The post-Cold War peace dividend has been cashed in, leaving governments to face new strategic and investment choices. As the pandemic showed, anything that threatens economic activity or public health can become a strategic necessity demanding investment.
Today’s challenges are rooted in recent geopolitical disruptions. A fracturing world has reshaped supply chains since 2016, with the first Trump administration policies and Brexit, then accelerated by the Covid pandemic and the war in Ukraine. Covid exposed the vulnerabilities of interconnected global logistics, and underscored the needs of strategic independence. Decades of globalised dependence on offshoring production in cost-efficient jurisdictions appear to have ended.
Change is unfolding at a fast pace. If any illustration were needed, on 5 September 2025, the US government renamed the ‘Department of Defense’ the ‘Department of War’ for the first time since 1947. Yet as US General Omar Bradley is reported to have said after World War Two, “amateurs study strategy, professionals study logistics.” Defence therefore starts far from any battlefield, with a dynamic industrial base powering energy, transport, supply-chain procurement, innovation and digital communications.
Governments and businesses are now focused on building domestic resilience and reducing reliance on foreign suppliers in everything from semiconductors to pharmaceuticals. Through subsidies and incentives, reshoring and nearshoring critical industries are gaining traction, building redundancy and responsiveness to logistical shocks, supported by stockpiling and diversified sourcing. Europe’s challenges stand out. The European Union and its allies are grappling with imported energy dependence, and volatile global prices. The geopolitical urgency for European governments to find alternatives is accelerating the region’s transition to sustainable sources of energy.
The multipolar world, the fruit of decades of multi-lateral commitments and interdependent institutions, has been dissolving as the Trump administration retreats into isolationism. That has had a direct impact on US allies’ priorities. NATO’s expanded membership agreed in June to raise defence spending to 5% of their annual GDP by 2035, a significant increase, once unthinkable. It suggests that the current pace of defence and aerospace spending will continue or intensify over the long term.
Today’s challenges demand long-term investment in long-term solutions
Europe is also conscious of its military vulnerabilities. European security, said former European Central Bank President Mario Draghi in a 2024 report, is a precondition for sustainable growth. His report estimated that the European Union needs additional defence investments of around EUR 500 billion over the next decade. The bloc responded with a strategic defence programme to deploy EUR 800 billion called ‘Readiness 2030’. It also called for a reduction in the EU’s dependence on global markets, especially in critical minerals and domestic semiconductor capacity, which it is attempting through the EUR 100 billion European Chips Act of 2023.
Within the European Union, Germany has lifted its ‘debt brake’ and is working with a 2026 budget that would release a further EUR 500 billion in debt-funded purchases to largely finance military spending before 2029.
At the same time, the European Investment Bank has increased its financing ceiling to EUR 100 billion to promote investments to upgrade energy, technological innovation, and security. Another programme provides EUR 70 billion through 2027 in an effort to increase private capital and investments in technology and yet another EUR 200 billion targets AI investments. In 2025, EU governments made record commitments to investing in their infrastructure to support economic resilience. The European Commission has announced grants for transport projects including rail and ports across the region worth almost EUR 2.8 billion and the bloc has also agreed to a 6% increase in its budget to cover investments in climate, digital and research infrastructure.
Governments and corporations worldwide are pouring resources into security, sovereignty and resilience across infrastructure in areas from communications, to data centres, energy, water and transportation. This encompasses security infrastructure and infrastructure security, from monitoring, sensor and alarm systems to cybersecurity and cyberinsurance.
Today’s challenges demand long-term investment in long-term solutions. The Ukraine war is in its fourth year, and US-China rivalry will persist, along with multiple strategic geopolitical sensitivities from the Arctic to South China Sea, or access to natural resources.
Strategic threats and rising protectionism mean that countries and corporations have built overlapping redundancy in supplies, prioritising resilience over cost-efficiency. That is accompanied by increased spending. Capital expenditure on artificial intelligence and its underlying data demands keep rising, while China develops alternative capabilities, and independence from US solutions, in areas as diverse as healthcare, tech and clean energy. Meanwhile the US is trying to retain its position as the world’s largest producer of fossil fuels, and its lead in AI and communication technologies.
The investment universe behind this wave of spending is unprecedented in both scale and ambition, and extends far beyond frontlines.
This is a marketing communication issued by Bank Lombard Odier & Co Ltd (hereinafter “Lombard Odier”).
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