THE AGE OF EFFICIENCY IS OVER: WELCOME TO THE AGE OF GEOECONOMICS!
IFUA Horváth & Partners, István Radó, Executive Advisor — Analysis
The age of constructive cooperation has given way to the era of confrontational dependency.
Every year, the international management consulting firm Horváth publishes a survey based on the insights of approximately 240 senior financial professionals. The recently released CFO Study 2026 clearly shows that confidence among financial executives has been shaken, and that uncertainty fundamentally defines the outlook for the future. In this article, we examine geopolitical and geoeconomic risks.
The majority of CFOs surveyed view the current economic environment unfavorably, while only a small minority expect any meaningful improvement over the next 12 months. Bureaucracy, intensifying competition, and persistently high energy prices are weighing on corporate performance. From a Hungarian perspective, this is a particularly sensitive issue: the domestic economy is heavily dependent on Russian natural gas and crude oil, while end-user energy prices in the business segment significantly exceed the EU average. This means that the cost structures of Hungarian companies are shaped not only by market forces, but also by foreign policy and energy security decisions. Companies are scaling back growth investments in order to preserve liquidity and prepare for unforeseen developments. For CFOs, the challenge extends far beyond the numbers: ensuring resilience amid ongoing disruptions and redefining strategies — including a rethinking of energy and supply chain dependencies — is what is truly at stake. But is the concern identified by the CFO Study merely the outline of another economic cycle? Or is a deeper, systemic shift underway in the functioning of the global economy?
In my view, we are not simply facing cyclical uncertainty, but rather a transition in which the era of constructive cooperation is giving way to the age of confrontational dependency. Partnership-based economic relationships are not disappearing, but their nature is fundamentally changing: the earlier model of integration built on mutual benefit is being replaced by a system in which states deploy economic tools as instruments of strategic leverage. Regional dependence on Russian energy fits squarely into this logic: gas and oil pipelines, long-term contracts, and pricing formulas are all potential factors shaping geopolitics. The caution and investment restraint signaled by the CFO Study are symptoms of this deeper transformation: the traditional financial toolkit — built on the stable and predictable networks of the “peace economy” — is no longer sufficient on its own to address this structural shift.
Not war, but not peace either: the era of confrontational interdependence
When I speak of entering a “war economy,” many eyebrows rise. I am not referring to armed conflict. The term points to a logic in which economic tools become strategic weapons — through tariffs, sanctions, export controls, subsidies, currency policies, and the deliberate control of supply chain bottlenecks. In the case of Russia, energy — gas, oil, electricity — has become precisely such a bottleneck: its price, volume, and delivery routes are simultaneously the outcome of market and geopolitical decisions.
David Baverez, French investor and geopolitical analyst — who observes the global realignment of power from Hong Kong — draws a sharp distinction. He describes the past thirty years — from the fall of the Berlin Wall to COVID — as a “peace economy”: an era built on cooperative interdependence, where global integration was grounded in the pursuit of mutual benefit. Demand drove growth, the consumer stood at the center, supply chains operated under relative stability, and just-in-time systems could function efficiently because the political and commercial environment was fundamentally predictable. In Central and Eastern Europe, cheap Russian energy — on which many corporate investment decisions were based — fit neatly into this picture.
That era has ended. What we are witnessing today is the age of confrontational interdependence. Mutual dependency has not disappeared — in many respects it runs deeper than ever — but its function has changed. The nodes of global networks — energy carriers, semiconductors, rare earth elements, payment systems, cloud platforms — are no longer purely economic infrastructure; they are also potential instruments of leverage. Whoever controls the bottleneck gains strategic influence. Two internationally recognized political scientists, Henry Farrell and Abraham Newman, termed this “weaponized interdependence” in their seminal 2019 study.
This is not a theoretical debate. This is the CFO’s daily operating environment — even if most financial systems and internal control mechanisms continue to rest on the assumptions of the peace economy, with geoeconomic considerations appearing only sporadically in decision-making. For the Hungarian CFO, the challenge is compounded by the fact that energy exposure manifests simultaneously as a cost risk, an energy security risk, and a sanctions risk — while competitors in other member states may be operating with lower-cost, more diversified energy mixes.
Three examples that illustrate why this is not business-as-usual risk
1. Rare earth export restrictions: when the supplier controls the bottleneck
Between 2023 and 2025, China progressively restricted exports of certain rare earth elements — including gallium and germanium — and has been increasingly open about using this as a geopolitical signal in disputes with the United States and its allies. In monetary terms, this remains a relatively small figure: US annual rare earth imports amount to roughly USD 200 million within a nearly USD 30 trillion economy — marginal in financial terms, yet strategically critical.
The strategic significance lies not in the volume, but in the fact that China controls approximately 80–85% of global rare earth processing capacity. This means that across numerous critical value chains — semiconductors, electric motors, defense systems, and specialty magnets — the security of supply at the processing stage is determined by the decisions of a single dominant actor.
The point is not that “every industry will grind to a halt tomorrow.” Rather, it is that a bottleneck in a strategic input can become the subject of a geopolitical decision — and in doing so, supply risk transforms into income statement and balance sheet risk.
What does this mean for the CFO?
If a company’s critical input is sourced from a single, geopolitically sensitive country, this is not merely a supplier risk. It is an EBITDA and cash flow risk, because:
- a 3–6 month supply disruption can trigger a price shock in procurement,
- it may force emergency inventory build-up,
- it can significantly increase working capital requirements,
- and it may result in contractual penalties toward customers if delivery deadlines cannot be met.
This is no longer purely a procurement matter — it is a balance sheet and earnings risk, and one that demands a deliberate strategy from the CFO.
