Geopolitics Moves From Tail Risk to Market Driver

Geopolitics no longer create rare, unpredictable market shocks, but are now a repeatable force shaping inflation, volatility and long-term asset performance, according to New York Life Investment Management’s geopolitical risk report for 2026, “Geopolitical Risk in a Shifting World Order.”

According to the report, the erosion of U.S.-led globalization is fundamentally changing how geopolitical shocks transmit through markets, turning geopolitics into a persistent driver of returns, rather than a tail risk.

As investors navigate intensifying global power competition and renewed energy-market vulnerability, the report highlighted an evolved approach to portfolio construction, including greater emphasis on resilience, diversification and assets that may respond differently to geopolitical shocks.

“The resurgence of great power politics is reshaping the relationship between geopolitics and economies,” said Michael LoGalbo, a global market strategist at New York Life Investment Management, in a statement. “For investors, the message is clear: yesterday’s tools won’t manage today’s risks.”

When it comes to a particular investing framework, the report highlighted a “macro volatility” structure—an equal-weighed portfolio of oil, gold and bitcoin, all key commodities impacted by geopolitical shocks—as an option apart from equities.

According to the report, oil is most likely to be impacted, as energy supply chains are typically disrupted during times of geopolitical tension, and price increases filter through the economy via higher inflation—as during the 1973 oil embargo and the 1990 Gulf War. This inflationary energy channel is one of the clearest ways geopolitics can quickly affect growth expectations, monetary policy and risk assets.

Gold, by contrast, tends to reflect the defensive side of geopolitical risk, according to the report. Periods of heightened uncertainty often coincide with weaker growth, falling real rates, financial stress and increased central bank activity. These conditions have historically supported gold’s role as a safe haven. The surge in gold prices since 2024, the report noted, reflects rising demand for geopolitical insurance as policy uncertainty, fragmentation and great power competition intensify.

Bitcoin represents a different kind of exposure. In a post-pandemic environment marked by uneven liquidity and shifting policy regimes, the asset has increasingly functioned as a proxy for liquidity-driven risk-taking and, in some cases, a speculative wager on regime change.

Macroeconomic Picture

Those asset-level dynamics are unfolding alongside a more fragile macroeconomic backdrop. The 2026 economic outlook by the Organization for Economic Co-operation and Development pointed to elevated uncertainty and persistent inflation pressures driven in part by energy market disruptions linked to ongoing geopolitical tensions.

GDP growth remains but is increasingly vulnerable to adverse shocks. According to the outlook, growth continues from strong momentum in technology-related investment, lower tariff assumptions and carryover from robust economic outcomes in 2025.

On the downside, disruptions to shipping through the Strait of Hormuz and damage to energy infrastructure have driven energy prices higher and constrained global supply of key commodities, including fertilizers.

Vanguard’s most recent long-term economic outlook remained conditionally bullish. For geopolitical shocks to carry meaningful long-term implications, Vanguard wrote that oil price volatility must be persistent and not episodic.

“What is very clear, is the rise of oil [prices] clearly is a headwind to growth—which is non-sensational—and will boost the prices, hence inflation, for investors,” wrote Vanguard Global Chief Economist Joe Davis, in an email to PLANADVISER.

Davis highlighted the importance of investors distinguishing between short-term market noise and genuine material impacts.

“I think from an investment standpoint, my counsel would be not to be reactive and to appreciate that there has to be permanence in the oil price volatility to have significant long-range implications,” Davis wrote.