The Cost of Power: Middle East Conflict and the Reordering of Global Influence

Executive Signals

1. Regional warfare is becoming a global economic transmission mechanism.

The conflict involving the United States, Israel and Iran is affecting oil supply, shipping security, inflation and monetary policy far beyond the Middle East. The International Energy Agency's August outlook projected a decline in global oil supply during 2026, reflecting losses in the Middle East and Russia.

2. Russia's position as an energy supplier is being reshaped, not simply strengthened or weakened.

Higher oil prices can improve export receipts, but production losses, infrastructure damage, transport constraints and currency movements can offset those gains. Asian demand for Russian crude remains sensitive to price, logistics and sanctions exposure.

3. India's strategic autonomy is increasingly valuable—and increasingly expensive.

New trade arrangements with the United Kingdom and European Union expand India's options, while its energy relationship with Russia and commercial ties with the United States create competing incentives. Diversification reduces dependence on individual partners but cannot eliminate external pressure.

4. BRICS amplifies dissatisfaction with the existing order but does not constitute a unified geopolitical bloc.

Its members share interests in greater representation and policy autonomy, yet diverge over security, trade, currencies and their relationships with Washington. Greater visibility is not equivalent to coordinated power.

5. Asia's rising economic weight is creating greater strategic influence without guaranteeing insulation from global shocks.

China and India have substantial scale, while other Asian economies remain integral to industrial supply chains. Their dependence on imported energy, export markets and maritime routes creates vulnerabilities alongside their growing leverage.

The conflict is testing the economic foundations of geopolitical power

The strategic significance of the US–Israeli conflict with Iran lies not only in the military balance between the belligerents. It also lies in the interaction between coercive power and the wider economic system through which its costs are distributed.

The war that began on 28 February 2026 has connected military operations, maritime security, energy supply and domestic economic pressures. By early October, attacks and attempted attacks on commercial shipping in the Strait of Hormuz had reached their highest weekly level since the conflict began, according to reporting by Reuters. The strategic implications extend beyond the immediate parties because the waterway is central to the movement of globally traded energy.

This creates a distinction between the ability to conduct military operations and the ability to achieve a sustainable political outcome. A state can possess overwhelming conventional military advantages yet struggle to translate them into durable regional stability. The longer a conflict disrupts trade routes, raises energy costs and intensifies pressure on domestic economies, the wider its strategic consequences become.

Iran's regional relationships complicate the picture. Tehran has cultivated ties with armed groups and political movements across the Middle East, including Hezbollah in Lebanon, Iraqi armed groups and Yemen's Houthi movement. These relationships differ in their organisational structures, domestic constituencies and degrees of Iranian influence. They should not be treated as a single command structure, nor should every action by a partner be automatically attributed to a direct order from Tehran.

Nevertheless, such networks provide Iran with avenues for regional pressure beyond conventional military confrontation. The possibility of activity across multiple theatres raises the costs of protecting maritime routes, energy infrastructure and regional partners.

Developments in Yemen illustrate the wider exposure. Reuters reported on 7 October that Saudi Arabia had re-entered the conflict involving Houthi forces, adding another source of instability around the Red Sea and Bab el-Mandeb corridor. The significance is not simply that another front exists. It is that insecurity around multiple maritime chokepoints can compound transport costs and undermine confidence in the reliability of energy flows.

The economic transmission mechanism is direct: supply disruptions or increased perceived risk raise the cost of shipping and insurance, influence energy prices, affect inflation expectations and complicate central-bank decisions. Those effects then influence governments that are not parties to the war.

Energy pressure is redistributing leverage among producers and importers

The energy consequences of the conflict expose an important contradiction. Higher prices can benefit some producers while damaging their production capacity, export reliability and customers.

Russia is a prominent example. Its position in global oil markets has been shaped by sanctions following the invasion of Ukraine, the reorientation of exports towards Asian buyers and continuing attacks on energy infrastructure. The Middle East conflict adds another layer to this environment.

