finance

War, tariff volatility, and shifting capital flows challenge the global currency order—even as markets prove resilient.

When Japan’s largest automaker reported 2025 results last May, it said its earnings were hit by $4.6 billion in foreign-exchange losses due to the US dollar’s decline. This month, Toyota has a new concern: the war in Iran that has spread throughout the Persian Gulf. The company sold 325,000 cars to the region in 2025, but the fighting and the closure of shipping lanes through the Strait of Hormuz could further decrease earnings.

Even more damaging, the company is forecasting a roughly $9.6 billion drag on earnings in 2026 due to President Trump’s on-again, off-again tariffs. “The impact of US tariffs,” Toyota CFO Kenta Kon said, “is a significant rise from our initial forecasts.”

 The global economy entered 2026 already on shaky ground. The Trump administration’s sweeping tariff policies weakened the dollar and heightened trade fears, while a Supreme Court decision on those tariffs added fresh uncertainty, even as inflation was slowly easing. Then, on February 28, US and Israeli forces launched strikes on Iran, oil prices surged, and the dollar bounced higher in a flight to safety.

The Strait of Hormuz, which carries about 20% of global oil and LNG exports, effectively closed after Iranian threats and tanker attacks, sending oil prices from about $70 to more than $110 a barrel within days. Oil-import-dependent economies such as Japan, South Korea and China were especially vulnerable to the war’s aftershocks.

Higher oil prices. Uncertainty about tariffs. The dollar boomerang. Corporate finance executives face a new series of challenges: Higher oil prices, etc. However, despite short-term headwinds for business, global analysts remain relatively optimistic about the long-term economic outlook, even with the war’s sudden shadow over markets.

While energy concerns increased as war clouds gathered over the Persian Gulf, analysts largely believed that the global economy would revert to a pattern similar to the pre-war period: a gradually declining dollar, reduced foreign investment in US assets, and inflation that persistently prevents central banks from lowering interest rates. A key sign of market consensus was that, by mid-March, the forward price of oil for October delivery was $79 per barrel, compared to its temporary $110 spike after the war began. But the uncertainty surrounding the objectives and duration of the attacks on Iran by the US and Israel has kept oil prices bouncing around $100 per barrel.

Aside from the currency issue, several factors have contributed to relatively positive economic forecasts despite the fighting in the Gulf. The Trump administration maintains, despite its forecast having been extended, that the disruption to energy supplies will be relatively short-lived. “You’re seeing a little bit of a fear premium in the marketplace, but the world is not short of oil or natural gas,” said Energy Secretary Chris Wright on CNBC in early March. “Worst case is a few weeks, not months.”

As Dollar Falters, China Moves In

The dollar had a tough year in 2025, dropping about 12% against a basket of other major currencies. Although US administrations usually support a strong dollar, President Donald Trump broke that tradition and said it was “great” that the dollar was falling on global markets, which caused it to tumble even more.

The dollar’s decline triggered a significant shift into gold, which increased in value by 60% in 2025, reaching a record price of $5,110 per ounce. European stocks saw their largest inflows ever in February as investors moved away from the United States.

Marc Chandler, chief market strategist at Bannockburn Global Forex, said that for much of 2025, foreign investors had been buying US equities while shorting the dollar as a hedge. “Now that US equities are declining, they have to buy back their short-dollar hedge,” Chandler said. “I’m not convinced that what we’re seeing in the dollar is much more than unwinding positions, rather than people flocking to the US as a safe haven.”

Mark Sobel, former head of international finance at the US Treasury, wrote in a March 2025 op-ed for the Financial Times that the dollar’s dominance was slowly eroding. “Like termites eating away at a house’s woodwork, Trump’s dysfunctional policies are eating away at its support and rendering the US currency acutely vulnerable to future shocks,” Sobel said.

A weaker dollar is not just a market story—it is reshaping currency dynamics globally, with China at the center. The Chinese government intervened on February 27 to stop the renminbi’s appreciation against the dollar, which had increased by 7% since last April. The People’s Bank of China (PBOC) announced it would eliminate the 20% reserve requirement on foreign exchange forward contracts and stated it would keep the renminbi’s exchange rate at a “reasonable and balanced level.” The higher value of the renminbi did not hurt Chinese exports—the country recorded a $1.2 trillion trade surplus in 2025.

