Covenants, without the Sword, are but Words, and of no strength to secure a man at all.” – Thomas Hobbes, Leviathan

Spheres of Influence Old and New

In 1494, Spain and Portugal reached an agreement that now looks extraordinary, but at the time felt practical. Both were expanding overseas at speed. Both had the ships, the capital, and the military capacity to do so. Neither wanted that competition to turn into war. So they drew a line across a map and agreed, between themselves, who would operate where.

The Treaty of Tordesillas did not depend on wider consent, nor did it pretend to rest on universal principles. It worked because no one else could stop it. Other European powers objected, but objections carried little force without the means to enforce them. What the treaty established was not order in any modern sense, but permission: the right of powerful states to act freely within spaces they considered theirs.

This way of organising the world never truly disappeared. It receded when rules were strong enough to restrain power, and returned when they were not. Over time, it acquired a name — spheres of influence — but the underlying logic remained constant. Geography created interest. Power created authority.

In the United States, this logic was articulated most clearly through the Monroe Doctrine. The Western Hemisphere was treated as a space of special American concern. Outside powers were not neutral actors there, regardless of formal sovereignty. The doctrine was applied unevenly and often opportunistically, but its premise endured: proximity mattered, and power determined how far others could intrude. By 2025–26, President Donald Trump had gone even further. Citing a so-called “Donroe Doctrine,” his administration treated the ousting of Venezuela’s regime as an American prerogative – a demonstration that the U.S. would “never be questioned” in its hemisphere

Recent discussion around Donald Trump’s unilateral action in Venezuela revived this language for a reason. Commentators were not suggesting a return to empires, but pointing to something more unsettling: a willingness to act on the basis of influence rather than agreement, and to do so without waiting for institutional approval. The episode felt jarring not because it was unprecedented, but because it reminded many observers — abruptly — that power can reassert itself without warning.

This trend is not an isolated anecdote but part of a broader shift in international relations. After several decades in which global consensus, institutional procedures, and legal norms were treated as the primary sources of legitimacy, we are witnessing a swing back toward power and influence as the organising principles of world affairs. Understanding why this is happening – and why it matters, including for finance and markets – requires first clarifying what “power” means in international relations and how it operates when it stops asking for permission.

Power and Realpolitik: When Rules Become Optional

In international relations, power is often misunderstood as something crude or purely military. In practice, it is broader and more flexible. Power is the ability to shape outcomes, to set constraints, and to deny others options. The political scientist Robert Dahl famously described power as the ability of A to get B to do something B would not otherwise do. This ability can flow from many sources – economic dominance, financial leverage, technology, coercive force, even sheer credibility. 

Viewed through this lens, international rules and norms take on a conditional character. A Realpolitik worldview holds that rules are not sacred or self-enforcing; they are respected only insofar as they align with the interests and capabilities of the powerful. When abiding by the rules serves a state’s goals (or when that state lacks the capability to break them), then the rules are followed. When rules clash with vital interests or a state is confident it can violate them with impunity, power will decide instead. In other words, Realpolitik does not deny the existence of norms and institutions – it simply asserts that might ultimately trumps right when the chips are down. 

For realpolitik to function, three things are required.

  • First, capability — the economic, military, financial, or technological means to act.
  • Second, credibility — the belief by others that those means will actually be used.
  • Third, tolerance for cost — the willingness to absorb political, economic, or reputational damage in pursuit of an objective.

Where these conditions hold, consensus becomes optional. Where they do not, consensus is essential.

Periods dominated by realpolitik tend to feel decisive, fast-moving, and unstable. Periods dominated by rules feel slower, procedural, and predictable. Neither is inherently virtuous. But markets, institutions, and investors behave very differently under each. For roughly three decades after the Cold War, much of the world enjoyed the latter environment – a rules-based order that restrained raw power. To understand why that era is now ending, we should recall what made it possible in the first place.

The Post-1991 Settlement: Power Restrained by Design

After 1991, the world entered an unusually distinctive phase.

The collapse of the Soviet Union removed the central organising conflict of the twentieth century. In its place emerged what became known as the rules-based international order — a system built on multilateral institutions, legal frameworks, and economic integration. International cooperation was institutionalised in bodies like the United Nations, the World Trade Organisation, the International Monetary Fund and World Bank, and numerous treaties and forums. The animating idea was that transparent rules and mutual interdependence would replace spheres of influence and conquest as the foundations of global stability.