In early October, Reuters reported that Russian oil revenues had declined by 17% in 2026 despite a substantial rise in crude prices. Lower output, export disruptions, refinery damage and currency movements offset the potential gains from higher prices. The case demonstrates why headline oil prices alone are insufficient to assess the financial position of an energy exporter.

Russia nevertheless retains significant leverage through its role as a supplier. Asian refiners seeking reliable feedstock may continue purchasing Russian crude where commercial terms, transport arrangements and legal constraints permit. But the balance of bargaining power is not fixed.

Reuters reported in late September that Indian refiners faced tighter Russian crude availability as Russian exports declined and Chinese demand strengthened. Indian purchases were expected to fall in September from August levels, while refiners considered alternatives including crude from the United Arab Emirates, Iraq and Angola.

The implications are twofold. First, Russia's access to alternative buyers limits the effectiveness of pressure that assumes Western restrictions alone determine its export options. Second, India and China are not passive recipients of Russian supply: their competition for cargoes can alter prices, shipping patterns and the terms on which Moscow sells.

The position of Western governments is also more complicated than a simple sanctions-versus-cooperation framework suggests. On 9 October, Reuters reported that US President Donald Trump had announced an arrangement for Russian diesel supplies to the United States and wider markets, alongside temporary sanctions relief for Russian fuel. The announcement illustrated the tension between restricting Russian energy revenues and responding to immediate fuel-market pressures. The extent and durability of any resulting supply relief remain uncertain.

This is not evidence that sanctions have become irrelevant. It shows that energy security can create competing priorities even among governments pursuing a common strategic objective. The credibility of restrictions depends partly on their consistency, enforceability and ability to withstand domestic economic pressure.

India is turning diversification into strategic bargaining power

India occupies a particularly consequential position in this emerging landscape. It is a major energy importer, a large and growing economy, an important defence partner for multiple states and a participant in both Western-led and non-Western institutions.

Its approach is best understood as multi-alignment: maintaining relationships with competing powers to preserve room for manoeuvre. This is not the same as neutrality, nor does it imply equal alignment with every partner. India can cooperate with the United States on security while maintaining commercial ties with Russia, expanding trade with Europe and pursuing greater influence within BRICS.

The strategy has become more valuable as geopolitical rivalry increasingly spills into trade and energy policy. It has also become more difficult to sustain.

India's recent agreements demonstrate the breadth of its diversification. The India–UK Comprehensive Economic and Trade Agreement and associated social-security agreement entered into force on 15 July 2026, according to India's Press Information Bureau. The EU and India announced the conclusion of negotiations on a free-trade agreement on 27 January 2026, alongside a security and defence partnership. Implementation and the practical commercial effects of the European agreement must be distinguished from the announcement of a negotiated outcome.

These arrangements can broaden market access, investment opportunities and cooperation in technology, manufacturing and services. They may also reduce the strategic costs of relying too heavily on a single export destination or source of capital.

Canada provides another illustration of the difference between diplomatic engagement and a completed commercial agreement. In May 2026, Canadian and Indian ministers reaffirmed their intention to pursue a Comprehensive Economic Partnership Agreement, with an objective of concluding negotiations by the end of the year. Canada's official trade page continued to classify the agreement as under negotiation. It would therefore be inaccurate to describe a Canada–India CEPA as an agreement already concluded.

India's relationship with Russia remains a separate calculation. Discounted crude can improve refinery economics and support domestic fuel availability, but the advantage depends on shipping costs, payment arrangements, sanctions compliance and the availability of alternative supplies. Meanwhile, pressure from Washington over Russian oil purchases can affect wider commercial negotiations.

Reuters reported on 5 October that India–US trade talks had reached a plateau amid disagreement over tariffs and the treatment of Russian oil purchases. The dispute demonstrates the limits of assuming that commercial interdependence will automatically protect a relationship from strategic pressure.

The central trade-off is clear: diversification expands India's options, but it does not remove the cost of making choices that competing partners regard as consequential. Strategic autonomy is therefore less a position that India can secure permanently than a capacity it must continually maintain.