China’s government has used the weaker dollar to strengthen the renminbi’s role in trade finance and payments, with officials claiming the currency is now the world’s largest trade-finance currency. Chinese companies have been gradually decreasing dollar transactions. The dollar’s share of cross-border transfers has dropped from 80% in 2010 to about 40% in 2025, mainly due to increased renminbi flows. The renminbi’s share of global trade has grown from 2% in 2021 to over 7%, a notable rise but still not enough to threaten the dollar’s dominant position in world trade.

In Japan, as inflation rises, the Bank of Japan is expected to increase interest rates, according to Mitsubishi UFJ Financial Group. While the Federal Reserve in the US has kept rates steady through its mid-March meeting. The BOJ’s move to tighten policy after ending its negative interest rate policy is seen as a factor aiding yen appreciation.

Europe has been significantly affected by the rise of the euro, which appreciated nearly 12% against the dollar in 2025. “I have watched the dollar rate with concern for some time,” German Chancellor Friedrich Merz said. “The dollar course is a considerable extra burden for the German export economy.” Dirk Jandura, head of the BGA, Germany’s wholesale and foreign trade association, said the strength of the euro was causing exporters “great concern.” The dollar’s easing, though, has softened some of that impact.

Economy Shows Resilience

Supporting the Trump administration’s more optimistic oil outlook, the International Energy Agency agreed in early March to release 400 million barrels of oil to address the supply disruption—the largest such action in the organization’s history. The move reinforced officials’ view that any price spike would likely be short-lived, lasting weeks rather than months. The 32 member countries still have about 1.4 billion barrels of emergency reserves that can be tapped if the shortage worsens.

“The rise in crude oil prices to date does not represent a shock of the magnitude seen in earlier episodes,” said J.P. Morgan analysts Bruce Kasman and Nora Szentivanyi. “At [about] $100 a barrel, Brent crude is less than 35% above its two-year trailing average. To deliver a shock similar in size to the Russian invasion, crude oil prices would need to move close to $150 and remain at this elevated level for several months.”

Joe DeLaura, an energy analyst at Rabobank in the Netherlands, urged companies to have a plan in place to make quick decisions involving their energy supplies. “Start assessing your supply chains and your access to capital markets,” DeLuca told a webinar in March. “Are you shoring up relationships? Are you able to have critical redundancy in your supply chains, especially for key inputs like energy? One of the ways to take advantage of this is by looking further out on the curve and take advantage of volatility when it swings in your favor.”

Unlike in 1973, when a Middle East oil embargo caused inflation to soar, the United States now exports both petroleum and liquefied natural gas. Therefore, the war is unlikely to significantly impact the US economy in 2026, as it would require a “very severe scenario” for US economic growth to contract, according to Oxford Economics. “We have a view that the US dollar is going to broadly continue to somewhat weaken,” said Daniel Moseley, associate director for scenarios and macro modeling, at Oxford Economics.

Asia Hit Hard

The Iran War most heavily affects Asia. According to the US Energy Information Administration, 84% of crude oil and 83% of LNG travels to the region. I would also say war in Iran. China, India, Japan, and South Korea are the leading destinations for Persian Gulf crude oil, but Thailand and Vietnam also rely heavily on imported energy.

Companies like Toyota have limited options but to cut costs. One strategy is localizing their supply chains. The company announced in February that it plans to invest $10 billion in the US over the next five years to increase production of its most valuable hybrids. It is also reducing production of lower-value models and stated it will implement three price hikes in 2026 to compensate for the “double whammy” of a weaker dollar and US tariffs.

Rajiv Biswas, CEO of Asia-Pacific Economics in Singapore, states that a major concern in Asia is that a prolonged energy shortage could lead to a surge in inflation, prompting central banks to increase interest rates. China’s government, for instance, ordered refiners to halt diesel exports, seemingly worried that supplies could run low during a lengthy conflict.

Biswas stated that the Persian Gulf is also a major shipping route for urea and sulfur used in fertilizer production. This means “the agricultural sectors of many Asian developing countries could also be hit by lack of essential inputs,” as well as the US, right as the Spring planting season begins. Additionally, Brazil, the world’s leading soybean producer, imports most of its urea from Qatar and Iran. India depends on Saudi phosphate exports.

Europe Needs To Urgently Use AI

No European industry was more affected by the dollar’s rise than automobile manufacturing. At luxury carmaker BMW, for instance, revenues fell 5.9%, with half of the decline attributable to the strength of the euro, which created a $670 million headwind. Additionally, US tariffs reduced earnings and imports from China and limited sales to Europe.

