Asian geopolitical risks July 2025

Asia’s geopolitical climate in July 2025 is defined by a blend of tension, re-calibration, and quiet confrontation. Nations across the region are adjusting their strategies in real time as great-power dynamics shift, alliances fray, and security threats emerge in unexpected places. What was once a relatively stable regional framework has turned into a complex chessboard where each move, whether diplomatic or military, carries long-term consequences.

One of the clearest signals of change comes from Washington. President Trump’s renewed outreach to Pakistan, marked by a high-profile lunch with General Asim Munir, has caused deep concern in New Delhi. Indian officials have described the move as a setback to Indo-U.S. ties, especially given the context of cross-border militancy that India links to Pakistan’s military establishment. The timing of this outreach, just as India was preparing to finalise new trade terms with the U.S., has disrupted those negotiations. Instead, there are early signs that India may be softening its hardline stance toward China in response, seeking to create a strategic buffer in the region (Reuters).

In Southeast Asia, U.S. tariffs have driven countries like Vietnam, Thailand, the Philippines, and even India to sign long-term liquefied natural gas (LNG) deals with American exporters. These contracts are meant to preempt economic retaliation but have sparked environmental and economic debates. With high upfront infrastructure costs and inflexible delivery clauses, many of these countries risk getting locked into fossil fuel dependence, undermining their clean energy goals (AP).

Security concerns are rising in East Asia as well. Japan’s most recent defence white paper outlines a sharp warning about Chinese naval and aerial activity, particularly near the Senkaku Islands and Taiwan. It also highlights the growing coordination between Russia and China in the region, especially in the form of joint military drills and long-range air patrols. At the same time, North Korea has stepped up its missile testing, adding to the unease. This convergence of threats has led Tokyo to take steps toward bolstering its military capabilities, a significant shift from its traditional pacifist posture (Politico).

Another worrying trend is the targeting of undersea communication cables. A recent report documented a growing number of deliberate cable disruptions near Taiwan, likely carried out by state-sponsored actors. Nine such incidents have been recorded over the past two years, and experts suggest this kind of activity could be a precursor to more aggressive actions during a future crisis. Damaging these cables doesn’t just interrupt internet traffic—it affects financial transactions, defence communication systems, and satellite coordination, making it a strategic vulnerability that most countries have yet to properly address (The Guardian).

In the Middle East, the situation around the Strait of Hormuz is causing particular anxiety in Asian capitals. Following Israeli and American strikes on Iran’s missile and nuclear infrastructure, Iran’s parliament authorised the possible closure of the strait, through which a significant portion of Asia-bound oil flows. China, India, South Korea, and Japan all rely heavily on this corridor for their energy imports. While the strait hasn’t been officially closed, the threat alone has caused oil prices to rise and forced many Asian countries to explore backup routes and strategic petroleum reserves (Geopolitical Monitor).

In the South China Sea, low-intensity tension continues to simmer. China’s expansive territorial claims have drawn sharp responses from the Philippines, which recently expanded unofficial cooperation with Taiwan. Though Manila still recognises the “One China” policy on paper, its actions tell a different story. Coast guard coordination and quiet intelligence sharing are now taking place between Taiwan and the Philippines as both countries face increasing pressure from Chinese maritime patrols. This emerging partnership is an example of how smaller regional actors are adapting to a more coercive security environment (Washington Post).

Border tensions aren’t limited to the sea. South Asia saw a dangerous flash-point earlier this year when a terror attack near Pahalgam reignited hostilities between India and Pakistan. Missile exchanges, airspace shutdowns, and the suspension of the Indus Waters Treaty followed. Although a ceasefire was brokered by early May, the situation remains fragile. The episode reminded the world that this border—where two nuclear-armed countries face off—is still one of the most volatile in the world (Special Eurasia).

Further southeast, an unusual military standoff between Cambodia and Thailand erupted in May, sparked by a border incident that escalated unexpectedly. Within days, both sides mobilised troops, imposed embargoes, and used drones in skirmishes. Though the violence was contained, it demonstrated how unresolved historical grievances can suddenly spiral out of control. It also disrupted several regional infrastructure projects tied to ASEAN’s economic integration push (Wikipedia).

Economically, the region is facing its own share of turbulence. The U.S. has largely abandoned multilateral economic frameworks in favour of one-on-one trade deals, creating a patchwork of conflicting tariffs and supply chain confusion. Southeast Asia, which now sends more exports to the U.S. than China does, has become the next target for tariff hikes. As a result, countries like Vietnam and Malaysia are facing uncertainty over their long-term export models (Geopolitical Futures).

Financial fragmentation is accelerating as countries explore alternatives to the SWIFT system. India, Russia, and Saudi Arabia have begun testing cross-border payment methods that bypass the dollar, while China continues pushing its CIPS system. At the same time, several Asian central banks are exploring blockchain-based digital currencies for international transactions. These experiments reflect a growing interest in carving out space from Western-controlled financial infrastructure, a move that could reshape global capital flows in the long run (arXiv).

Cyber-security has become a parallel battleground. Recent alerts from Singapore and South Korea have pointed to persistent cyber intrusions traced to Chinese-linked groups targeting energy networks and satellite systems. Meanwhile, Russian sources claim that Chinese cyber units have been probing sensitive military technologies across Eurasia. These digital threats are becoming harder to contain and could be used to disable infrastructure in a future crisis, even before conventional military forces are deployed (Wikipedia).

Military spending across the region continues to climb. Japan is expanding its naval fleet and acquiring long-range strike capabilities. India is modernising its surveillance systems and air defence. The Philippines is building stronger defence ties with multiple countries beyond its traditional alliance with the U.S. This trend suggests that many Asian countries are no longer relying solely on outside powers for protection. Instead, they’re preparing for a future where they may need to defend their interests with or without global backing.

Global markets have begun reflecting these risks. Stock indices in Tokyo and Seoul showed sharp fluctuations in response to recent tensions, while currency markets remain sensitive to even small shifts in oil prices and trade policy. Central banks across Asia are walking a tightrope—balancing inflation management, capital flow stability, and geopolitical noise in a way that requires constant re-calibration (Reuters).

Semiconductors are another area of concern. Any disruption in Taiwan, whether through military pressure or economic blockade, could paralyse chip supply worldwide. Analysts at BCA Research have warned that even a limited conflict in the Taiwan Strait could lead to a double-digit drop in share prices of tech firms like Nvidia and ripple across sectors reliant on high-end chips (Business Insider).

Many of these concerns are interconnected. A disruption in the Strait of Hormuz could send oil prices soaring, which would affect shipping and manufacturing across East Asia. A spike in tariffs could lead to retaliatory cyber-attacks or targeted disruptions in trade routes. A cable cut near Taiwan could delay international transactions and push markets into panic. The systems that connect Asia to the world are increasingly vulnerable, and the actors involved are growing more willing to test those weak points.

These risks haven’t gone unnoticed. Reports from EY, BlackRock, and other institutions have highlighted Asia as a region that is both full of opportunity and increasingly difficult to navigate. Their dashboards show a steady uptick in geopolitical volatility, supply chain risk, and exposure to high-stakes policy shifts from Washington, Beijing, and Tehran alike (BlackRock).

From Tokyo to Jakarta, capitals are adjusting strategies for a more unpredictable environment. The usual playbooks—anchoring to superpowers, diversifying trade, investing in deterrence—are being rewritten. Trust, once built through slow diplomacy, is now being reshaped by urgency, signalling, and economic coercion.