BRICS and the United Nations: influence without institutional control

The rise of BRICS reflects dissatisfaction with the distribution of influence in institutions created largely under the post-war international order. Emerging economies argue that their economic weight and demographic significance are not adequately reflected in decision-making structures, particularly the UN Security Council and international financial institutions.

The 2025 Rio de Janeiro BRICS Leaders' Declaration reiterated support for a greater role for Brazil and India at the United Nations, including the Security Council, and called for reform that would amplify the voice of the Global South.

This position matters because institutional legitimacy is itself a form of power. Governments that consider existing institutions unrepresentative may be less willing to accept their decisions as authoritative. They may also develop alternative forums, payment arrangements and development-finance mechanisms.

Yet BRICS should not be confused with a collective security alliance or a unified economic policy bloc. Its members have different domestic priorities, economic structures and security relationships. China and India, in particular, retain a complex strategic rivalry even while participating in the same grouping. Members also differ in their exposure to Western markets, access to finance and willingness to challenge existing arrangements.

These divisions constrain the speed and depth of institutional change. A common demand for reform does not necessarily translate into agreement on the composition of a reformed Security Council, the distribution of voting power or the conditions under which members should coordinate their foreign policies.

The United Nations faces a related structural constraint. Reform of Security Council membership requires changes to the UN Charter, including ratification by all five permanent members. The permanent members therefore retain a decisive institutional role in any formal expansion of the Council's membership. As of 7 October 2026, the General Assembly's president had appointed co-chairs for the intergovernmental negotiations on Security Council reform during the 81st session. The process remained an ongoing negotiation rather than a completed redistribution of authority.

The consequence is an expanding gap between demands for representation and the difficulty of changing formal decision-making power. BRICS can increase diplomatic coordination, visibility and bargaining leverage. It cannot independently redesign the UN system merely by representing a larger share of global economic activity.

The most plausible near-term outcome is therefore institutional contestation rather than wholesale replacement: more competing coalitions, greater resistance to unilateral pressure and continued disputes over representation, alongside the persistence of existing institutions.

Asia's rise is consequential—but not immune to external shocks

Asia's growing importance is rooted in productive capacity, industrial networks, technological development, population scale and expanding domestic markets. China remains central to manufacturing and trade; India offers substantial growth potential and a large internal market; and Japan, South Korea and other Asian economies retain important positions in technology, advanced manufacturing and global supply chains.

These strengths increase the region's influence over investment, industrial policy, trade rules and the allocation of strategic resources. They also create interdependence: Asian economies require stable maritime transport, imported energy, access to external markets and predictable financial conditions.

The Middle East conflict has exposed this vulnerability. In its April 2026 regional outlook, the International Monetary Fund warned that the energy shock was testing Asia's resilience, raising inflation and worsening trade balances in fuel-importing economies. Its analysis highlighted the potential for a prolonged shock to weaken growth further.

For India, higher crude prices can increase the import bill, put pressure on the rupee and complicate monetary policy. For China and other industrial economies, energy costs can influence manufacturing margins, export competitiveness and domestic demand. For smaller import-dependent states, the effects can be more severe because they have less fiscal capacity to subsidise consumers or absorb higher costs.

The Reserve Bank of India illustrates how geopolitical pressure can become domestic policy pressure. On 7 October, Reuters reported that the RBI raised its policy rate by 25 basis points to 5.5%, citing inflation risks associated with higher oil prices and weaker monsoon conditions. On 10 October, the central bank introduced additional foreign-exchange measures as the rupee faced pressure. These developments do not establish that the war alone caused India's monetary and currency challenges; they show how external energy shocks can interact with domestic conditions to narrow policymakers' room for manoeuvre.

The rise of Asian powers should therefore be measured in two dimensions: their capacity to shape international decisions and their capacity to absorb disruptions they did not create. Greater scale increases leverage, but resilience depends on energy diversification, logistics, fiscal space, technological capability and the credibility of domestic institutions.

