2025 Fourth Quarter Forecast Report

The fourth quarter of 2025 will be headlined by the potential for military escalation in the Middle East, including increased Israeli operations in Gaza and the expansion of Israel’s targeting of Iran-aligned groups throughout the region.

In the Russia/Ukraine conflict, the fourth quarter will be marked by hybrid escalation in the form of additional Western tariffs and sanctions against Russia as the diplomatic track to reach an end to the conflict will continue to prove elusive.

In the Indo-Pacific, the fourth quarter will see diplomatic de-escalation as the U.S. and China make further progress toward a trade agreement that lowers tariffs. In global connectivity themes, there will be slight enhancements in trade in the fourth quarter as the White House’s tariffs and technology restrictions rebalance and broadly settle into a new normal, while AI-driven boosts in power consumption and climate-related threats raise the risk of energy disruption.

Numerous countries will experience various degrees of destabilization in the quarter, including the U.S., Sudan, Colombia, Democratic Republic of the Congo, India, Iraq, Iran, Mexico, Nigeria, Pakistan, and Syria, with significant regional and global implications.

Key Events

• Oct. 4 – Japan’s Liberal Democratic Party presidential election
• Oct. 26-28 – ASEAN 47th Summit in Malaysia
• Oct. 28-31 – APEC summit in South Korea
• Oct. 29 – Parliamentary elections in the Netherlands
• Nov. 4 –Special congressional, gubernatorial, and state legislative elections in the United States
• Nov. 10-20 – U.N. Climate Summit in Brazil
• Nov. 11 – Parliamentary elections in Iraq
• Nov. 12 – Deadline for U.S./China tariff imposition
• Nov. 22-23 – G20 summit in South Africa

Overview

• The Russia/Ukraine conflict trended toward the military escalation scenario in the third quarter, as the pace of Russian missile and drone strikes against Ukraine increased while Russia made incremental territorial gains in Eastern Ukraine.
• Diplomatic activity ramped up in the third quarter, most notably with the direct meeting between U.S. President Donald Trump and Russian President Vladimir Putin in Alaska in August, but this was not enough to get meaningful progress toward a peace or ceasefire agreement.
• This lack of progress spurred threats by the U.S. of hybrid escalation in the form of increased sanctions on Russia as well as U.S. secondary tariffs on Russian energy exports, though these did not materialize in the quarter.

Forecast Scenarios

Military escalation scenario

• Moderate probability as Russia has identified securing all of Donbas by end of 2025 as a key goal, while the EU and U.S. will make progress on outlining security guarantees for Ukraine. Both elements will drive a continuation/increase of military activity in the quarter.

Hybrid escalation scenario

• Moderate/high probability as the U.S. is likely to increase economic pressure in the form of secondary tariffs and sanctions if Russia continues to avoid taking concrete measures toward a ceasefire/peace deal.
• Moscow is also likely to increase hybrid attacks against other European countries.

Diplomatic de-escalation scenario

• Low/moderate probability following the lack of results from high-level diplomatic summits.

Status quo

• Highest probability due to constraints on significant shifts in both diplomatic de-escalation and military/hybrid escalation.

Overview

• The Middle East trended toward the military escalation scenario in the third quarter as Israel began a campaign to occupy Gaza City, bombed Hamas leadership in Doha, increased settlement expansion in the West Bank, expanded territorial occupation and military activity in Syria, sustained a campaign of territorial occupation and airstrikes in Lebanon, and intensified an assassination campaign against al-Houthi rebel leadership in Yemen.
• Egypt and Qatar continued to mediate ceasefire and hostage release efforts among Hamas, Israel, and the United States.
• Significant hybrid activity included the U.K., Germany, and France initiating the Joint Comprehensive Plan of Action’s “snapback” mechanism, the U.S. imposing sanctions against Iran, and the Houthis continuing attacks against Red Sea shipping. Traditional Israeli allies in Europe continued to pursue punitive actions against Israel.

Forecast scenarios

Military escalation scenario

• Highest probability due to Israel’s continued support from the U.S. to pursue its objectives of occupation and displacement in Gaza, along with settlement expansion and the likely annexation of the West Bank.
• The U.S. will likely exert little to no pressure on Israel to restrain its military activity elsewhere in the region, and Israel may feel emboldened to conduct strikes in Türkiye, Egypt, or other states hosting Hamas leadership.