Crucially, power did not disappear in this order; it was channeled and restrained. The United States, as the lone post-Cold War superpower, sat at the centre of the system. Washington provided security guarantees to allies, anchored the global financial system (with the U.S. dollar as the reserve currency), kept trade routes open, and sponsored the major international institutions that governed monetary policy, trade disputes, and arms control. In effect, American power underwrote the order’s functioning. 

Europe embraced this settlement with particular enthusiasm. The European Union was built almost entirely on its principles: law over force, process over power, integration over competition. For the EU, the rules-based order was not merely a foreign-policy framework; it was a civilisational project.

Intellectually, this moment found its most famous expression in Francis Fukuyama’s “end of history” thesis. The claim was not that events would cease, but that ideological evolution had reached its endpoint. Liberal democracy, market capitalism, and institutional governance had won. Future conflicts would be managerial rather than existential.

For a generation of policymakers, financiers, and investors, this was not an abstract idea. It was the only system they ever experienced. It was easy to assume that this was the new normal of world politics. States generally complied with multilateral rules – not because they were forced at gunpoint in each instance, but because doing so conferred benefits (access to markets, capital, security, and influence) and because flouting the rules risked isolation or punishment. To borrow the metaphor of one historian, the post-1991 Pax Americana resembled a sturdy cage built around power politics – not eliminating the instinct of states to compete, but confining it within legal and institutional bounds.

Post-1991 & Financial Markets

For the world of finance and investment, the post-1991 rules-based era was in many respects a golden age of stability and opportunity. The combination of expanding globalisation and restrained geopolitics created an environment highly conducive to market growth across both developed and emerging economies.

Several features of this period stand out:

  • Globalisation deepened dramatically. Supply chains extended worldwide, capital flowed freely across borders, and multinational enterprises expanded into new markets. Trade agreements and the WTO framework reduced barriers. Emerging markets opened up and attracted vast foreign investment. This global economic integration was underpinned by the assumption of a benign international security environment.
  • Institutions and legal frameworks dampened volatility. Because major decisions were often negotiated in multilateral forums or subject to international law, sudden unilateral shocks were rarer (at least among major economies). For example, trade disputes went through WTO arbitration rather than immediate tit-for-tat tariff wars. Broadly, political conflicts seemed more manageable or compartmentalised under institutional processes
  • Political risk was viewed primarily as an emerging-market (EM) problem, not a systemic concern for advanced economies. Investors distinguished between “safe” developed markets and “risky” developing ones. In developed countries (North America, Western Europe, Japan, etc.), political environments were assumed to be stable, policy changes incremental, and rule of law solid. Thus, outside of emerging or frontier markets, due diligence rarely focused on geopolitics or regime stability. As one risk consultancy noted, markets generally “priced in a higher likelihood of sudden political disruption in emerging economies,” whereas developed economies were presumed secure.
  • Financial models and investment strategies thus could afford to ignore geopolitics for the most part. Due diligence for cross-border deals concentrated on commercial factors – earnings, cashflow, regulatory compliance, etc. – rather than whether a host country might suddenly nationalise assets or fall into conflict. Contracts assumed that legal enforceability across jurisdictions was reliable. 
  • Long-duration and illiquid investments flourished under the presumption of stability. Private equity, infrastructure projects, and other long-horizon ventures boomed. Investors believed that once they committed capital, the environment would remain broadly favorable through the life of the investment. Illiquidity was rewarded with a premium because exits were expected to be available when needed (e.g. via IPO or sale), given a steady global growth trajectory and open capital markets. Cross-border investments counted on the idea that capital could always be repatriated and that property rights would be upheld under international law.

It is no exaggeration to say that many financial models implicitly assumed “the end of history” in geopolitical terms. The extraordinary bull market in equities and bonds from the mid-1980s through the 2010s was aided by the absence of major geopolitical shocks (apart from short-lived events like the First Gulf War). For instance, investors in private credit and private equity could make bold bets in emerging markets or in long-term assets because the geopolitical backdrop seemed benign. The entire concept of a globally diversified portfolio depended on the premise that globalisation was irreversible and political stability would persist. Indeed, consulting firm BCG observes that for decades, companies and investors were “accustomed to deepening globalization” where nations exercised restraint and cooperated through rules – in such a world, “geopolitical risks exist only on the margins of global business.” This captures the widespread mindset of that era.

Why Restraint Has Faded

The liberal international order that took shape after 1991 was designed to channel power through institutions, rules, and mutual consent. It functioned on the belief that great powers, especially the United States, would restrain their capabilities in favour of predictability and shared governance. That belief has weakened. Over the past two decades, both structural shifts and internal political changes have pulled the system apart.

