Fortresses, Fiscal Deficits, and the New Geography of Risk

The United States is running out of ways to pay for itself. Federal debt-to-GDP has crossed 120 per cent. Interest payments on sovereign obligations have surpassed defence spending to become the single largest line item in the federal budget. The domestic political appetite for either meaningful tax increases or entitlement reform is functionally zero. Tariff-based revenue extraction, President Trump’s first-order solution, has been judicially constrained and economically contested. The arithmetic is simple and the conclusion is uncomfortable: the US needs external revenue, and it is increasingly willing to use non-economic tools to get it.

The Pattern in Q1 2026

In the first quarter of 2026 alone, the contours of a neo-mercantilist foreign policy, a strategy in which a state uses military, diplomatic, and regulatory power to extract economic value from other countries, have become unmistakable. On 3 January, US special forces seized Venezuelan President Maduro in a military operation codenamed Operation Absolute Resolve, after which President Trump publicly declared that the United States would take back the oil and personally control Venezuelan oil revenue. An executive order followed on 9 January, placing Venezuelan oil proceeds in US Treasury accounts under a declared national emergency. The US has since received over 80 million barrels of Venezuelan crude.

The Greenland initiative, still live despite Danish and European resistance, targets Arctic mineral deposits and rare earths critical to the AI and defence supply chains. In the Nvidia-China chip deal, the company agreed to remit 10 per cent of its revenue to the US government as a condition of resumed sales. And on 28 February, the US and Israel launched joint strikes against Iran, an operation whose stated justifications have shifted from liberation narrative to pre-emptive defence to the strategic significance of Iranian oil and the Fujairah corridor.

These are data points that illustrate a consistent underlying logic: convert military and diplomatic leverage into resource flows that supplement domestic fiscal capacity. Whether that logic is viable in 2026 is a separate question. That it is being operationalised is no longer debatable.

The Fortress Thesis

Canadian Prime Minister Mark Carney’s address at the World Economic Forum in Davos on 20 January 2026 gave the sharpest articulation yet of what this American posture means for the rest of the world. Carney declared that the rules-based international order was experiencing a rupture, not a transition, and that the multilateral institutions on which middle powers relied were under direct threat.

The consequence, Carney argued, is that countries are being forced to develop strategic autonomy in energy, food, critical minerals, finance, and supply chains when the rules no longer protect them. But this impulse, if pursued individually, leads to a world of fortresses: poorer, more fragile, and less sustainable. The cost of strategic autonomy can be shared through collective investment and common standards, but only if middle powers act together rather than building walls in isolation.

What Carney described is not hypothetical. It is already observable in trade-policy fragmentation, supply-chain re-routing, and the weaponisation of economic interdependence.

Iran and the Proliferation Cascade

The need for middle-power states to adopt this fortress logic has not been more clearly illustrated than by the US attack on Iran that began on 28 February 2026. It demonstrates the most dangerous second-order effect of the current trajectory: the incentive structure for nuclear proliferation has fundamentally shifted.

Iran, a non-nuclear state with no formal alliance with a nuclear power, has been struck twice by the US and Israel within a single year. The strikes killed the supreme leader, targeted nuclear facilities and military infrastructure, and were explicitly aimed at regime change. Whatever the merits of the security arguments, the signal received by every non-nuclear state watching is unambiguous: without nuclear deterrence or binding great-power protection, sovereignty is conditional.

The proliferation risk is not theoretical. Saudi Arabia has repeatedly indicated it would pursue a nuclear weapon if Iran acquires one. Turkey, Egypt, and the UAE are monitoring developments closely. South Korea has intensified domestic debate about nuclear capability. A multilateral arms race would represent a structural transformation in global security with consequences that outlast any administration.

Indonesia’s Position: Between Alignment and Exposure

TNI, the Indonesian military, has historically been structured and resourced around internal security and territorial management, rather than the power-projection posture that the current geopolitical environment increasingly demands. Telegram TR/283/2026 issued on 1 March 2026, declaring Siaga 1 across all defence units, illustrates that bias: most instructions focus on domestic protection of vital assets, while outward-facing readiness receives limited emphasis.