Hybrid escalation scenario

• Moderate/high probability as the U.S. and Europe are likely to escalate sanctions against Iran, and the Houthis are likely to escalate attacks against international shipping. Gulf and Islamic countries may intensify diplomatic pressure on Israel, including reviewing diplomatic and economic ties, restricting arms transfers, and activating regional defense commitments.
• Combined escalations from Israel in Gaza and the West Bank, along with a geographically expanded campaign against Hamas leadership, will jeopardize the preservation and expansion of the Abraham Accords and may threaten formal peace agreements and relations with Egypt and Jordan.

Diplomatic de-escalation scenario

• Low probability in Gaza, the West Bank, and Syria as Israel faces little to no pressure from the U.S. to end its offensives. The Israeli bombing of Hamas leadership in Doha leaves the future of the diplomatic effort in Gaza in question.
• There is a moderate chance of diplomatic de-escalation between the U.S. and Iran, as Trump remains open to negotiating a new deal over Iran’s nuclear program.

Status quo

• Lowest probability due to the dynamic nature of multiple ongoing conflicts.

Overview

• The Indo-Pacific trended toward diplomatic de-escalation in the third quarter, as the U.S. signed agreements with most trading partners in the region, with the notable exception of India.
• The U.S. and China demonstrated strong will to negotiate on a trade agreement, agreeing to postpone the deadline for the imposition of further tariffs until Nov. 12. Key levers of influence, such as export restrictions on tech and rare earth elements, were eased.
• China displayed strong diplomatic clout, negotiating a rapprochement with India, whose ties with the U.S. deteriorated due to its continued purchases of Russian oil. China deepened diplomatic relations with Russia and other partners through agreements on energy cooperation and technology sharing.

Forecast scenarios

Military escalation

• Lowest probability, with clashes in the South China Sea between China and the Philippines likely to be a continuation of Q3. Escalatory events could include increased joint Russian-Chinese military drills in the Pacific.

Hybrid escalation

• Moderate probability as the U.S. may increase pressure on China through the threat of tariffs, sanctions, and tech export restrictions if the U.S. is unable to settle the Russia/Ukraine conflict. China and North Korea may deepen the cooperation on trade, potentially exacerbating threats from the U.S.
• However, the risk of reimposition of tariffs by China and the U.S. in November is low. Recent protests in Indonesia and Nepal have showcased elements of dissatisfaction by the population against ruling parties, which may spill over into other countries in the region such as the Philippines, Thailand, and Japan, with the latter holding leadership elections in October.

Diplomatic de-escalation

• Highest probability as both China and the U.S. have expressed the desire to reach a trade deal by November. There is a high probability of talks being extended if no deal is reached by then. The U.S. and India will likely also attempt to reach a diplomatic settlement involving the removal of tariffs based on reported outreach from New Delhi seeking a more favorable trade agreement.

Status quo

• High probability as the U.S. will continue to seek de-escalation with China and India, with high-level negotiations interspersed with the threats of escalation if they falter, while China will continue to portray itself as a stable alternative to the U.S. in the region, as well as with trading partners globally.

United States

• The U.S. trended toward moderate destabilization in the third quarter with the deployment of the National Guard and other federal forces to Washington, D.C., along with contention over congressional redistricting efforts in Texas, California, and other states.
• In the fourth quarter, the U.S. will trend toward limited economic destabilization amid the disruptive impact from global tariffs and domestic legal challenges to those tariffs. Further National Guard deployments to cities such as Memphis and New Orleans and pushback from local officials will maintain the moderate security destabilization trend, while midterm gubernatorial and state legislative elections in November could drive limited political destabilization amid an increasingly polarized environment following the murder of conservative political activist Charlie Kirk.

