Analysts are warning that the current convergence of geopolitical and economic unknowns has created a range of plausible outcomes wider than at any point in recent memory. Rather than issuing single forecasts, a growing body of research suggests policymakers should map the full spread of scenarios, from severe disruption to transformative productivity gains, to understand the asymmetric risks facing different regions.
Known unknowns dominate the outlook
The framework popularised by former US defence secretary Donald Rumsfeld, distinguishing between known unknowns and unknown unknowns, aligns with economist Frank Knight's distinction between measurable risk and true uncertainty. While unknown unknowns by definition resist analysis, the known unknowns, scenarios with a reasonable probability but uncertain outcome, demand rigorous scrutiny.
Among the most consequential known unknowns is the trajectory of the Iran conflict. If the blockade of the Strait of Hormuz persists, airlines could face kerosene shortages within six weeks, while global fertiliser and basic chemical supplies would come under severe strain. The International Monetary Fund's latest World Economic Outlook highlights that Asia would absorb the hardest impact, followed by Europe, with the United States least affected.
Energy independence vindicated
The crisis has reinforced the strategic value of Europe's investments in energy independence, encompassing both nuclear power and renewables. While European Greens opposed nuclear expansion, their advocacy for renewable deployment has proven sound from an energy security perspective. The continent's diversified energy mix now provides a buffer that was absent during previous supply shocks.
Climate communication and the problem of averages
Ten years ago this week, climate scientists centred public messaging on a 2°C limit for average global temperature rise. Critics argue this focus on means obscured the real dangers, extreme events such as floods, heatwaves and wildfires. The statistician's joke about drowning in a river three feet deep on average illustrates the hazard: averages mask the extremes that drive physical and economic damage. How risk is communicated shapes whether societies deploy deckchairs or sandbags.
AI productivity boom: United States leads, Europe lags
The most significant upside scenario is an artificial intelligence-led productivity surge. Early data points suggest it may be beginning. Structural advantages position the United States to capture the largest gains: Silicon Valley controls the foundational large language models, and US AI infrastructure investment dwarfs global peers. China, the most successful second mover, stands next in line.
Europe is projected to benefit least. The EU's regulatory posture, rooted in data protection culture as much as policy, has effectively decoupled the continent from many frontier technologies, from LLMs to autonomous vehicles. Pharmaceuticals remain a notable exception, though Chinese competitors are advancing rapidly. In renewable energy investment, Europe outperforms the United States but trails China.
Downside scenarios concentrate in Europe
On the negative side, Europe faces a non-trivial tail risk of the Ukraine war expanding to Baltic states, with analysts questioning whether a US administration would honour Article 5 commitments. Former president Donald Trump's remark that Europeans "weren't there for us" during the Iran operation resonates in European defence ministries.
A breakdown of the Iran ceasefire could ignite wider Middle East violence. Yet across all plausible conflict scenarios, none realistically threatens the US homeland. This geographic asymmetry means the United States is both more likely to capture upside scenarios and less exposed to downside ones.
Asia occupies the middle ground
East and South East Asia sit between the two poles. They stand to gain from 21st-century technologies, though less than the United States, while facing acute vulnerability to Hormuz Strait disruption. Their economic structures, however, display greater shock resilience than Europe's.
Implications for policy
The depth of current uncertainty defies capture by any single forecast or narrow scenario set. Decision-makers who embrace uncertainty do not seek to eliminate it but to learn from the distribution of outcomes. In this environment, the mean is a misleading guide; the spread determines survival.