In every serious chancellery from New Delhi to Riyadh to Canberra, the same strategy is now being executed. Faced with a Washington that has walked away from the principles it underwrote for eight decades — territorial integrity, open sea lanes, convertible currencies, even the rhetorical fiction of human rights as a condition of membership — middle powers are diversifying. They are signing partnerships with everyone who will sign back. They are buying weapons from rivals and from friends in the same quarter. They are running parallel payment systems, parallel summits, parallel diplomatic vocabularies. The strategy has a name in finance, and the name is hedging. It is the rational response when your principal counterparty has become your principal source of risk.

The trouble is that everyone is hedging, and they are hedging into each other. India holds simultaneous positions in BRICS+ and the Quad. Saudi Arabia hosts Chinese-brokered diplomacy with Iran while signing a $142 billion defence package with Washington and accepting designation as a major non-NATO ally. Vietnam has elevated its relationships with Seoul, Washington, Tokyo and Canberra to comprehensive strategic partnerships within the space of fifteen months. The Gulf states run experiments with Chinese payment rails while keeping their sovereign wealth parked in New York. Europe rehearses a strategic autonomy that would have been unthinkable a decade ago, while still routing its critical defence supply chains through Virginia and Texas. Each of these moves, taken alone, is sensible diversification. Taken together, they form a system in which the hedges are written on each other — and that is the system that will be tested in the next crisis.

A case arrived on 11 April that is almost too neat for an essay. Saudi Arabia announced that roughly 13,000 Pakistani troops and up to eighteen Pakistan Air Force fighter jets had taken up station at King Abdulaziz Air Base in the Eastern Province, under the Strategic Mutual Defence Agreement signed between Islamabad and Riyadh last September — a treaty whose operative clause states that an attack on one is to be treated as an attack on both. They arrived as the latest round of US–Iran ceasefire talks was collapsing in Islamabad. Riyadh is simultaneously operating under a $142 billion American arms package signed in May 2025, has accepted major non-NATO ally designation from Washington, has been approved for F-35 sales, and has maintained diplomatic channels to Tehran even through the recent Iran war. The kingdom has now, in effect, acquired a Muslim nuclear-armed security backer by formal treaty at the same moment it is consolidating its American guarantees and its Chinese channels. This is polyamory in its purest available form, and on the surface it looks like the shrewdest small-state strategy of the decade. But look at what underwrites what. Pakistan is now guaranteeing Saudi territorial defence. Saudi Arabia and Qatar, on the same day as the deployment announcement, confirmed a $5 billion package to cover Pakistan’s external debt obligations through June. Pakistan’s current account is guaranteed in turn by the remittances of roughly two and a half million Pakistani workers in Saudi Arabia alone. If the Strait of Hormuz closes, or Gulf oil rents collapse in a wider Iran conflict, every leg of that triangle fails in the same week: the guarantor cannot pay, the remittances stop, and the guarantee itself becomes worthless at precisely the moment it would need to be called. It is hedges written on hedges written on the same underlying asset — and that underlying asset is the uninterrupted flow of Gulf hydrocarbons through a single waterway.

This pathology is not new. Financial economists have a name for it, and the year of the name is 2008. In the years before the crash, every major bank was hedged. Every counterparty was insured. The risk had, on paper, been distributed so thoroughly across the global system that no single failure should have been capable of bringing it down. When the collapse came, it did not come because anyone was unhedged. It came because the hedges had been written on the same handful of underlying assets and the same handful of guarantors. When those assets repriced, every hedge failed at the same moment. Diversification on the surface had been concentration underneath. The same architecture is now being quietly assembled in international politics, and it is being assembled, ironically, by states that are individually behaving with the utmost rationality.

In normal weather, the assembly looks like progress. Summits proliferate. Dialogues multiply. Sanctions regimes leak through third parties who refuse to pick a side. Trade reroutes rather than collapses. The international system feels busier, chattier, almost convivial, because nobody can afford the luxury of a single enemy when they also cannot afford a single friend. And in most weeks of most years, this is what global politics will look like — a thick, redundant, constantly negotiating web of relationships in which no actor is fully committed to any other and therefore no quarrel is allowed to become final. There is something genuinely cooperative about this picture, and writers who insist that the new world order is straightforwardly more dangerous are missing the half of the story that lives in the calm.

The other half lives in the rare weeks that decide the decade. A Taiwan Strait crisis. A closure of the Strait of Hormuz. A nuclear incident on the Korean peninsula. A run on a major Eurozone sovereign. In each of those scenarios, the very interconnectedness that produced the cooperative surface in peacetime becomes the transmission mechanism for contagion. The partners that India cultivated as insurance against American defection turn out to be exposed to exactly the same Chinese demand shock. The Gulf payment experiments and the New York reserves are vulnerable to the same closure of the same strait. Europe’s strategic autonomy still depends on American semiconductors that are themselves dependent on Taiwanese fabs. Cooperation in the body of the distribution becomes correlation in the tail, and correlation in the tail is another word for systemic failure. Everyone discovers, simultaneously, that their hedges were written on the same things.

Australia is the most acute case in the rich world. Canberra has committed to the most expensive long-dated security arrangement in its history — the first Australian-built SSN-AUKUS submarine will not be delivered until the early 2040s, with only a thin bridge of three used Virginia-class boats from the United States in the interim — while running an export economy acutely exposed to Chinese demand on a timescale measured in months. Pine Gap embeds Australia in any American kinetic decision without giving Canberra a veto over when that decision is made. The Trump administration’s 2025 Pentagon review of AUKUS, which concluded in December with a reaffirmation only after the initial draft was reportedly rewritten to conform to the President’s preferences, has already exposed how politically contingent the underlying commitments now are. The promise of the Indo-Pacific tilt was strategic depth. What has actually been delivered is the worst of both worlds: the obligations of loyalty to a patron whose reliability is no longer guaranteed, and the anxieties of a diversification strategy that has not yet been built. Australia, in other words, is paying premium on a hedge whose counterparty has put itself up for sale.

There is no costless answer to this. The honest course for serious governments is to recognise that hedging works only if the hedges are written on independent things, and to invest accordingly. That means building genuinely sovereign capabilities in the few areas where sovereignty is still possible — energy, food, payment infrastructure, semiconductor packaging, sealift — rather than signing more partnerships with countries that are themselves dependent on the same handful of ultimate guarantors. It means counting the underlying exposures rather than the bilateral memoranda. And it means accepting that a foreign policy whose principal output is photo opportunities at multilateral summits is a foreign policy that has confused activity for resilience.

The next decade will not be decided by the calm weeks, however numerous. It will be decided by the rare ones, when every chancellery discovers at the same moment that the partners it was counting on were counting on the same partners it was counting on. The cooperative surface will hold for as long as the storm stays offshore. When the storm makes landfall, the surface will become the storm. The task for governments that wish to survive the rare weeks intact is to stop admiring the calm and start auditing the underlying exposures, because the underlying exposures are what is actually being insured — and at present, across most of the world, what is being insured is the same thing twice.

© The Times of Israel (Blogs)