With no nuclear pipeline and no strong outward-looking defence posture, President Prabowo Subianto faces the need to position Indonesia carefully within the US orbit. The accession to Trump’s Board of Peace, reported as a precondition for the US-Indonesia Reciprocal Trade Agreement signed on 20 February, was a transactional exchange of foreign-policy positioning for market access. Indonesia committed troops for a Gaza stabilisation force and agreed to loosen restrictions on critical mineral exports. In return, it secured a trade agreement that eliminates tariffs on 99 per cent of American goods entering Indonesia while the US maintains 19 per cent tariffs on most Indonesian goods.

The strategic opening for Indonesia is geographic. The Malacca Strait carries roughly a quarter of global traded goods and a significant share of Asian energy transit. With the Strait of Hormuz effectively disrupted by the Iran conflict, Malacca’s importance rises. A credible Indonesian commitment to securing this corridor would generate leverage with every major trading nation without requiring ideological alignment with any single power.

That capability requires a naval modernisation programme at a scale Indonesia has not previously attempted. Much of that effort would be priced in foreign currency at a time when the rupiah is already under pressure. Within the defence industrial ecosystem, that tension is already visible: Defend.ID is undertaking debt restructuring across itself and its subsidiaries to create the financial headroom that a credible Malacca security posture would demand.

What This Means for Indonesian Businesses

These geopolitical dynamics translate directly into the operating environment for Indonesian corporates. The immediate transmission channels are identifiable. Hormuz disruption and wider Middle East conflict push oil prices higher. For Indonesian manufacturers, especially in energy-intensive sectors, that means rising input costs. At the same time, the rupiah faces depreciation pressure as the market positions for tighter dollar liquidity and a more hawkish Fed response.

Companies with USD-denominated debt face a compounding problem: revenue in weakening local currency against debt service obligations in strengthening foreign currency. Margins compress from both sides. Capital structures built for predictable trade routes, stable energy pricing, and rules-based commercial frameworks now face a world where those assumptions no longer hold. Leverage ratios calibrated to a benign macro environment become dangerous in a volatile one. Supply-chain concentration becomes a single point of failure when great-power competition disrupts the corridors those chains rely on.

This is where restructuring and special situations advisory shifts from remedial to preventive. Companies that stress-test their capital structures against sustained energy price elevation, rupiah depreciation, and corridor disruption, and act before covenant breaches or liquidity crises force their hand, preserve optionality. They have choices: which creditors to approach, which assets to protect, which terms to negotiate, and on what timeline. Companies that wait will find exit options more constrained, creditor conversations less friendly, and restructuring outcomes more dilutive.

The world has changed. The structures built for the old world need examination. That examination is best conducted before the stress reaches the balance sheet, not after.

Sources

1. Congressional Research Service, “U.S. Capture of Venezuela’s Nicolás Maduro: Considerations for Congress,” January 2026.
2. White House Fact Sheet, “President Donald J. Trump Safeguards Venezuelan Oil Revenue for the Good of the American and Venezuelan People,” 9 January 2026.
3. House Committee on Appropriations, “Building on President Trump’s Vision, FY26 Funding Strengthens America,” March 2026.
4. Emily Meierding, “Explaining Trump’s Oil Grab,” Lawfare, 13 January 2026.
5. Crown Prince Mohammed bin Salman interviews with CBS and Fox News, 2018 and 2023.
6. Arms Control Association, “In 2026, a Growing Risk of Nuclear Proliferation,” Just Security, 5 February 2026.
7. The Diplomat, “Board of Peace Talks ‘On Hold’ Due to Iran Conflict, Indonesia Says,” 5 March 2026.
8. Supreme Court of the United States, Learning Resources, Inc. v. Trump, 607 U.S. ___ (2026), decided 20 February 2026.