Colombia

• Increased instability following terrorist attacks and assassination attempts in Q3 further entrenched already high political polarization.
• Next quarter’s formalization of presidential party candidates will further politically destabilize Colombia, allowing for a greater concentration of attacks and corruption allegations against opposition parties as the 2026 election season officially begins. To counter the rising unpopularity of his leftist coalition ahead of next year’s elections, President Gustavo Petro will increase direct military operations against illegal armed groups, though with lessened impact as U.S.-Colombian relations decrease and those groups consolidate control of mining and coca farms. In response, attempted terrorist attacks will increase, defined by an increased use of cheap drone attack platforms. The economy will remain relatively stable as foreign direct investment increases and economic signals improve to multidecade highs, though largely at the expense of unsustainable debt growth worsened by a deadlocked tax reform bill.

Democratic Republic of the Congo

• The DRC is moving away from a quarter of high-level diplomacy after a peace deal mediated by Qatar and the U.S. went unsigned. The key antigovernment militia, M23, walked away from negotiations in Doha while making territorial gains in South Kivu province and expanding its operation to span nearly 5,800 square miles.
• In the fourth quarter, government focus will shift to foreign direct investment from Qatar, mining deals with various foreign companies, and management of disease outbreaks. Uganda and Rwanda will maintain a troop presence in the country’s east amid intensifying clashes among M23, Congolese forces, and other militias. Famine, water shortages, and mass atrocities, including sexual violence, arson, and the recruitment of child soldiers, are likely to escalate as governance erodes. Attacks targeting civilians by M23 and the Islamic State-affiliated Allied Democratic Forces will persist as the U.N. peacekeeping mission is set to end in December.

Ethiopia

• Ethiopia moved toward moderate destabilization in the third quarter due to its struggles to balance increased tensions with Sudan, Eritrea, Egypt, Western donors, and, domestically, in the Tigray, Amhara, and Oromia regions. In Q3, Prime Minister Abiy Ahmed’s consolidation of power continued to erode Ethiopia’s democratic space through suppressing the media, opposition groups, and civil society organizations.
• In the fourth quarter, Ethiopia will trend toward increased political and security destabilization amid tensions with Eritrea over demands for Red Sea access, concerns from Egypt and Sudan over Nile River water rights after the opening of the Grand Ethiopian Renaissance Dam, and a political split in the Tigray region. Polarization, oppression, and insurgencies will deepen ahead of national elections set for June 2026. While inflation eased slightly in Q3, Q4 will bring greater currency pressures, lower investor confidence due to security risks, and more concerns about human rights and governance, slowing aid flows. If the government fails to enact reforms, economic growth will decline, unemployment will rise, and conflict will ensue.

India

• During Q3, India grappled with the effects of Prime Minister Narendra Modi’s Hindutva nationalist policies, such as the exclusion of over 2 million Muslim citizens from statewide citizenship registries.
• While it remained the fourth-largest global economy at the end of Q3, Trump’s 50% tariff on Indian goods is projected to lead to a $40 billion decline in exports in Q4, putting that standing at risk. India’s fragile ceasefire with Pakistan continues to be tested by cross-border (and allegedly state-sponsored) terrorist attacks, with a renewal of low-level border clashes between their forces possible in Q4. India may continue to deepen ties with China and Russia after its recent tariff frictions with the U.S.

Iran

• Iran trended toward moderate destabilization in Q3 following U.S. and Israeli attacks that damaged Tehran’s nuclear program and eliminated key officials, prompting internal restructuring and further isolation from the West, including suspension of cooperation with the International Atomic Energy Agency.
• In Q4, should snapback sanctions threatened by France, Germany, and the U.K. go into effect at the end of September and the country’s severe water crisis continue, Iran will trend toward acute economic and security destabilization. Conversely, sanctions threats and resulting civil protests would promote political stabilization by pressuring a moderation of ideological divisions. Significantly, Iran’s internal and regional security will continue to destabilize as a result of domestic unrest, proxy weakening, the possibility of further Israeli offensives, and potential U.S. supervision on its border with Azerbaijan and Armenia through management of the Zangezur Corridor, leading to potential military escalation.

Iraq

• Iraq trended toward moderate destabilization in the third quarter as attacks by the Islamic State persisted in rural provinces, the Popular Mobilization Forces expanded their political and security roles, and U.S. and Turkish military activity provoked sovereignty tensions.
• In the fourth quarter, Iraq will likely continue experiencing localized insecurity, with persistent ISIS activity and militia influence straining federal authority. Preparations for November parliamentary elections and disputes over electoral administration could create limited political tensions, while Baghdad’s reliance on oil revenue sustains fiscal stability. U.S.-Iran tensions playing out in Iraq, along with unresolved disputes between Baghdad and the Kurdistan region of Iraq, will complicate federal decision-making and reinforce the country’s political and security fragility.

