Morgan Stanley
Morgan Stanley Institute

Geopolitical Shifts: Rewiring Global Trade

May 29, 2026

A Morgan Stanley Institute roundtable explored how the conflict in Iran is part of a global realignment of economic and political power centers.

Why It Matters

  • An emerging skepticism of globalization has led to a combination of market forces and policy changes that prioritize national and economic security over economic efficiency.
  • As geopolitical tensions accelerate the shift to a multipolar world, capital is being redirected toward regions that offer more stability or alignment to build capacity, redundancy and infrastructure.
  • The multipolar world is redefining global competition, not just by rewiring supply chains, but also by redefining centers based on each nation’s tech capabilities, trade policies, regulations, labor and input costs.
  • Investors may look into adjusting their portfolios to reflect shifts in supply chains, capital flows and global power.
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The Big Picture: Geopolitical events are part of a broader shift from globalization toward a multipolar world. Events such as the conflict in Iran highlight policies that prioritize national security, localized supply chains and strategic technologies, with implications for businesses and markets that can potentially intensify in 2026.

In an evolving multipolar world, global trade is becoming more regionalized, fragmented and increasingly shaped by domestic priorities. It’s a marked and ongoing shift from the efforts of the early 2000s to liberalize global trade and expand supply chains. Rising competition between the U.S. and China, geopolitical unrest in various parts of the world, greater demand for energy and other resources, and constituents’ growing skepticism toward globalization, among other factors, have prompted governments and companies worldwide to prioritize national and economic security over efficiency.

 

Morgan Stanley’s focus on these dynamics—one of the Firm’s key investment themes for 2026—has helped to contextualize for investors and clients some of the major events since early 2025, such as the Liberation Day tariffs and the current conflict in Iran.

 

To examine how recent geopolitical developments could shape the trajectory of the global economy and financial markets, the Morgan Stanley Institute convened a roundtable of senior leaders from across the Firm:

 

  • Michael Zezas, Morgan Stanley’s Deputy Global Head of Research and Co-Head of the Morgan Stanley Institute
  • Ariana Salvatore, Head of U.S. Public Policy Strategy at Morgan Stanley Research
  • Jitania Kandhari, Deputy CIO of the Solutions & Multi-Asset Group at Morgan Stanley Investment Management
  • Lisa Shalett, CIO and Chair of the Global Investment Committee at Morgan Stanley Wealth Management

1. Geopolitics Reshaping Trade

 

Zezas opened the discussion by explaining the main dynamics in this new reality.

Zezas on the Shift to a Multipolar World

Transcript

First, geopolitical risk is no longer episodic. We think it's more of a constant. Events like the current conflict in the Middle East aren't isolated shocks. They're part of a broader environment where multiple power centers, competing policy regimes, and more fragile supply chains mean disruptions move faster and tend to spread further across the global economy.

 

Second, companies are having to adjust how they operate in that environment. For decades, efficiency and cost were the primary objectives, but today those need to be balanced with resilience, control and alignment.

 

So that brings us to the third point, which is that this shift is driving a new phase of investment. The supply chains are rewired. Capital is being deployed across regions to build capacity, redundancy and infrastructure, with investment flowing into multiple geographies as companies diversify exposure. So this is really what we're talking about when we're talking about the shift to a multipolar world.

2. Iran Conflict: Part of a Broader Transition

 

The panelists emphasized that the conflict in Iran is not an isolated event. Rather, it reflects a broader transition toward a more multipolar and regionally-oriented global order—with meaningful consequences for policy, resource supply chains and investment strategy.

 

“This conflict matters because it highlights the U.S.’s standing globally, including its relationships across the Gulf region and with China,” Salvatore said.

Salvatore, Shalett and Kandhari on the Implications of the Iran Conflict

Transcript

Salvatore:

 

This conflict is really a data point on an underlying trend that has been underway for some time. If we go back the past five, eight, even ten years, we've seen certain events kind of accelerate this transition. But ultimately we are transitioning to a de-risked, more multipolar world.

 

In my world for domestic politics and for policy, the clearest transition mechanism to voters is on gas prices. We're obviously in a midterm election year, so that matters a lot heading into November, but that's going to be a really important indicator, as I'm sure we'll talk about later, for the administration's appetite to negotiate and end this conflict sooner rather than later.

 

Kandhari

 

U.S. with the current war on Iran has really tried to secure a large chunk of energy supply with its own domestic production, with Venezuela and with Arab alliances now.

 

Then you have the energy fragmentation now, with what happens with especially Asia, which is now going to be dependent a lot on energy security. And I think all of this ties into tech fragmentation, right? Because energy feeds into technology and AI and quantum computing. It’s the next area, which is so, so dependent on energy.

 

From a really big picture perspective—thinking about like these four levels of fragmentation and positioning for that across not just equities but real assets, infrastructure, fixed income—is becoming a very important, as is the case, as you said, base case rather than a tail risk, which is what geopolitics used to be in the past.

 

Shalett

 

This idea of, you know, shifting geopolitical power, overlaid with access to raw materials and resource and natural resources, it really kind of changes where strength and power and investment may flow.

 

And, you know, one area that we've in particular pointed out to our clients is how interesting Latin America could be, in this new context. Especially if you think about how America's position—vis-à-vis the Western Hemisphere—appears to be evolving around this idea of could there be a renewal of the Monroe Doctrine?

