The world trembles amid a shift in the global order

Geopolitical upheavals as a reflection of a changing world order

The war in Ukraine and Israel’s recent attack on Iran are by no means isolated conflicts; rather, they are symptoms of a deeper, global shift — a realignment of power within the international system. In both cases, we see challenges to the existing order, which has been led by the West (the USA and its allies) since World War II.

In Ukraine, Russia — a traditional power seeking to restore its sphere of influence — is defending its sovereignty against the expansion of NATO and the Euro-Atlantic order, which has come dangerously close to its doorstep. In the Middle East, Iran, with its regional strength, connections to Russia and China, and opposition to Israeli-American influence, is likewise challenging the status quo, culminating in the latest military conflict witnessed in the past month.

Israel’s attack, along with an interim U.S. military intervention targeting Iranian nuclear facilities, triggered a new danger of a broader regional conflict. This immediately rattled energy prices, spurred a flight of capital to safe havens, and demonstrated how quickly a local dispute can spill over into a global problem.

Both Ukraine and Iran have become battlegrounds for the global redistribution of power, in which new forces — Russia, China, Iran — are increasingly shaping an alternative bloc (the BRICS countries), while the West faces internal challenges, fragmentation, and an enormous burden of debt servicing.

The grand cycles of empire rise and fall

Ray Dalio, founder of the hedge fund Bridgewater Associates, one of the most successful asset managers and an exceptional geopolitical analyst and historian, presents in his book Principles for Dealing with the Changing World Order a theory of the great cycles of empire rise and fall.

His analysis, based on more than 500 years of history, shows that all great empires — from the Dutch, to the British, to the American — follow a similar pattern, which we can also observe today.

The stages of the cycle follow this sequence:

• Rise of Power – a rising nation increases productivity, innovation, education quality, and export competitiveness.
• Golden Age – the nation or empire achieves global dominance, its currency becomes the strongest monetary weapon, giving it key influence in shaping the financial system.
• Over-indebtedness – at some point, the empire, including both the state and individuals, starts spending more than it earns, borrowing and taking on debt.
• Internal Cracks – inequality begins to grow within the country, leading to political tensions, social polarization, and divisions among its population.
• External Challenges – the empire is increasingly challenged by new rising powers (e.g., China), which begin to contest the existing order and strengthen their internal and external economic, monetary, and political power.
• Crisis or War – in the final phase of the cycle change, conflicts intensify, resulting in war and the collapse of the old order, replaced by a new order with new faces and a new empire.

From this perspective, today’s geopolitical conflicts can be seen in a completely different light, can’t they? According to Dalio’s model, such conflicts (Ukraine, Iran, etc.) are typical of the late stage of empires, when internal weakness and external challenges create stress points that often accelerate the transformation of the global order.

The U.S. versus China

According to Dalio, America is currently in the late stages of its own cycle, while China, with its ascent, represents a potential new superpower. We have already witnessed for some time the growing tension between the USA and China, reflected in trade wars, technological protectionism (such as restrictions on Huawei, semiconductors), diplomatic frictions over Taiwan, and the geopolitical redistribution of power (BRICS+ versus G7).

China today, in Dalio’s model, is in the phase of late ascent or the beginning of its golden age, while the decline is becoming apparent and expected for the United States. China’s power is built on several structural factors — from economic growth and industrialization to the accumulation of wealth and natural resources, as well as technological advancement.

For example, from 1978 to today, China’s real GDP has increased more than 40-fold. China has long been the world’s largest exporter, the largest producer of cars, steel, electronics, and many raw materials. As a result, China’s share of global GDP has already surpassed that of the USA.

China also has the world’s largest foreign exchange reserves — more than 3 trillion dollars, giving it monetary independence. Furthermore, as we know, China has for several years been steadily accumulating and increasing its gold reserves. Unlike the USA, the Chinese have a “positive” trade balance, exporting more than they import — the opposite of the United States.

In recent years, China has caught up tremendously with the West in sectors such as artificial intelligence, telecommunications, digital payments, and semiconductors — areas which, until a few years ago, were entirely in the domain of the developed Western world.