Mexico

• Mexico in Q3 faced diplomatic upheaval from the Trump administration, economic turmoil, and slight protest-driven security destabilization. The ruling party, Morena, had a major corruption scandal, while President Claudia Sheinbaum’s pushback against the Trump administration stabilized her politically.
• In Q4, Mexico will see a slight destabilization across the board. Its economy, which in Q3 was bolstered by foreign direct investment despite U.S. tariffs, will decline in the face of continued tariffs, declining remittances from workers abroad, and pressures from U.S.-China trade tensions. Diplomatically, the U.S. will continue to vie for influence in Mexican security affairs through military posturing and soft-power negotiations. If successful, this involvement will provoke cartel violence and potentially lead to direct U.S. strikes. This would closely resemble the recent U.S. interventions in Yemen and would destabilize Sheinbaum politically, as increased U.S. influence alienates her base, since it is seen as a violation of Mexican sovereignty – a key issue for much of the country.

Nigeria

• Nigeria maintained its fragile security, political, and economic conditions during Q3, experiencing consistent extremist and bandit attacks and continuing to adapt to President Bola Ahmed Tinubu’s overhaul of government oil subsidies.
• Entering Q4, persistent food insecurity will make Nigerians more vulnerable to heightened extremist recruitment and violence in the northeast, fueled by popular discontent and desperation for resources. Nigeria likely will continue to deepen engagement with BRICS nations to create and reinforce diplomatic partnerships, strengthen economic initiatives in critical industries, and facilitate borrowing from BRICS financial institutions to plug budget shortfalls. Economic reliance on BRICS nations, in tandem with increased political alignment, will provide needed support for Nigeria’s economic and political stabilization as tensions with the U.S. rise over tariffs, withdrawals of foreign aid, and visa restrictions.

Pakistan

• In the third quarter, Pakistan trended toward slight economic stabilization due to increased diplomatic ties with the U.S. over sanctions negotiations and energy development as well as continued relations with China through the Chinese-Pakistani Economic Corridor). The country trended toward slight political destabilization due to contested election results and political violence against protesters and supporters of the Pakistan Tehreek-e-Insaf party, as well as moderate security destabilization due to tensions with India regarding Kashmir and insurgency/terrorism.
• In the fourth quarter, Pakistan is expected to trend toward moderate economic stabilization due to continued foreign investment from China and continued improvement of relations with the U.S. It will also trend toward moderate security destabilization due to Baloch separatist and Islamist militant activity in Balochistan, with the potential of spillover into other provinces due to increased resource stripping of the region by the government alongside the United States. The country will trend toward low/moderate political destabilization due to continued political repression, incarceration based on false accusations of inciting violence, contested election results, and splintered support for the government.

Sudan

• Escalating clashes between the Rapid Support Forces (RSF) and the Sudanese Armed Forces (SAF) contributed to significant security destabilization during Q3 of 2025. Clashes between the RSF and SAF have been characterized by increased use of drones and the systematic targeting of civilians. The fighting has devastated Sudanese economic and agricultural output. The RSF has continued to pursue international recognition for its breakaway government in Darfur. Famine has affected many parts of the country, particularly in El-Fashir, while a cholera outbreak has proliferated in Darfur and Khartoum areas. International aid agencies face significant obstruction.
• Sudan will continue to trend toward political, economic, and security destabilization in Q4, exacerbated by increased external involvement from the UAE, particularly through its extensive logistical support and use of Colombian mercenaries, and spillover from South Sudan. Despite relative returns to normalcy in Khartoum, the capital will continue to face severe humanitarian issues, including lack of access to basic services for returning citizens.