Consequences and Strategic Implications

The interaction of conflict, energy and geopolitical competition creates several consequences that extend beyond the immediate military theatre.

For governments: The conflict increases the value of diplomatic flexibility and reliable energy access. Gulf states face the challenge of protecting infrastructure and maritime routes while preserving investment, tourism and economic diversification programmes. Asian importers must balance commercial pragmatism against exposure to sanctions and pressure from major powers. Western governments face their own trade-off between strategic restrictions and domestic affordability.

For businesses: Energy-intensive industries, shipping operators, airlines, petrochemical producers and manufacturers face a more complex risk environment. The direct effects include fuel costs, freight rates, insurance premiums and potential delivery delays. Indirect effects may include higher working-capital requirements, revised supplier contracts and reduced certainty in capital investment decisions. The scale of these effects depends on the duration of disruptions and the availability of alternative routes and supplies.

For investors and capital allocation: Higher energy prices can benefit some producers while compressing margins elsewhere. However, exposure cannot be assessed from commodity prices alone. Export reliability, sanctions, financing costs, currency movements and infrastructure damage can alter the relationship between higher prices and realised earnings. Diversification across suppliers and geographies may reduce concentration risk, although it cannot eliminate a global energy shock.

For international institutions: BRICS and other emerging-power coalitions can exert greater pressure for representation, but their effectiveness will depend on whether common demands produce concrete proposals and sustained coordination. The United Nations remains central to international legitimacy and diplomacy even as disagreements over its structure persist. Institutional dissatisfaction may weaken cooperation without immediately producing a viable replacement.

For India and other Asian powers: The central strategic opportunity lies in increasing choice. Wider trade relationships, diversified energy supplies and deeper technological partnerships can reduce dependence on individual external actors. The constraint is that diversification requires investment, infrastructure and sustained diplomatic management. A portfolio of relationships is useful only when a state can maintain access to each without allowing conflicting commitments to overwhelm its economic or security interests.

The most important distinction is between gaining leverage and achieving control. More suppliers, more markets and more diplomatic partners give governments additional options. They do not guarantee favourable outcomes when the underlying shock affects the entire international system.

Forward Indicators

1. Security and commercial transit through the Strait of Hormuz

What to watch: Verified tanker incidents, changes in vessel traffic, shipping insurance costs and evidence of sustained restoration or deterioration in transit.

Why it matters: These indicators reveal whether the conflict is imposing a temporary risk premium or a more persistent constraint on energy supply.

What it could indicate: Sustained normalisation would weaken the case for a prolonged global energy shock. Repeated attacks or extended disruption would strengthen it and increase pressure on importing economies.

2. Russian oil production, exports and Asian buying patterns

What to watch: Russian export volumes, refinery and port operations, realised crude prices, Indian import volumes and Chinese purchasing behaviour.

Why it matters: These measures help distinguish the benefit of higher global prices from the effect of physical supply constraints and competition among buyers.

What it could indicate: Rising exports and improving realised revenues would suggest greater Russian capacity to absorb disruption. Falling output, persistent logistical problems or declining receipts would indicate that higher prices are not translating into stronger financial resilience.

3. Implementation of India's trade agreements and the trajectory of US–India negotiations

What to watch: Official implementation measures under the India–UK CETA, progress towards operationalising the EU–India trade agreement, developments in Canada–India CEPA negotiations and verifiable changes in US–India trade discussions.

Why it matters: Signed or announced agreements create potential options; actual commercial benefits depend on implementation, market access and business utilisation.

What it could indicate: Progress across multiple partnerships would support the assessment that India is expanding strategic autonomy. Renewed trade restrictions or stalled implementation would show the limits of diversification.

4. Concrete progress on UN Security Council reform

What to watch: Formal proposals, negotiating positions, areas of agreement among member states and evidence of movement towards the Charter-amendment process.

Why it matters: Diplomatic statements reveal preferences; institutional progress requires agreement on the substance and procedure of reform.

