At time of writing, the US ‘Operation Epic Fury’ has begun with the elimination of the Iranian supreme leader and a broad swath of the Middle East has been subjected to the Iranian response. As the immediate human consequences of conflict are already being felt, the impact of these actions may take some time to distill into global markets. For example, given the importance to the global economy of safe passage of hydrocarbons through the Straits of Hormuz, the dangers of a protracted conflict cannot afford to be underestimated.
As we noted in our commentary last month, investors in 2026 are facing a very pointed phase of uncertainty—particularly from a geopolitical standpoint. The greatest difficulty, however, is not in directly assessing this geopolitical risk but rather understanding what framework this risk assessment should be being applied.
Post-Multilateralism Requires Different Analysis
Much of the conflict risk assessment relies on the stability of structural assumptions. The Cold War framework for example had a relatively straightforward US/USSR bipolarity with a fluctuating boundary of influence where conflicts that were deemed relevant by either side arose. Here each side chose to avoid outright conflict by proxy warfare be that through Super-Power vs Proxy or Proxy vs Proxy.
The post-Cold War period was a different framework, one of multilateral co-operation. This was structured around (the victorious) US/Western world order following the demise of the Soviet Union. The first decade of this phase was markedly different. Suddenly many of the lesser local conflicts (often civil in nature and with enormous cost to human life) that in the Cold War framework would have once been globally significant proxy battles became irrelevant on the broader world stage.
The next phase of the post-Cold War period emanated from the impact of 9/11 most particularly on the US. The emergence of amorphous non-state actors as the most significant threat to national security created an enormous systemic shock. Despite this shock, the general framework of multilateral co-operation persisted. Practically all nations on earth could agree that terror was a bad thing and something that needed to be fought.
This brings us to now. We would postulate that we have entered a new era, that of post-multilateralism. As Operation Epic Fury illustrates for the third time in less than a year (12-Day War and Venezuela being the previous two occasions), general agreement among friends and allies does not need to be sought by the US before taking decisive action which has the potential for significant consequences for those friends and allies. In a post-multilateral phase even the use of the term “friends and allies” probably requires, a different definition than it would have had several years ago. The layers of distrust that have emerged between traditional allies, thinking here in particular between European nations and the US, is such that the absence of European voices of support for Operation Epic Fury was notable.
The globalist language of co-operation is gone and has been replaced with more narrowed nationalistic objectives with collective action reduced to arrangements of mutually beneficial convenience. The UN Security Council, which was designed for and coped well with the Cold War era, is effectively defunct. Antonio Guterres’ comments of objection to Operation Epic Fury irrelevant, considering his abysmal failure to in anyway meaningfully address Russia’s unilateralism regarding its Ukraine invasion four years ago.
We believe a new analytical framework is necessary. A framework that recognizes that our world remains one of deep interconnectedness. The premise behind those connections though is deeply uncertain and those connections are more fluid than they once would have been. The multilateral framework had a rules-based structure from which to extrapolate upon those connections and plot out future scenarios accordingly. The main function of a new framework is to detect the underlying assumptions that may no longer hold in a post-multilateral era.
Defensive Investing with Strong Upside Participation
Plotinus is of the opinion that deploying AI trade decision making can assist in dealing with these uncertain times. AI can be used to provide a very different analysis of data than by using a conventional approach. The nature of the current era where deep uncertainty surrounds the premises on which conventional analysis is based plays to AI’s strengths. There is opportunity in particular for AI systems that can respond to data dynamically, that are not restricted in their decision-making capacity in the same way that a conventional—and often previously very successful model can be.
This type of approach can be used to trade different market types and different market geographies. Its strongest benefit though is not what it trades. It is how it trades. By providing a different pattern of returns from within any given market due to a different reading of that market, an AI system creates a diversified return. This creates the ability for an investor to use this AI diversified return to construct a hedged portfolio.
Considering how hard it is to determine whether in our new geopolitical context the old multilateral era, global investment diversification will continue to work. Introducing this AI diversified return which gives the ability to hedge from within a desired geographic market, means that this can be done across a globally diverse portfolio. The effect of this is to achieve a better balanced global investment method, which is at core a defensive strategy but which also allows for continued participation in market upside. This we believe is the manner in which a portfolio can be better structured to deal with the unknown effects of geopolitical instability. ■
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