit from sustained government spending increases, focusing on companies with diversified, funded backlogs
• Increase allocation to traditional safe havens and liquidity (core sovereign bonds, gold) to protect portfolio value in a risk-off environment and to provide dry powder for tactical opportunities
• Trim or hedge high-beta emerging-market and frontier exposures that are directly exposed to conflict spillovers, and reduce allocations to consumer cyclicals in regions reliant on curtailed aid
• Hedge commodity and energy price volatility through options or selective commodity instruments given the higher probability of supply shocks and geopolitical-driven price moves
• Monitor three actionable triggers—defense budget announcements, major ceasefire breakdowns or escalations, and cuts to aid/early-warning funding—and be prepared to reallocate within 24–72 hours if one of these triggers materializes