Shangri-La Dialogue this year could be the most important ever amid geopolitical instability

THE Shangri-La Dialogue, which counts Asean’s Regional Forum and the Munich Security Conference as its predecessors, has been the Asia-Pacific’s premier geopolitical dialogue for around a quarter of a century.

However, in the wake of the Iran crisis and the wider, fast-moving geoeconomic and international relations landscape, this week’s event – which runs from Friday (May 29) to Sunday – is perhaps the most important ever.

Signs are growing that Teheran and Washington may be moving closer to a 60-day extension of the ceasefire in the Middle East, if not a fuller deal. However, the geopolitical order is still in constant flux, as evidenced by meetings across the Asia-Pacific region this week.

Not only is Chinese President Xi Jinping reportedly meeting North Korean Supreme Leader Kim Jong-un in Pyongyang, foreign ministers from the US, India, Australia and Japan convened in New Delhi on Tuesday for the so-called Quadrennial Defence Review (Quad) talks.

Meanwhile, Venezuela’s interim President Delcy Rodriguez is visiting India for oil diplomacy; German Economic Minister Katherina Reiche and pro-China Serbian President Aleksandar Vucic are travelling to Beijing.

These sessions follow the recent summit in Beijing earlier this month between Xi and US President Donald Trump, which was followed by the Chinese president’s meeting with his Russian counterpart Vladimir Putin.

War will shape discussions

The fluidity of this dynamic global landscape will be showcased at this week’s Shangri-La Dialogue in Singapore, a forum in which leading decision-makers from the corporate and government sectors gather to set regional and global agendas.

The 2026 event will be no different, with keynote speakers including Vietnam President To Lam and US Secretary of War Pete Hegseth.

With the conflict in Iran possibly winding down, the key takeaway from the crisis has been the continuing human and economic cost of the war, especially in energy markets. The impact of the three-month closure of the Strait of Hormuz, in particular, has caused energy prices to climb significantly, hitting the global economy and potentially requiring central banks to raise interest rates to combat inflation.

Even if energy prices fall, many bond investors increasingly perceive that long-term borrowing costs will remain higher than previously expected.

The argument is that recent rises in Treasury yields are as much driven by deeper structural concerns, such as growing government debt plus persistent fiscal deficits, as by short-term concerns about inflation and cost-of-living packages prompted by the Iran war.

While a global recession may be averted, the economic cost has been eye-wateringly high.

Furthermore, more severe ramifications could still be felt in some nations, including in Asia, as the International Monetary Fund and World Bank flagged at their Spring Meetings in mid-April.

Wider geopolitical fissures

Alongside the Middle East crisis, much international attention has also been directed at other geopolitical fissures that could likewise have profound implications for the global economy.

A key goal of this week’s meeting of Quad foreign ministers is to advance what the US, India, Australia and Japan see as a shared vision for a free and open Asia-Pacific.

One item on the agenda is continuing tensions in the South China Sea, where about US$4 trillion of goods are transported a year, representing about 30 per cent of global maritime trade.

Concerningly, the US, the Philippines, Malaysia, Vietnam and Brunei are frequently in dispute with China over these waters.

More worrying is any significant conflict regarding Taiwan. Bloomberg Economics has forecast that, in the first year alone, such an event could cost the global economy up to US$10.7 trillion, or around 9.6 per cent of global gross domestic product, because of Taiwan’s importance in the global semiconductor supply chain.

To put this into perspective, that amount would be greater than the economic impact of the Covid-19 pandemic, and the global financial crisis which saw the collapse of Lehman Brothers and other major institutions.

In the event of a conflict over Taiwan, Bloomberg Economics estimates that trade between China and the US, as well as with their closest partners, would probably nosedive. Shipping in the South China Sea could also drop to a trickle, as has been seen in Hormuz since late February.

That would deal a huge blow to global economies. For instance, China’s GDP could experience an 11 per cent hit, while the figure comes in at 23 per cent for South Korea and 14.7 per cent in Japan, according to Bloomberg Economics.

Diminished investor confidence could be another effect of a conflict over Taiwan. That might lead to corrections in many stock markets, which are currently at, or near, all-time highs, driven by the potential of artificial intelligence – which is largely dependent on chips manufactured in Taiwan.

The South China Sea is one of the issues that will be discussed formally and on the margins of the Shangri-La event. Sessions scheduled include those titled “Asia’s Maritime Security Disorder”, the “United States’ Strategy for Peace in the Indo-Pacific” and “China’s Cooperative Partnerships in the Asia-Pacific”.

Apart from these topics, one other issue likely to be discussed, especially in the light of Xi’s talks with Kim, is the Korean peninsula.

In Trump’s first term from 2017 to 2021, the US president met with his North Korea counterpart several times, including at the Singapore summit in 2018. But no major peace breakthrough was delivered.

North Korea is now a nuclear power; Kim in 2024 formally declared that South Korea is the North’s “principal enemy”.

While any hot conflict remains a worst-case scenario, it would also wipe trillions from global GDP, although probably less than the cost of a major conflagration in the South China Sea involving Taiwan.

While Shangri-La is primarily a forum for Asia-Pacific issues, wider global developments will be discussed too. One example is Ukraine, where there are recent signs that Russia is increasingly unlikely to fulfil its initial war aims of full subordination of Ukraine and ultimately restoring Moscow as a dominant Eurasian power.

Taken together, this week’s event promises to be perhaps the most important Shangri-La forum so far.

Framed by the Iran crisis, a fresh look will be taken at a wider range of challenges in the Asia-Pacific and beyond, of which escalation could hit the global economy hard.

The writer is an associate at LSE IDEAS at the London School of Economics