Rising geopolitical volatility underscores need for agile, future-thinking organisations

To the casual observer, it would seem that a series of seemingly unconnected, yet alarming recent geopolitical events have ushered in an era of unprecedented volatility.

This is acutely felt as Europe wakes up to the results of the European Parliament elections, where far-right parties have made notable gains in Germany and France, prompting French President Emmanuel Macron’s surprise decision to dissolve the national assembly.

Another headline event has been the resignation of Benny Gantz from the Israeli war cabinet on Sunday, dealing a blow to Prime Minister Benjamin Netanyahu even though a government collapse appears unlikely. More broadly, the enduring consequences of the Israel-Hamas war mean that multiple pathways to a wider escalation in the Middle East may still be realised.

Iran-Israel: Large-scale attack brings countries close to the brink

Iran’s large-scale response to the Israeli air strike targeting an Iranian consular building in Damascus on 1 April triggered widespread concern that a regional confrontation was imminent. Indeed, the unprecedented 13-14 April direct attack involving over 300 missiles and drones launched from Iran and proxies against Israel was largely deflected from a combined Israeli, US, and Jordanian effort.

The Iranian response is best explained by understanding Tehran’s underlying desire to project regional influence: for Tehran, the attack was effectively designed as a show of force aimed at overturning a status quo whereby Israeli provocations against Iran were largely unchallenged. Historically, when forced to respond, this was usually delegated to proxies operating outside Iran, thereby maintaining a thin veil of deniability. Iran probably expected that most missiles and drones would be intercepted, yet in a way it succeeded in restoring deterrence even though this effectively paves the way for an overall more assertive posture in the future.

At this juncture, the scenario of a wider multi-state regional war centering on an Israel-Iran confrontation appears unlikely. The high mutual costs of such action have thus far deterred a major escalation. However, this dynamic could be reversed. With growing indications that Israel could intensify military operations against Hezbollah in the north, any invasion of southern Lebanon would inevitably signal wider escalation. A spiralling cycle into a major regional conflict has been avoided, for now.

Global leadership vacuum widens ahead of US election

There has been considerable literature on the absence of global leadership, with some analysts placing the blame on internal divisions in the US for the lack of decisive and coherent US leadership on the global stage. Proponents of this view argue that this vacuum has been exploited by belligerents (both state and non-state actors) pursuing their political objectives through force.

In the US, the Presidential election in November – where Joe Biden and Donald Trump are both vying for a second term – is arguably one of the most consequential in modern times. In case Trump wins, we can expect to see a return to a more confrontational, unpredictable, and possibly isolationist foreign policy that will test the US’s ties with allies. A near certainty is that the vote will amplify divisions on both sides of the spectrum; on 5 June, Trump hinted he would have “every right” to persecute political foes if elected. Geopolitically, a second Trump presidency has the potential to significantly unbalance current dynamics with global ramifications. Under Trump, the US may stop military aid for Ukraine while there are broader questions on how a Trump presidency could act as an impartial and reliable facilitator for peace in the Middle East.

Biden meanwhile faces the challenging task of balancing US foreign policy and its commitment to allies like Israel without alienating voters critical of the Israeli military operation in Gaza. With polls favouring Trump, the prospects of a Biden re-election rest in part on whether Democrats succeed in building a broad coalition of voters that includes anti-Trump Republicans in swing states.

Cyprus resilient despite regional instability

While at relative proximity to conflict zones, its status as an EU country, benign security environment, and good ties with neighbours feature among a number of factors that have largely safeguarded Cyprus from regional tensions. With a challenging security environment in the Middle East and the risk of a wider flare up, however, there is no guarantee that this will remain the case. A lot depends on how Cyprus manages to project the image that it is and will remain, in the words of US Ambassador Julie Fisher, a “pillar of stability” in the Eastern Mediterranean. This is not a given of course, requiring tactful diplomatic engagement internationally, an enduring commitment to enhancing domestic security, and building confidence in domestic institutions.

Indeed, recent developments serve as a reminder that due to its proximity to active conflicts, there is always a possibility, albeit very low, that Cyprus may be caught up in the crossfire. An immediate impact of the Iranian attack in April was the disruption to flights connecting Cyprus to Israel and Jordan since both countries, in addition to Lebanon, had temporarily closed their airspace. The tourism sector remains impacted as the ongoing war in the Middle East coupled with inflationary pressures have led to weaker demand compared to 2023. Still, outreach to new markets such as Poland and additional flight capacity may help offset this trend, defying pessimistic expectations.

Overall, investment appetite is strong, particularly in the real estate sector, although this remains unevenly distributed across regions. A stable regulatory regime and incentives mean that Cyprus remains an attractive investment destination. Efforts to rebrand Cyprus internationally may generate additional interest, although this will depend on the eventual success of the campaign. Any such effort needs to highlight strengths and recognise areas where more progress is needed. On the political level, Cyprus can leverage its geographic location to exercise soft power where it can. In this vein, the “Amalthea” plan​​ to provide humanitarian relief to people in Gaza is a good example of how Cyprus can play a proactive and positive role in the region.

Catalysing opportunities in uncertain times

The 6-month horizon encompasses a high-stakes US election, active hostilities in Gaza, an enduring conflict in Ukraine, and perhaps a yet-another “black swan” event, all of which carry wide-spectrum commercial risks. For organisations, the ability to successfully navigate future challenges lies in their ability to developing resilience, a high level of organisational flexibility, and plan with the future in mind.

Stephanos Chaillou is an international affairs commentator