Syria

• In Q3, Syria trended toward moderate security destabilization, as sectarian clashes between the interim government, Druze minorities in Suwayda, and Kurdish Syrian Democratic Forces (SDF) left hundreds dead. Israeli military incursions further exposed weaknesses in Syria’s defense. Increased Turkish military support for the interim government signaled a strengthening alliance between the two nations. On the other hand, peace talks with the SDF have faltered, lessening the chances of integration. The country experienced signs of economic stabilization, supported by Turkish and Saudi investment in energy and trade infrastructure, along with its first oil export in over a decade.
• In Q4, economic stabilization is likely to continue due to investment from Saudi Arabia and Türkiye, but political and security conditions are expected to worsen as contentious parliamentary elections risk sectarian pushback and clashes with Israel and the SDF increase.

Türkiye

• Türkiye trended toward political and security destabilization in Q3, with the controversial arrests of over 100 politicians affiliated with the opposition Republican People’s Party (CHP) under investigation for corruption and tender-rigging.
• In Q4, Türkiye will trend slightly toward political and security stabilization, propped up by the gradual squeezing out of the CHP and President Recep Tayyip Erdoğan’s antiterrorism initiative targeting the Kurdistan Workers’ Party (PKK). Moderate economic stabilization, characterized by Türkiye’s abandonment of unorthodox COVID-related economic policies, streamlined trade through emerging corridors such as the Belt and Road Initiative, and a substantial increase in defense sector exports, will gradually lift the lira from its record low.

New Lines Institute’s 2025 Annual Forecast analyzed global developments from the previous year across broad connectivity themes including trade, technology, and energy/climate and extrapolated that analysis into forecasts for the coming year. The following section assesses those forecasts in light of events in the third quarter to determine whether they are on or off track and gives updates for developing trends.

Trade

Q4 Forecast

• Following the deadline for U.S. reciprocal tariffs and related negotiations that produced trade deals with major players (EU, Japan, South Korea) and higher tariffs on others (India, Brazil), there is likely to be a stabilization of U.S. tariff fluctuations in the fourth quarter.
• The one notable exception will be China, which saw an extension of its trade negotiations with the U.S. to November, making this a key quarter to finalize the terms of an agreement. Core elements will include access to U.S. technology and Chinese critical minerals, while secondary tariffs against Russian energy exports to China will serve as an important source of leverage for Washington. It is possible the deadline for a deal could be pushed beyond the quarter.
• A further complicating factor will be domestic legal challenges to U.S. tariffs, though these are unlikely to offset the structural changes set in motion by Trump’s tariff policy.
• The EU is likely to resist U.S. efforts to push the bloc to expand tariffs against China and India, which will limit Trump’s pressure campaign on Beijing, Delhi, and Moscow and could strain U.S./EU relations. However, Mexico is expected to increase tariffs against China.

Q3 Assessment

• The Trump administration will resume tariffs globally following the expiration of the 90-day pause in July/August. However, the U.S. will scale back reciprocal tariffs for many countries as a result of trade negotiations while retaining a minimum of 10% tariff for all countries. Hit
• The U.S. will implement a limited compromise trade deal with China in the third quarter, but tariffs and other forms of economic restrictions – particularly over U.S. tech controls and Chinese critical minerals exports – will remain in place. On track
• The U.S. will reach compromise trade deals with other countries and entities, particularly Japan, India, South Korea, and the EU. Hit for Japan, South Korea, EU; miss for India

Tech

Q4 Forecast

• Following the announcement of the U.S. AI Action Plan in Q3, the Trump administration will clarify its priorities on AI development. The AI Action Plan outlines federal funding levers the administration may use to withhold funding from states that pass legislation unaligned with federal priorities, primarily centered around diversity, equity, and inclusion, climate change, and dis/misinformation. While some states have already passed AI legislation, Q4 may see state legislatures introduce new AI bills, while the Office of Management and Budget will issue further guidance on AI development in line with the executive order on “Preventing Woke AI in the Federal Government.”
• The U.S. AI Action Plan puts emphasis on the construction of critical infrastructure pertinent to support AI development. Q4 will see concrete contracts and plans outlined for developing data centers, electricity grid permitting, and hardening infrastructure cybersecurity.
• China’s new plan, covering 2026-2030, will approach the final stages of deliberation in Q4, in which boosting domestic tech capabilities and funding can be expected to be announced in line with the country’s AI action plan announced in Q3.
• China has renewed export license for rare earths vital to AI/tech development only until December. There is a strong probability that if trade negotiations with the U.S. progress satisfactorily, those licenses will be extended through some point in 2026, though the issue remains a key point of leverage for China. The U.S. will continue its diversification efforts for critical minerals extraction and refinement.
• Despite division in Washington regarding the balance of trade and national security priorities, the Trump administration has struck a revenue-sharing agreement with Nvidia for Chinese sales, indicating a strong probability of concessions to continue. Beijing’s order to Chinese companies to halt purchases of Nvidia chips at the end of Q3 was likely a part of a strategy to strengthen its leverage in trade talks with the U.S., and Q4 will likely see a resumption of tech flows from the U.S. to China.