“If you take all these elements together, the headwind is bigger than the tailwind, which we’re working on,” BMW CFO Walter Mertl said. He added that the company had cut costs by $2.6 billion to boost profitability. “We are working on all cost elements,” Mertl said, including capital expenditures, research and development spending, and sales and general expenses.

To hedge against a weakened dollar that makes their exports more expensive, European companies need to do more than cut costs. These companies need to invest urgently in cutting-edge technologies, such as artificial intelligence, to make them more competitive in the global marketplace, says Marcello Messori, a professor at the Schuman Centre of the European University Institute in Milan.

“Europe needs to look at artificial intelligence and how it is compatible with the green transition and try to exploit these specific sectors,” Messori says. “Between the current European specialization in mature technologies and the technological frontier, there are a lot of opportunities that you can exploit between those extremes.”

One company leading this approach is Siemens, once known for low-profit industrial machinery. CEO Roland Busch stated that the company has strong growth prospects because it has focused on adopting new technology. “We are in a good place because we are offering what the world needs,” Busch said. “We are positioned along secular growth drivers: automation, digitalization, electrification, sustainability, and artificial intelligence.”

Messori emphasizes that the European Union must speed up efforts to unify financial markets to create a larger pool of venture capital. He notes that Sweden boasts a thriving startup economy. However, established companies often relocate quickly to the US, where capital markets are more accessible.

While the results of wars rarely match initial predictions, the consensus among analysts is that by year’s end, the Iran war may be seen as an economic distraction rather than a strategic turning point. The forces that defined markets before the conflict—moderating inflation, steady demand, and resilient consumer spending—are expected to keep the global economy on track. The dollar, meanwhile, is likely to remain volatile but broadly weaker over time, as structural pressures and shifting capital flows continue to test its dominance.

Islam Zekry, Group Chief Finance & Operation Officer and Executive Board Member at CIB, explores how GCC-Africa partnerships are driving economic growth, resilience and a transformative era of South-South cooperation, and how Egypt’s strategic location and financial expertise position it as a key player in emerging trade corridors.

Global Finance: How can new trade alliances and partnerships, particularly between the GCC and African nations, drive economic growth and resilience across both regions?

Islam Zekry: The partnership between the Gulf Cooperation Council (GCC) and Africa is gaining momentum. However, what is changing is the depth and strategic intent behind these partnerships. As global supply chains fragment and capital becomes more selective, structured trade alliances between GCC nations and African economies have the potential to create one of the most significant South–South growth corridors of the next decade.

Several structural complementarities underpin this opportunity. GCC economies possess deep capital pools, sovereign investment vehicles, advanced logistics capabilities and strong global trade linkages. In addition, many African economies are rich in natural resources, arable land, renewable energy potential and rapidly growing consumer markets with favorable demographics.

When strategically aligned, partnerships can yield positive growth outcomes. For example, food security partnerships, where African agricultural production meets Gulf demand, demonstrate this potential. Moreover, investments in energy and transition, particularly in renewables and green hydrogen, support the transition towards cleaner energy resources. Such partnerships can also drive the development of the infrastructure and logistics sector—strengthening ports, industrial zones and transport corridors. Ultimately, financial sector integration enhances capital flows and trade finance capacity.

“Egypt is not just a transit point for global trade—it is becoming a focal point in a more integrated Afro-Arab economic architecture.”

Islam Zekry, Group Chief Finance & Operation Officer and Executive Board Member at CIB

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Beyond capital deployment, what differentiates the next phase of GCC–Africa engagement is the development of capacity for resilience. Global shocks—whether pandemic disruptions, geopolitical tensions or commodity volatility—have demonstrated the importance of diversified trade relationships. GCC–Africa alliances reduce overdependence on traditional West–East corridors, creating balanced, multipolar trade flows.

Therefore, for these partnerships to reach their full potential, financial architecture must evolve in tandem with physical infrastructure. Efficient cross-border payment systems, local currency settlement mechanisms, risk-sharing frameworks and strong banking partnerships determine how seamlessly goods, services,and capital move between the two regions. This is where banks with both regional understanding and international connectivity play a transformative role, not merely as financial intermediaries, but as enablers of structured trade ecosystems.

GF: What makes Egypt uniquely positioned to serve as a trade and investment hub between the Middle East and Africa, and how can this role evolve in the context of emerging trade corridors?

Zekry: Strategically positioned at the convergence of Africa, the Middle East and Europe, Egypt controls one of the world’s crucial maritime arteries through the Suez Canal. The country boasts one of Africa’s largest and most diversified economies and hosts one of the region’s leading banking sectors.

