World War Three is more likely than not to occur in the next five years, according to a new survey of voters in the US, Canada, UK, France, and Germany by Politico. More than 2,000 people in each country revealed "mounting public alarm about the risk and cost of a new era of conflict," but also "limited willingness among the Western public to make sacrifices to pay for more military spending."  At least one in three people believe a nuclear weapon is likely, or very likely, to be used in a war in the next five years.  The prospect of a Third World War feels closer than ever, unless you're one of those people who thinks it's already begun. 

President Trump and Benjamin Netanyahu have yet to say when the massive attacks on Iran will have delivered the results they want; indeed, it is not even clear exactly what they want.  It is also hard to decipher whether the agenda is being set by the USA, or Israel. Trump had declared that hostilities could last four weeks or 'far longer,' while at one point Secretary of State Marco Rubio alluded to "possible boots on the ground."  But this week, after the oil price surge and inflation worries, he said it could be over "in days".

Iran says it is prepared for a long haul, though its military and logistical capacity has been severely curtailed.  Of course, mixed signals are the kind of thing one would expect against the backdrop of a conflict threatening to reverberate further than anyone expected. Russia is already involved in assisting Iran with intelligence, though it is hard to imagine it becoming directly involved in hostilities.

In spite of the heavy price Iran is paying, it has followed its long-held 'active deterrence' paradigm, based on the idea of maximizing costs for any aggressor across all available domains: economic, military, cyber, and information warfare, across different countries via proxies in the 'Axis of Resistance.'

Global energy supply chains have traditionally been highly exposed to Iranian influence in the Gulf, through which around 30% of all maritime oil shipments and 20% of global liquefied natural gas (LNG) traverse.  The battering Iran has received make it doubtful that it will be a key player in the immediate future.  Of course, the immediate neighbourhood includes other major energy producers from Qatar to Saudi Arabia, many of which have been attacked by Iranian drone and missile strikes. 

However, the threat of a closure of the Strait of Hormuz seems to be receding as Iran's capacity to close it is degraded through the destruction of its offensive infrastructure.  What is problematic, however, is what happens to Iran's own considerable oil and gas production.

The big question is the endgame of this war.  The USA seems unwilling to pay certain costs to achieve regime change in Iran.  That's what Trump said he didn't want, then insisted it must happen, and now says again is not that important.  He even demanded surrender, while strongly hinting that contacts with the current Iranian regime are going on behind the scenes.  It could well be that there's, sort of, a set of secondary goals that might be enough to allow Trump to claim victory.

Whatever the outcome in Iran, though, further upheavals are on the horizon.  Trump has been touting Cuba as the next country to be made to yield to America.  Also in his eyesight are the Latin American countries from which drugs originate.  Last week he told the 12 leaders of the new "Shield of America" that missiles will start raining down on the drug cartels.  He is determined to shut Russia, but even more China, out of what he considers as America's backyard.

Washington's fusion of muscular economic interventionism, transactional dealmaking, and military prowess has forged a new playbook that is reshaping the global order.  With three more years at the helm, President Trump is already the most consequential and transformative president in decades   ̶   one who alters the course of history, and probably not for the better. The United States appears to many a predatory rogue actor, a major destabilising force with Trump diminishing the value of alliances and multilateralism that have been the hallmarks of US foreign policy since 1945.

Geopolitical tensions around the world have increasingly affected European economies and slowed down growth.  It is gainsaid that armed conflicts and other tensions between states and political actors can disrupt supply chains, heighten uncertainty, weigh on consumer and business sentiment, and fuel financial market volatility.

EU-China tensions are rising as Europe's political will collides with China's surging industrial capacity.   Europe is confronting the fallout from Chinese overcapacity across different sectors.  The main flashpoints include electric vehicles, wind components, solar, and mature node semiconductors. Trade disputes could prompt a new wave of protectionist measures and procurement restrictions.

It is only recently that, driven by China's recent expansion of export controls on rare earth elements and downstream products, the US and Europe began treating critical minerals as a top security risk with implications for supply chain shocks. In the absence of strong allied control of minerals and advanced manufacturing, China will retain leverage at key input choke points.