Q3 Assessment

• Artificial intelligence will remain a key priority for China and the United States. While the U.S. Office of Management and Budget released two revised policies on Federal Agency Use of AI and Federal Procurement, the administration will continue to work in the third quarter to consolidate these into an overarching policy framework. Hit
• According to the U.S./China framework deal signed in London in June, China will remove all export restrictions on rare earth elements to the U.S. However, the export curbs in the second quarter have created a backlog in various industrial sectors, which will continue to be felt during the third quarter It is likely that China will further ease rare earth exports to the EU as well. Hit for U.S., partial hit for EU
• China will likely continue to work toward building domestic tech manufacturing capabilities, including in the semiconductor industry, as the threat of U.S. tech export restrictions continues. Chinese AI companies may start noticeably showing the benefits of the funding allocated after this year’s plenary session. Hit

Energy/Climate

Q4 Forecast

• Data centers are expected to experience a continuous increase in power consumption because of the growing utilization of digital technologies. The demand for fossil fuels to power AI data centers and EV charging stations continues to expand.
• Europe is likely to face a tight gas balance heading into winter, with low inventories, below-average wind and hydro output, and ongoing pressure to refill storage with the increased LNG demand expected to drive up gas and electricity prices.
• For the energy and climate transition, solar and wind power generation may surpass coal-fired electricity. In addition, reactor restarts in Japan and new nuclear plants in China and India could increase the world’s nuclear power for low-emissions electricity. The outcomes of the COP30 climate conference set for November in Brazil will likely expedite the energy transition.
• For emerging energy technologies, government subsidies and falling electrolyzer prices will boost green hydrogen projects. Affordable Chinese EVs and government policy will help to increase global sales. The integration of AI into smart power grids will increase their efficiency and reliability.

Q3 Assessment

Energy Transition

• Global investment in renewable energy, particularly for solar photovoltaic and wind, is expected to accelerate further. Continued declines in solar module and electric vehicle battery prices will enhance the affordability of clean energy solutions. Hit
• The Trump administration’s policy shifts and continued withdrawal from international climate frameworks will further slow U.S. climate progress. In terms of renewable energy, it will continue to grow in the U.S., with solar and battery storage driving new production capacity. Hit

Emerging Energy Technologies

• Burgeoning technology sectors like AI data centers, electric vehicles, and heat pumps will continue to drive worldwide power demand. Hit
• Renewable and nuclear power generation will increase with the surge of AI data center power demand. Hit
• Rapid adoption of clean energy technologies (solar PV, wind turbines, EVs, and energy storage) will continue to boost demand for critical minerals. Hit

Fossil Fuels and Energy Security

• Oil and liquefied natural gas markets are expected to remain relatively tight, driven by elevated summer demand for power generation and travel across Asia and Europe. Spot LNG prices in Asia are expected to increase from current levels of $9–$10/MMBtu potentially reaching $11–$13/MMBtu in the next three months. Hit, though spot LNG prices rose moderately, not sharply
• Brent crude is likely to remain in the $64–$70 range, below fiscal breakeven levels for several producers, prompting cautious supply management from OPEC+. Other potential geopolitical escalations, such as renewed Houthi attacks in the Red Sea or a response from Iran could push prices higher. Hit

Contributors to this report include Carly Brant, Will Brundage, Eugene Chausovsky, Sebastian Dittgen, Bethlehem Eshetu, Chaouki Ghenai, Ava Gilder, Sean Kearin, Andrew Loftesnes, Hatoon Lutfi, Milos Maggiore, Tristan Miller, Ashley Nunes, Andrew Penniston, Henry Rogers, Riley Sullivan, Shahad Turkistani, and Jun Youngsang.