However, Egypt’s strategic relevance goes beyond geography. The country serves as a natural logistical bridge. It connects Mediterranean trade routes with Red Sea and Gulf shipping lanes while maintaining deep commercial ties across Sub-Saharan Africa. This dual orientation—northward to Europe and southward into Africa—positions Egypt as a balancing hub within emerging trade corridors.

The country has also built significant industrial and export capacity. Its robust manufacturing base, expanding energy sector,and growing role in Liquefied Natural Gas (LNG) and renewable energy markets position it as a credible anchor economy within regional value chains. Egypt’s financial institutions support cross-border expansion and structured trade finance. Egyptian banks have developed strong capital bases, regional expertise and global correspondent networks, enabling them to intermediate complex trade flows across Africa and the Middle East.

As new trade corridors emerge, from Red Sea logistics networks to Gulf-backed infrastructure investments in East Africa, alongside the African Continental Free Trade Area (AfCFTA) driven continental integration, Egypt’s role is set to evolve across three key areas. The country functions as a gateway for capital deployment into Africa, serving as a strategic hub for GCC and international investors seeking structured entry into African markets. It also has the potential to serve as a regional trade finance hub, facilitating corridor-based financing between North Africa, East Africa,and the Gulf. Finally, Egypt can act as a connector of payment ecosystems, enabling interoperability between African financial systems and Middle Eastern capital markets.

The next phase of Egypt’s development hinges on deepening this integration, aligning customs frameworks, digitizing trade documentation, strengthening regional payment systems and encouraging bilateral currency arrangements. If strategically executed, Egypt will not simply remain a transit point for global trade, but will become a focal point in a more integrated Afro-Arab economic architecture.

The future of Middle East–Africa trade alliances will not be defined solely by infrastructure announcements or headline investments. It will depend on how effectively capital, policy and financial systems converge to support real economic exchange. In this context, Egypt stands out as both a geographic and financial bridge. Therefore, strengthening GCC–Africa partnerships represents not just an opportunity, but a structural shift toward greater regional resilience and South–South cooperation.

As climate change threatens insurability, adaptation finance has become a mechanism for capturing value.

When Neptune Insurance, the largest private flood insurance provider in the US, went public last October, it quickly achieved a multibillion-dollar valuation. For investors, it signaled that climate adaptation can be both profitable and scalable and that markets are becoming willing to reward business models built around adaptation rather than avoidance.

Built on AI-powered underwriting that integrates satellite imagery and forward-looking climate data, Neptune operates on the assumption that accurately pricing climate risk can restore insurability rather than signaling a retreat from it. During Hurricane Helene, the St. Petersburg, Florida-based company posted an 18% loss ratio—dramatically outperforming the federal government’s National Flood Insurance Program—while offering premiums 30% to 40% lower than alternatives.

“What we’re seeing in real time is that properties once considered uninsurable become insurable again when they’re rebuilt to modern codes and elevated,” says CEO Trevor Burgess. “That’s climate adaptation in practice.”

The potential is significant. The global investment opportunity for climate adaptation solutions is projected to grow from $2 trillion today to $9 trillion by 2050, according to a report from GIC, the Singapore sovereign wealth fund. The 2025 report, conducted with consultancy Bain, forecasts annual revenues from climate adaptation solutions—including weather intelligence systems, wind-resistant building components, flood protection infrastructure, and water conservation technologies—growing from approximately $1 trillion today to $4 trillion by 2050.

P&C Innovation

That potential is one reason the insurance industry is exploring new ways to help clients manage their risk.

“The change in insurers’ mindset to adopt innovative and transformative solutions is much higher than I have ever seen, especially in P&C insurance, where carriers are leading with AI-led solutions to study and manage climate risk,” observes Adil Ilyas, who heads the insurance group at Genpact, a professional services and technology consultancy specializing in digital transformation and AI. He points to AXA, Zurich, Allianz, and others that have launched parametric insurance solutions that give organizations fast-acting liquidity and cash flow following a disruptive event.

The acceleration of climate change adds urgency to opportunity. On LinkedIn, Allianz board member Günther Thallinger wrote in March 2025 that climate change is on the way to transforming life as we know it: “We are fast approaching temperature levels—1.5°C, 2°C, 3°C—where insurers will no longer be able to offer coverage for many of these risks. The math breaks down; the premiums required exceed what people or companies can pay. This is already happening. Entire regions are becoming uninsurable.”