EV subsidies: when a state finances the rewriting of competition
Over the past decade, China has cumulatively channeled several hundred billion dollars — by some estimates approximately USD 250 billion — in state support into its electric vehicle industry, equivalent to nearly USD 10,000 in implicit or explicit subsidy per vehicle. From the intense domestic competition among 100–150 Chinese EV manufacturers, 3–5 global champions are expected to emerge.
In China’s latest five-year plan, electric vehicles are no longer classified as a strategic industry — not because Beijing has abandoned the sector, but because Chinese policymakers consider the country to have achieved a competitive advantage that neither European nor American rivals can close in the short term.
The real risk, however, extends beyond the automotive sector. Europe’s automotive industry accounts for nearly half of the continent’s corporate R&D expenditure and is deeply embedded in technology clusters. A significant share of revenues at Europe’s three leading semiconductor companies — Infineon Technologies, NXP, and STMicroelectronics — derives directly or indirectly from the automotive sector. If Europe’s automotive industry weakens structurally, the semiconductor ecosystem suffers — and with it, Europe’s technological sovereignty is placed at risk.
This is no longer a question of an industry’s business cycle. This is systemic risk.
What does this mean for the CFO?
- Supplier ecosystem concentration risk: if the company’s revenues or supplier network are overly reliant on a single technology cluster (e.g. automotive semiconductors), its disruption affects the entire business model.
- Extended R&D payback horizon: the returns on large-scale technology investments become less certain when the key end market (automotive) is under sustained pressure.
- Growing strategic partner dependency: as European technology clusters weaken, companies become increasingly reliant on a handful of Asian or American technology partners.
- Sustained value chain margin pressure: with global prices suppressed by Chinese state subsidies, margin protection is only achievable through higher added value or differentiated services.
If a company’s business model is indirectly anchored to such a cluster, its geopolitical and industrial policy weakening directly affects long-term returns and the company’s valuation.
Currency and monetary weapons: when the exchange rate becomes a geopolitical instrument
In times of economic stress, the United States has historically tended to respond with aggressive monetary easing and a policy tolerant of dollar depreciation, in order to reignite growth. China, by contrast, consistently resists any significant appreciation of the renminbi, and permits capital outflows from the mainland toward Hong Kong — partly through the offshore renminbi market — in order to preserve competitiveness.
In 2025, approximately USD 200 billion in capital flowed from mainland China to the Hong Kong stock exchange through the “stock connect” channel, contributing to the stabilization of the renminbi’s exchange rate without requiring any significant official revaluation. Meanwhile, the extraterritoriality of the dollar — that is, the global enforceability of the US sanctions regime through dollar dominance — is not a theoretical matter for international companies, but a very tangible compliance, financing, and jurisdictional risk.
What does this mean for the CFO?
- Currency hedging is no longer merely a treasury optimization exercise. Behind exchange rate exposure lie geopolitical decisions: a currency move can be not only a market event, but a political one.
- Currency shift = consequence of a geopolitical decision: an unexpected sanctions package, tariff hike, or tightening of export controls can trigger a significant foreign exchange market reaction that directly affects the company’s P&L.
- Sanctions risk = financing risk: if the company or its partners are placed on a US or EU sanctions list, dollar-denominated financing can dry up suddenly, regardless of the company’s fundamentals.
- USD exposure = jurisdictional exposure: every transaction conducted in dollars falls within US jurisdiction, imposing an obligation to comply with OFAC regulations.
The classic “90-day forward” model is not designed to hedge a 12–18 month geopolitical escalation. The CFO’s task today is to link currency strategy to geopolitical scenarios, and to incorporate instruments — options structures, natural hedges, multi-currency financing — that buffer not only market volatility but the impact of political decisions as well.
Geoeconomics: when the economy itself becomes the weapon
There is a concept that precisely captures this new reality: geoeconomics.
In their seminal 2016 work (War by Other Means: Geoeconomics and Statecraft), Robert Blackwill and Jennifer Harris define geoeconomics as the deliberate use of economic instruments to achieve geopolitical objectives, and the use of geopolitical instruments to achieve economic ends. This is not about armed conflict. Nor is it classical free-market competition. It is about the grey zone in which tariffs, sanctions, export controls, subsidies, currency policy, and key supply chain nodes become the primary instruments of power competition.
Henry Farrell and Abraham Newman termed this phenomenon “weaponized interdependence.” The very same global networks — the SWIFT system, the semiconductor supply chain, rare earth processing, dollar-based financing — that served efficiency in the era of cooperative interdependence are today instruments of strategic leverage. The actor that controls the network node controls the room for maneuver.
The IMF’s official term for this same tendency is “geoeconomic fragmentation” — the splitting of trade and capital flows along geopolitical fault lines. According to Gita Gopinath’s warning, the global economy could lose as much as 7% of world GDP in the long run if fragmentation deepens. This is not a cyclical fluctuation, but a structural break: the organizational logic of the global economy is changing.
For the CFO, a single conclusion follows:
This is not a “geopolitical background paper” to be appended at the end of a risk report. This is the force that is rewriting the P&L, the working capital structure, the financing room for maneuver, and strategic investment decisions.
If the Horváth CFO Study 2026 shows that geopolitical and geoeconomic risk already ranks among the most important risk factors in the view of financial executives, then the question today is no longer whether we perceive the change. The question is whether the operating logic of the finance function — treasury, planning, risk management, and the investment decision process — has already followed that change, or whether it still rests on the assumptions of the peace economy.
IFUA Horváth & Partners, Radó István, executive advisor