Externally, the rise of China and the resurgence of Russia redrew the global map of influence. China began asserting its weight through parallel institutions and strategic projects like the Belt and Road Initiative. Russia pursued direct confrontation, rejecting the European security consensus through its wars in Georgia, Crimea, and Ukraine. Both powers signalled that they no longer recognised the legitimacy - or constraints - of Western-designed rules when those rules clashed with their interests.

But the collapse of restraint also came from within. In the United States and Europe, the domestic consensus that once underpinned multilateralism began to fracture. The 1990s belief in globalisation and open institutions faded as voters confronted stagnant wages, cultural dislocation, and perceived loss of control. Populist movements gained ground by criticising “globalism,” casting international rules as elite bargains made at the expense of national workers and sovereignty. In Washington, bipartisan support for alliances and international agreements frayed. The result was not isolationism, but a growing willingness to discard consensus when it no longer aligned with domestic political priorities.

Multilateral institutions suffered under the weight of both trends. As memberships expanded, consensus became harder to reach. The WTO negotiation rounds stalled; the UN Security Council locked into gridlock. In their place, transactional blocs like the BRICS gained prominence - not united by ideology, but by shared dissatisfaction with Western dominance. New mechanisms emerged, signalling that participation in the global order was now conditional.

History offers a precedent. The League of Nations collapsed when its leading members lost the will to enforce rules and domestic politics turned inward. Today’s order, though more robust, faces a similar pattern: when consensus breaks down at home, and enforcement weakens abroad, power doesn’t vanish - it steps back in.

Markets & Finance: Confronting a World of Uncertain Power

If the late 20th-century financial world rested on the assumption that rules would restrain power, the 2020s are testing that belief. The return of great-power rivalry and assertive national interests has made geopolitical risk structural, not episodic. As one strategist put it, “Geopolitics is no longer a tail risk. It’s the backdrop.” Investors must now treat political volatility as a persistent operating condition — from fragmented supply chains to shifting regulatory regimes.

Jurisdiction has become a frontline concern. The rule of law offers limited protection if sovereign actors choose to override it. Russia’s 2022 expropriation of Western assets, and the West’s freezing of Russian reserves, underscored a truth long familiar to frontier investors: title to assets is political. That means legal enforceability — across contracts, arbitration, or judgments — can no longer be assumed, especially in contested jurisdictions or strategic sectors. Investors should expect more cases where governments act unilaterally, overriding commercial logic.

The speed of decision-making is also accelerating. In contrast to the slow signalling of multilateral diplomacy, today’s environment rewards fast, decisive moves — sanctions imposed over weekends, tariffs announced overnight, exits closed without warning. Markets must price in this pace. Scenario analysis and stress testing should now include political “shock” events as baseline inputs.

Private markets — particularly credit — are at an inflection point. A Boston Consulting Group study found that many funds face geopolitical exposures in 20% or more of their portfolios, yet few have robust frameworks to assess them. That will change. Expect a shift toward “geopolitical underwriting”: tighter structuring, greater jurisdictional discipline, and attention to force majeure triggers. Lenders must ask: if political risk materialises, do we know who holds power, and can we enforce our rights?

Private credit may prove relatively resilient — provided it adapts. Its flexibility and seniority offer natural defences in a volatile world, but only if terms are rigorously negotiated. This is not about chasing yield. As one advisor put it: “It’s about surviving uncertainty.”

Adapting to the New, Faster World

The comfortable assumptions of the post-1991 order have given way to a more volatile and ambiguous reality. The liberal international system did not collapse overnight, but eroded gradually — and what replaces it may not arrive with clarity or consensus. We now occupy a hybrid phase: fragments of multilateralism endure (the UK and EU's response to Trump's capture of Maduro, for example), but power-based dynamics are filling the gaps.

In this new environment, rules are no longer presumed decisive, institutions are slower or sidelined, and decision-making is increasingly personal. Political risk has merged with market risk. For investors and institutions, the task is not to predict every geopolitical twist but to accept that the framework has shifted — and to adapt. Strategic flexibility, jurisdictional discipline, and sober realism matter more than ever.

One moment encapsulates this shift: the Trump administration’s capture of Nicolás Maduro. This was not the act of a rogue or revisionist power, but of the United States — the very state that had long underwritten the rules-based system. Unlike Russia in Ukraine or China in the South China Sea, the U.S. here bypassed consensus and international process not in defense of order, but in the exercise of unilateral power. It was, in effect, the system demonstrating that it no longer believed fully in itself.

In a world where power has stopped asking for permission, the greatest risk lies in assuming that it still will. For those who recognise that shift, preparation is not pessimism — it is prudence.