A 2025 Allianz report, “Climate Risk and Corporate Valuations,” looks at industries facing accelerating risk, disrupted coverage, and fundamental questions about the future insurability of assets.

“We’re seeing a massive repricing event that’s going to unfold over the next couple of decades,” says Lead Investment Strategist and co-author Jordi Basco Carrera. “The question is whether it happens in an orderly way or whether we see a disorderly transition that creates much more volatility and destruction of value.”

The report examined how different climate scenarios would affect corporate valuations across 10 sectors in the US and Europe, using discounted cash flow models and interest coverage ratios.

Under the Net Zero 2050 scenario, representing aggressive climate policy with ambitious carbon-reduction targets, European real estate faces a staggering 40% correction in valuations. Telecommunications and consumer staples also see major setbacks. In the US, the healthcare and consumer discretionary sectors would each drop by roughly 16% while energy and basic resources face smaller declines of 6% to 7%, reflecting partial adaptation through renewables and critical materials demand.

The alternative—a delayed transition scenario where policy intervention is postponed—creates even more dangerous dynamics.

“A delayed transition is not a soft landing,” Basco Carrera observes. “It’s storing up energy for a much more violent adjustment later. The sectors that look like they’re benefiting in the short term are accumulating hidden risks.”

For CFOs managing enterprise risk, either scenario creates a new urgency. Traditional insurance would not be able to adequately protect against the systematic repricing of asset values driven by climate transition policies. Coverage typically compensates for discrete physical losses—a flooded warehouse, a storm-damaged facility—but offers no protection against the gradual or sudden devaluation of entire portfolios as carbon-intensive business models become economically unviable.

From Valuation Risk To Investment Opportunity

This is where adaptation finance enters as not just risk management, but a mechanism for capturing value during the transition.

Sectors that invest early in climate adaptation show remarkable resilience across all scenarios, according to Allianz’s research. Technology and healthcare demonstrate strength under every climate pathway analyzed while energy sectors that diversify into renewables and utilities and upgrade infrastructure face smaller corrections than those maintaining status quo operations.

Allianz’s research methodology was innovative, Basco Carrera notes, using data from the Network for Greening the Financial System (NGFS), a voluntary, international group of central banks and others launched in 2017 to manage climate-related risks in the financial sector.

“We integrated three NGFS transition scenarios into traditional financial valuation methods,” he explains. “This lets us see not just which sectors face risk, but specifically how much value is at stake and over what timeframe. That granularity is what CFOs need to make capital allocation decisions.”

The analysis introduced the concept of “Climate Elasticity of Demand,” measuring how global warming affects demand for goods and services. What emerged is a sophisticated view of how climate change will reshape entire markets, not just damage individual assets. Companies producing flood-resistant construction materials, for instance, don’t simply benefit from replacing damaged components after disasters. They capture sustained market share as building codes tighten, insurance companies mandate resilience standards, and property developers recognize that climate-resilient buildings command premium valuations.

Commercial real estate provides an example of adaptation intelligence in practice.

Munich Re’s Location Risk Intelligence tool helps users determine their climate-related expected annual losses, according to Thomas Walter, Munich Re product marketing manager. A US-based real estate investment company using the tool to evaluate a multimillion-dollar building purchase found that the building sat in a highly flood-prone area, which led the company to walk away. Within months, a severe flood hit the building.

“They avoided both losses and depreciation,” Walter says.

Returns Beyond Avoided Losses

The investment case for adaptation strengthens when the full spectrum of value creation—not just avoided disaster costs—enters the picture.

The World Resources Institute, a global research nonprofit based in Washington, DC, analyzed 320 adaptation and resilience projects across agriculture, water, health, and infrastructure. Its research found that cumulatively, the analyzed investments cost over $133 billion and were expected to generate $1.4 trillion in benefits over 10 years. Individual investments generated an average return of 27%.

These figures are likely too low, says WRI senior fellow Carter Brandon: “We found that only 8% of investment appraisals estimated the full monetized values of these dividends, suggesting that the $1.4 trillion and the average rate of return are likely substantial underestimates.”

In a recent WRI report, Brandon and colleagues put forth a “Triple Dividend of Resilience” framework that addresses avoided losses from climate events, induced economic development, and additional benefits.

“By positioning portfolios to respond swiftly to emerging climate policies and market dynamics, investors not only limit potential losses but also capitalize on opportunities presented by the growing green economy,” Brandon contends.