Over the next six months, European nations will grapple with uncertainty in U.S. security commitments, driving discussions on military self-reliance amidst concerns of a Russia-favorable ceasefire in Ukraine and intensifying Russian influence operations and infrastructure sabotage. Looking beyond a year, the most likely scenario is ongoing instability with Russian-occupied Ukraine and increased pressure near NATO borders, while a concerning possibility involves the U.S. reducing support, potentially leading to a Ukrainian collapse and a weakened NATO facing emboldened Russian actions. This fragmentation and potential escalation, coupled with persistent migration pressures, pose significant challenges to European unity and security decision-making in the long term.
Last updated: April 7, 2025
6 Month Regional Outlook
Uncertainty around U.S. security commitments, including potential troop reductions and pressure on NATO allies to increase defense spending, will drive European discussions on military self-reliance. Leading European states, including France, the UK, and Poland, will likely push for stronger EU-led defense initiatives, though political fragmentation could hinder collective action. The risk of a ceasefire in Ukraine favorable to Russia remains one of the most pressing concerns, as it would likely embolden Moscow to further test European security structures. European military deterrence will be increasingly critical, but divisions over defense spending and strategy may slow progress. Russian influence operations will likely intensify, particularly targeting European elections and exploiting societal divisions over Ukraine, migration, and energy security. Physical sabotage of critical infrastructure, including subsea cables and energy facilities, is likely to persist, with existing European countermeasures proving insufficient. Moldova, Georgia, and other vulnerable states will likely be key testing grounds for Russia’s destabilization efforts. Ongoing conflicts in the Middle East and Africa will sustain migration flows toward Europe, fueling political friction and strengthening far-right narratives. Divisions over migration policy, coupled with heightened concerns about terrorism and social unrest, may further erode European unity and complicate decision-making on broader security issues.
Key drivers
Ukraine war
U.S.-Europe strategic divergence
Russian hybrid threats & destabilization
Migration pressure
Events
Romania - Presidential elections, 4 May
Poland - Presidential elections, 18 May
NATO Summit, The Hague, 24/25 June
Russian military exercise Zapad-2025, Mid-September
General Business Impact Estimation – Regional Summary for 0-6 months
Sourcing of Raw Materials
Europe’s reliance on raw material imports particularly China for critical and strategic raw materials such as graphite, lithium, magnesium, vanadium, rare earth elements, and other minerals remains a significant vulnerability. Recognizing its untapped production potential of critical raw materials, such as lithium, nickel, copper, cobalt, graphite, rare earth elements, and many others, the EU has been pushing for a shift towards increased investments in domestic mining, refining, and recycling, and supply chain diversification through the adoption of the Critical Raw Materials Act. Regulatory, cost, and technological barriers will likely sustain import dependence in the near term, with exposure to geopolitical risks in key sourcing regions of critical raw materials, for instance graphite, germanium, vanadium, and rare earths in Asia, and copper and tantalum in Africa.
Logistics
The stability of Europe's maritime shipping routes will likely remain a critical concern for supply chains, particularly for trade with Asia. Tensions in Northern European waters add further uncertainty, impacting trade, logistics, and the potential imposition of additional sanctions on Russia. U.S. tariffs will likely strain European supply chains by inflicting cost increases and logistical uncertainty. Stricter migration policies could lead to heightened border controls, likely impacting the flow of goods and cross-border logistics within Europe.
Energy
While the EU has significantly reduced overall Russian energy imports, supply constraints and high energy import dependence have been hindering a complete phase-out. The ban on seaborne Russian oil has not eliminated inflows, as illicit shipments via the shadow fleet continue to bypass European restrictions. Natural gas imports via the TurkStream pipeline and LNG shipments will likely persist, reflecting ongoing energy security challenges. The pace and extent of reductions in Russian energy imports will depend on factors such as the development of alternative energy sources, infrastructure adjustments, and national energy policies. Given Europe’s dependence on energy imports, transition towards renewable and alternative sources of energy will likely remain a strategic priority to mitigate supply risks and economic vulnerabilities.
Meaning for different industries
Manufacturing
Heightened risks due to Europe's reliance on imported critical raw materials, especially from China and other geopolitically sensitive regions. Any disruption in these supply chains (due to trade tensions, conflicts, or export restrictions) would lead to production halts or increased costs for manufacturers.
While the EU's push for domestic mining, refining, recycling, and supply chain diversification through the Critical Raw Materials Act is a long-term positive, its immediate impact within the next six months will likely be limited due to regulatory hurdles, costs, and technological barriers. Manufacturers will still largely depend on existing import channels.
Manufacturers are likely to experience increased costs for raw materials due to geopolitical risks and potential supply disruptions.
U.S. tariffs on European goods will directly increase costs for manufacturers exporting to the U.S. and create logistical uncertainties in transatlantic supply chains.