What it could indicate: Convergent proposals supported across regional groupings would strengthen the case for gradual institutional adaptation. Continued disagreement over membership and veto powers would reinforce the likelihood of prolonged contestation.

5. Asian inflation, growth and energy-import costs

What to watch: Oil-import bills, inflation data, exchange rates, industrial output and monetary-policy responses in major Asian economies.

Why it matters: These indicators show whether Asia's economic scale is translating into resilience or whether an external energy shock is reducing the policy room available to governments.

What it could indicate: Stable growth alongside contained inflation would support the view that diversification and domestic demand provide meaningful buffers. Persistent inflation, weaker activity and deteriorating external balances would indicate greater vulnerability.

Assessment

The Middle East conflict is accelerating the redistribution of geopolitical leverage, but it does not establish that American influence is collapsing or that a unified alternative led by BRICS has emerged. The more defensible conclusion is that the costs of exercising power are becoming more visible and more widely distributed. Military capability, energy access, trade relationships and institutional legitimacy increasingly interact, limiting the ability of any single actor to control all the consequences of its decisions.

Russia may gain bargaining opportunities from changing energy demand, but infrastructure damage and export constraints can offset higher prices. India can increase its autonomy through diversified commercial relationships, but it remains exposed to imported energy and competing external demands. BRICS can strengthen calls for a more representative international order, yet internal differences and the legal constraints of UN reform limit its ability to translate collective dissatisfaction into institutional change. Asian economies are gaining weight, but their exposure to imported energy and global trade means that economic scale is not equivalent to immunity from geopolitical disruption.

The decisive question is whether the current pressures produce durable changes in institutions, trade patterns and strategic behaviour—or temporary adjustments that recede if energy flows normalise and conflict subsides. Evidence of sustained supply diversification, implemented trade agreements, coordinated institutional proposals and improved economic resilience would indicate structural change. A return to established commercial patterns and persistent divisions among emerging powers would suggest a more limited adjustment.

The emerging international system is therefore best understood as one of constrained dominance and expanding strategic choice. The United States retains exceptional advantages; rising powers are gaining options and bargaining capacity; and institutions face growing demands for adaptation. The next phase will be determined less by declarations about a new world order than by which states can convert their economic weight, diplomatic relationships and technological capabilities into durable influence.

Sources and References

1. Reuters — Attacks on tankers in Hormuz hit highest of any week since start of Iran war, sources say, 7 October 2026.

2. Reuters — The war's explosive new front, 7 October 2026.

3. International Energy Agency — Oil Market Report — August 2026, August 2026.

4. Reuters — Russia's oil earnings fall despite price jump as output drops, rouble rises, 5 October 2026.

5. Reuters — Russian oil supply to India tightens on reduced exports, strong Chinese demand, 28 September 2026.

6. Reuters — Trump says Russia to supply diesel to US and global markets, 9 October 2026.

7. Government of India, Press Information Bureau — India–UK CETA and Agreement on Social Security Enter into Force, 15 July 2026.

8. Council of the European Union — EU–India summit — Main results, 27 January 2026.

9. Global Affairs Canada — Canada–India Joint Statement 2026 Trade and Investment Forum, 28 May 2026.

10. Global Affairs Canada — Canada–India Comprehensive Economic Partnership Agreement, status page accessed 10 October 2026.

11. BRICS Brazil Presidency — Rio de Janeiro Declaration, 6 July 2025.

12. United Nations General Assembly — Letter on the appointment of the Co-Chairs of the intergovernmental negotiations on Security Council reform, 7 October 2026.

13. International Monetary Fund — Regional Economic Outlook for Asia and Pacific — April 2026, 16 April 2026.

14. Reuters — India–US trade talks hit plateau amid tariffs and Russian oil disagreements, 5 October 2026.

15. Reuters — India raises policy rate by 25 basis points, first hike in nearly four years, 7 October 2026.

16. Reuters — India unveils tough curbs on dollar demand to defend rupee, 10 October 2026.