Conversely, we are seeing the opposite situation in the United States, which, by objective measures, is now in the late-empire phase, characterized by saturation, debt problems and servicing, internal fractures, and external challenges. This period strongly resembles the late British Empire right before World War II.

U.S. public debt has surpassed 34 trillion dollars, which is more than 120% of GDP. Even now, interest payments on this debt alone amount to over 1 trillion dollars per year — more than the U.S. spends on defense, for example. According to Dalio’s model, at some point, debt puts tremendous pressure on monetary policy and its stability: first comes interest rate cuts, then money printing (quantitative easing), which leads to inflation and a loss of trust in the currency.

American society has become extremely divided in recent decades (Republicans versus Democrats), evident in congressional gridlocks, cultural divides, and even fundamental distrust of institutions. Last year we witnessed perhaps the most polarized elections in decades, and the future points to the possibility of serious internal upheavals — even civil war.

The key loss for the United States, however, is happening on the global monetary stage. More and more countries are reducing their dependence on the U.S. dollar as the world’s reserve currency. China and the entire BRICS bloc are striving to trade in their own currencies or even in gold, and some deals are being settled in Bitcoin. China, Russia, Iran, and Saudi Arabia are increasingly signing energy contracts for oil and gas deliveries without using the dollar. And this is precisely what angers America and consequently leads to new military conflicts, which in turn drain the U.S. further.

Portfolios must be prepared for resilience amid change

History shows us that the power of every empire is transient — but the transition is not sudden, rather gradual, and we are witnessing it, and will continue to witness it, over the coming years. China has not yet assumed a leading role, but is systematically and methodically building it. Meanwhile, the U.S. is losing internal cohesion and fiscal stability, undermining confidence in its global primacy.

For individuals and investors, this mainly means preparing for a changed and new world order, where the dollar will no longer be the central currency, where the West will no longer be the only technological authority, and where geopolitical conflicts will be the new normal. Looking back through history, the best-performing strategies during such times were those where an individual’s portfolio was diversified across the following asset classes:

• Hard assets: In times of political and financial uncertainty, investors most often flock to gold, silver, and commodities.
• Real estate or land: especially if located in safe areas — both geopolitically and financially.
• Stocks: especially companies producing essential goods, for example in the fields of energy, food, and weapons — sectors in which demand generally rises during crises.
• Bitcoin: its role in this situation is still hard to predict, but early signs suggest that the leading cryptocurrency could take on the role of “digital gold” because of its limited supply and decentralized approach.

As an example, during the Great Depression and World War II, the most successful investors were those who had gold, stocks of companies producing basic goods, and real estate in stable regions in their portfolios.

Accept reality and act strategically!

Every investor today should check off important points in their investment portfolio and personal financial budget to properly prepare for changes and, of course, use them to their advantage. Personally, I have advised all my clients in recent years to take the following steps:

Avoid debt — reduce it as much as possible, or get out of debt entirely (an exception can be a good, affordable mortgage), and ensure your personal financial budget is healthy — spend less than you earn and invest the difference for your financial security and independence.

Precious metals — gold and silver — should be the cornerstone of any portfolio, along with exposure to the commodities sector — either through stocks or ETFs. In the case of larger portfolios, real estate in stable and promising regions — such as Dubai — is essential.

Stocks — or ETF funds — should be diversified both by sector and by geography. Definitely put greater emphasis on China than the U.S., and on other emerging countries. When considering stock exposure today, we must account for new trends in technology and artificial intelligence, and if appropriate, also look into exposure to blockchain companies and defense sector development.

Cash position — this year, every investor’s goal should be to ensure a good cash position in their portfolio by year-end, which can be deployed during major shocks and downturns in financial markets to buy quality asset classes or to bridge major sudden events (geopolitical escalations, shortages of goods and electricity, war, etc.).

Dalio writes in his book: “Those who understand history have the advantage of recognizing the future!” History teaches us that changes in the world order are no exception, but rather the rule. We are currently living in an era where old empires are fighting to preserve their power, while new ones seek to take it over. This process is accompanied by conflicts, financial upheavals, and fear. But, as always, every crisis holds opportunities, which is why as investors we must not run away from reality, but rather be well prepared for it!

Matjaž Štamulak, independent financial advisor, investor, and lecturer