The manufacturing sector will continue to face energy security challenges due to high import dependence and supply constraints. Price volatility in energy markets will remain a concern, impacting production costs, especially for energy-intensive industries.
While the long-term strategic priority is the transition to renewable energy, its impact on the manufacturing sector's energy security within the next six months will be limited. Infrastructure adjustments and the scaling up of alternative energy sources take time. Manufacturers will still largely rely on traditional energy sources and face associated risks.
In conclusion, the next six months present a challenging operational environment for the European manufacturing industry. Geopolitical uncertainties will likely translate into higher input costs, increased logistical hurdles, and greater production planning complexity.
Insurance
The uncertainty surrounding U.S. security commitments and the potential for increased Russian assertiveness will likely lead to a higher perception of political risk in Europe. This is likely to translate towards increased demand for political risk insurance, covering events like expropriation, political violence, and contract frustration.
Intensified Russian influence operations, including targeting elections and exploiting societal divisions, will likely be accompanied by increased cyber threats against critical infrastructure and businesses. This will drive demand for cyber insurance and necessitate a reassessment of cyber risk underwriting and pricing.
The fragility of raw material supply chains and potential disruptions to logistics due to geopolitical tensions will increase the risk of business interruption. This will put pressure on business interruption insurance policies and potentially lead to higher premiums and stricter underwriting. Insurers likely to need to offer more comprehensive supply chain insurance products.
Businesses likely to seek broader business interruption (BI) coverage that includes disruptions caused by geopolitical events, supply chain failures, and cyberattacks, not just physical damage.
Demand for contingent business interruption (CBI) insurance, which covers losses due to disruptions at suppliers or customers, will likely increase due to the highlighted supply chain vulnerabilities.
Trade credit insurance possible to see increased demand to cover risks associated with international trade.
In summary, a more volatile and uncertain operating environment for businesses in Europe will have ramifications for the insurance sector. Insurers will face increased demand for certain types of coverage, heightened claims activity, and the need to adapt their risk assessment, underwriting, and product development strategies to address evolving risks. This also presents opportunities for insurers who can proactively respond with relevant and comprehensive solutions.
Finance Sector / Investment
In general, increased volatility across various asset classes.
As an example, defense stocks likely to see increased interest due to higher European defense spending – Energy companies possible to experience volatility based on supply concerns.
Investors likely to demand higher risk premiums for European equities to compensate for the increased geopolitical uncertainty, potentially leading to lower valuations.
While typically seen as safe havens, government bonds possible experience volatility due to increased sovereign risk concerns in some nations, especially if fiscal policies are strained by increased defense spending or migration support. U.S. policy shifts could also impact European financing costs.
Credit spreads for corporate bonds might widen, reflecting increased perceived risk due to potential economic slowdowns or disruptions caused by geopolitical events.
Banks face increased credit risk due to potential economic slowdowns and disruptions affecting borrowers' ability to repay loans. They also face higher operational and reputational risks from potential cyberattacks linked to geopolitical tensions. Funding costs for banks with higher exposure to affected regions might increase.
In conclusion, the geopolitical outlook suggests a period of heightened risk and potential volatility for the European financial sector and investments. Investors will need to be more selective, focusing on risk management and potentially considering sectors that could benefit from the evolving geopolitical landscape.
12 Month and Beyond Outlook
Most likely - Ongoing Instability
The Ukrainian territories currently occupied by Russia will likely remain under Moscow’s control. A temporary ceasefire with limited security guarantees for Ukraine could emerge but would likely only delay further hostilities rather than provide meaningful long-term stability. Moscow will likely intensify military pressure near NATO borders to probe alliance resolve. However, a full-scale conventional war remains unlikely. European defense rearmament will likely accelerate, but political divisions will likely hinder cohesive military planning. As U.S. security commitments remain uncertain, frontline states are expected to push for stronger defense measures, while broader European coordination struggles to keep pace. Migration pressures will likely remain, driven by conflicts in Ukraine, the Middle East, and Africa.
Most concerning - Fragmentation and Escalation
The U.S. withholds critical military aid to Ukraine or pressures Kyiv into an unfavorable ceasefire without security guarantees. With no real deterrent, Russia continues its offensive, leading to a collapse of the Ukrainian frontline. Russia deepens bilateral ties with select European states, exploiting divisions to weaken EU and NATO cohesion. Europe’s failure to act decisively amid domestic challenges further erodes transatlantic unity, emboldening Moscow to test NATO’s resolve beyond Ukraine. Russian hybrid operations create more unrest in the Baltic states, providing Moscow with a pretext for a limited incursion under the guide of protecting Russian-speaking communities. With U.S. reluctance to engage, NATO’s collective defense is effectively dismantled.