Meanwhile, both the US and Europe have awakened to the top security risk posed by rare earths and minerals.  China's export controls on these critical elements and downstream products have already created supply chain shocks.  The lack of a strong web of international supply chains for minerals and advanced manufacturing, as well as credible demand signals that make non-China processing worth investing in, give China unhealthy leverage on choke points.

Geographically, Russia remains the biggest threat to peace in Europe, according to respondents in Politico's poll.  At the recent Munich Security Conference, the UK's Keir Starmer said Europe must be ready to fight the growing threat from Russia, if necessary. The prime minister warned that Russia's rearmament would only accelerate once a peace deal in Ukraine is agreed.

The world is currently in a protracted interregnum, where the rules and alliances are still unsettled, increasingly fragmented, and hotly contested. The USA's new National Security Strategy, announced last November, was supposed to herald an American retreat from the world's policeman: it declared that "the days of the United States propping up the entire world order like Atlas are over."  Still, President Trump upended the strategy by launching the war against Iran, even though Iran posed no immediate threat to the USA. 

The old neoliberal rules-based architecture is decomposing.  Worries of a rogue America out to destroy itself and the system it created are rife. Much of the world is wondering what new arrangements could function as a buffer against predatory major powers.  So far, there are no pointers toward others picking up the pieces, able to renew a rules-based multilateralist order or, even if less satisfactorily, a multi-polar world.

Antonio Gramsci, the Italian Marxist philosopher, famously condensed the 1930s with his phrase, "The old world is dying, and the new world struggles to be born: now is the time of monsters." It's a description which is just as apt for the interregnum between today's dying liberal order and whatever is to come.  To be fair, Trump is not the only one trashing the ancien régime; Russia and China are also out to kill it.

All of this comes at a cost for all economies.  Many economists have already sounded the alarm that all the preconditions are present for an economic meltdown in the USA.  Financial assets are massively overvalued with artificial intelligence fuelling 40% of U.S. GDP growth and 80% of stock market growth, even though productivity gains from the application of AI are currently elusive.  A stock market crash could wipe out $35 trillion in consumer wealth, says former International Monetary Fund Deputy Director Gita Gopinath.

The situation is eerily reminiscent of what happened in 2007-08.  The backdrop today is the unsustainable K-shaped economy, where just 20% of U.S. households are fuelling consumption.  Tariffs are beginning to increase inflation, and low hiring levels have led to an affordability crisis. Trump has few solutions; indeed, he has boosted U.S. debt to around 125% of GDP.  Any new financial crisis could be far more dangerous than in 2008.  China and the G-20 are unlikely to come to the aid of the USA a second time.

Europe faces very high risks from the evolving geo-political situation. Short-term dangers include: a collapse of the US bond market; heightened Russian military aggression against Ukraine or the EU directly; a fiscal crisis triggered by a populist election victory in a high-debt euro-area member; or a trade shock caused by increasing tensions between the US and China.

In a normal world, such shocks could be countered by increased European strategic autonomy from the two superpowers, affording the EU better protection and an increase in its bargaining power.  However, the EU has critical deficiencies that require its attention: joint development and interoperability of defence systems, enhanced independence from the US payment systems, reduced reliance on US and Chinese tech, an integrated energy market, and access to critical minerals.  

The problem with a robust European response to these various challenges is that the EU's 27 sovereign states have national interests that do not always coincide. Individual European countries are rather weak.

Meanwhile, we still have to await the impact of the supply chain disruptions and higher energy prices in Malta.  The government has already committed to making good for any pain felt by businesses and consumers, though an important caveat was added by the Prime Minister who cautioned that this could not be guaranteed for the whole future.

Against this backdrop, the Winds of War currently blowing strongly can only be navigated by Europe with great difficulty while unitary states like the USA, Russia and China can dictate the agenda and respond quickly and effectively. 

Frans Camilleri is an economist. He studied at Oxford and University of East Anglia, is a former corporate head at Air Malta, and has served on various public and private boards.