3. Economic Impact

 

The conflict in Iran is already having notable economic repercussions. In their recent midyear outlook, Morgan Stanley Research economists revised their U.S. growth forecast for 2026 down to 2.2%, from a prior estimate of 2.6%. At the same time, they anticipate increased inflationary pressures alongside softer consumer demand.

 

With this backdrop, Shalett noted “We would describe this environment to clients as a stagflationary scenario—where growth may weaken while inflation potentially rises.”

Shalett and Salvatore on Scenarios and Lessons From the Past

Transcript

Salvatore

 

We basically have mapped out three different scenarios, starting with the oil market, and then everything else sort of flows from there.

 

The first is a quick resolution. And so even in that world, our strategists don't think we're going to get back to $65 a barrel, probably somewhere around $80, $85, maybe even $90, contingent, of course, upon how this conflict ends. 

 

The second would be an ongoing constraint scenario. I would say looking at market pricing that's closest to where we are right now, where you see traffic severely limited, but negotiations are ongoing. Maybe some positive signals along the way. 

 

The third is an effective closure. So this is like a re-escalation, something where you see oil in maybe the $130 plus range. And at that point, to your question on macro, we do start to see demand destruction.

 

Shalett

 

History suggests that during periods of stagflation, two things happen.

 

Number one, stocks and bonds tend to be positively correlated to one another. So, for our clients, many of whom might have a reasonably simple stock-and-bond portfolio, we're spending a lot of time talking about diversification and having to use other asset classes, potentially, to get some ballast versus stocks.

 

The second thing that we talk about is the fact that, if inflation does hang around at around 3% or 3.5% for a period of time, if you are a fixed income investor or you're biased towards fixed income, in a world where those fixed income returns are in the fours and fives, your real returns after inflation are going to be sub two.

 

So real assets, real estate, infrastructure, cash-flowing-oriented assets is something that we're talking a lot about.

4. Geopolitics Overlap With AI

 

The realignment of geopolitical power and trade relationships is also reshaping the global race for technological leadership, particularly in artificial intelligence.

 

Governments are increasingly pursuing “offensive” strategies, including domestic investment in critical supply chains to secure access to advanced technologies. At the same time, they are deploying “defensive” measures—such as export controls and licensing requirements—to limit competitors’ progress in AI development.

 

As these trends converge, the intersection of geopolitics and technology is becoming a defining feature of the global investment landscape.

Kandhari, Salvatore and Zezas on Investment Opportunities

Transcript

Salvatore

 

I think that the AI angle is going to really determine how that balance of power shakes out. And the reason why this matters in the context of the U.S.-Iran conflict is because we were starting to hear some discussion of capacity being looked at and maybe planned in the Middle East. And that's a really important region for the U.S. to kind of maintain that presence beyond just our own borders, but also globally.

 

So I think to the extent that those investments are now at risk or there's some need for capital that was initially going to those projects to now be redirected to rebuilding traditional infrastructure, that sort of thing.

 

Zezas

 

Our view is that you're going to see about $2.9 trillion of money spent on the AI industrial buildout. And one of the reasons that you haven't seen the events in the Strait of Hormuz push the U.S. closer to a recession is because that buildout accounts for about 25% of the expected GDP growth this year in our economists estimate.

 

Kandhari

 

I'll say one thing also, interestingly, you know, connecting everything everyone said here: like this is not a de-globalized system, which is easy. It's a rewired globalization.

 

So in our work, a lot of the countries that have export similarity with China, for example, in shipping, which the U.S. is really lagging behind in the ship production and China has really exponentially taken off, in even some of the biopharma names in the biotech side, in some of the cheaper drugs, in automation… countries that have export similarity with China—which are the likes of Korea and Taiwan and even Japan—we are finding a lot of interesting ideas because the U.S. would prefer them as vendors in this world where they won't be able to produce everything and they won't want to buy from China.

 

So, we see interesting opportunities in that space in automation and, you know, space related supply chain, which is in lidar, you know, that's a really micro idea, or even in shipping, as I mentioned. The power bottleneck, if you map the data center ecosystem, the biggest bottleneck is in transformers. That is a European story. You know, that's the European electrification story.

Takeaways

  1. For Investors:

    “We’re finding a lot of interesting investment ideas in countries that have export similarities with China because the U.S. would prefer them as vendors. We see opportunities in shipping, automation, biopharma in different countries, such as Korea, Taiwan and Japan.”

     

    Jitania Kandhari, Deputy CIO of the Solutions & Multi-Asset Group at Morgan Stanley Investment Management

     

    “In this new multipolar world, power can be dispersed. It can be random. And when you combine that with the threats around cybersecurity, we may need to think about risk premiums differently and ask ourselves whether the current market is priced for this vulnerability to shocks.”

     

    Lisa Shalett, CIO and Chair of the Global Investment Committee at Morgan Stanley Wealth Management
  2. For Companies:

    “Companies are having to adjust how they operate in this new environment. If for decades, efficiency and cost were the primary objectives, today those need to be balanced with resilience, control and alignment.”

     

    Michael Zezas, Deputy Global Head of Research and Co-Head of the Morgan Stanley Institute

     

    “Shifting geopolitical power—overlaid with access to raw materials and natural resources—changes where strength and investment may flow.”

     

    Lisa Shalett, CIO and Chair of the Global Investment Committee at Morgan Stanley Wealth Management

     

    “When we discuss this issue with corporate executives, the interest is in how they can make supply chains more resilient. This is going to cost more, but over time the stability will ultimately be a lower cost endeavor.”

     

    Michael Zezas, Deputy Global Head of Research and Co-Head of the Morgan Stanley Institute

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