Since COVID, western societies have grown deeply dependent on government financial support during times of global crisis. The COVID response from 2020 onwards was unprecedented: the US launched the largest infrastructure investment packages in its history, while EU countries agreed for the first time to issue joint debt. The energy support packages that followed the war in Ukraine in 2022 were also significant, reaching up to 5% of GDP in some European countries. In 2026, however, as the economic impact of the war in Iran threatens to become severe, the capacity for a similar response is largely gone.
The main reason is the worsening state of government finances. Since COVID, the yields investors demand on government debt are substantially higher than six years ago. In simple terms, governments can no longer afford large-scale financial support without triggering a further rise in the yields on their debt. And rising yields, for countries already carrying high debt-to-GDP ratios, risk setting off a vicious cycle: higher borrowing costs force spending cuts, which slow growth, which worsens the debt burden, which pushes yields even higher - and so on.
A key implication is that western governments, without the ability to soften the blow of a global crisis, are losing control over the way economic pain will drive change. The early signs are already visible. In the US, the adoption of renewable energy is accelerating despite the Trump administration's efforts to protect fossil fuels, because businesses and households are discovering that renewable technology – including the Chinese-made products the administration has sought to block – offers greater price stability than oil and gas. In Europe, calls for a more stable relationship with China are growing for the same reason.
In the coming years, alternative protein (plant- and cell-based protein as a substitute for animal-based food) is likely to follow the same pattern as renewable energy technology over the past twenty years: driven by Chinese innovation, the cost falls so far that the case for transition shifts from a divisive moral ideal into a shared economic necessity.
Twenty years ago, the Chinese government made renewable energy technology a top priority for the first time in its 11th Five Year Plan (2006–2010). Today, China is the global leader in solar panels, batteries and electric vehicles. Over that period, several global crises that drove up the price of energy (the war in Ukraine, the war in the Middle East) turned renewable energy into a shared economic necessity: a more reliable energy supply at a lower cost. Something similar is now likely to happen in food, whose global prices are high and rising because of the war in the Middle East.
In its 15th Five Year Plan (2026–2030), the Chinese government has made alternative protein a top priority. China is already the world's largest funder of agricultural R&D, spending twice as much as the United States. The city of Shanghai has made the industrial scaling of alternative protein a key strategic objective. In November 2025, one Chinese company opened a factory the size of 75 football fields capable of producing alternative protein at 50% of the cost of animal-based protein - and with 95% lower carbon emissions.
A significant signal of financial stress in the Gulf has emerged: according to the Wall Street Journal, the governor of the UAE's central bank has opened talks with the United States about a currency swap arrangement. The stability of the UAE's currency, the dirham, depends on its peg to the US dollar, which is maintained through large dollar reserves accumulated via the UAE's trade and financial networks. Those reserves are now under pressure from two directions: maritime trade disruption and capital flight – particularly in real estate, where luxury property discounts of over 50% are being reported. Together, these forces threaten a structural decline in dollar income. This is the mechanism that triggered the 1997 Asian financial crisis: when dollar reserves backing a pegged currency erode faster than they can be replenished, a currency crisis becomes self-fulfilling.
The Gulf states are therefore in urgent need of regional stability – but looking at both the US and Iran, that appears unlikely. The US is caught between three bad options: tacitly admitting defeat and watching the Iranian regime it tried to destroy consolidate into a regional power with global influence through its control of the Strait of Hormuz; muddling through while the global economy absorbs severe shocks across multiple supply chains; or risking the consequences of further military escalation. Meanwhile, according to reporting by The New Yorker, those who now govern Iran are considerably more hardline than is widely assumed – and less inclined than their predecessors to accept a diplomatic settlement favorable to the US and Israel.
All of this carries a long-term risk for the US in its rivalry with China. In their talks with Washington, UAE officials explicitly warned that the Chinese renminbi is a serious alternative to the US dollar. This warning is credible because the Gulf states have already been building the infrastructure for such a shift. The mBridge project – a digital currency platform backed by the central banks of China, Saudi Arabia and the UAE – processed $56 billion in transactions in 2025, a 2,500-fold increase from 2022. Although mBridge operates at the level of financial transactions rather than central bank reserve holdings, this is how the dollar's network effects would weaken first in a long-term shift.
