“Cold War II”, in contrast, would arise from a hardening of alliances and ideological competition combined with nationalist and statist economic policies. The hardening of alliances and ideological competition creates a world order defined by two distinct blocs. But in this scenario, based on current trends, one bloc is likely to be comprised of the US, the EU and their allies, and the other led by China and its allies. There is also a third, volatile bloc of largely non-aligned countries that are under pressure to choose a side.
Policy: Strategic industries expand dramatically, guaranteeing the defense sector access to critical production inputs, but imposing greater cost and scarcity risk on sectors not directly supporting national security programs, including commercial aerospace players, particularly airlines. Military adoption of SAF and energy independence as a national security priority, would be a game-changer and a major driver for SAF adoption in an unfavorable and risk-averse economic environment.
Capacity: Ecosystem formation is dampened, though certain sectors (e.g., defense) may see greater government-backed collaboration. In commercial aviation, diminished capital flows benefit mature firms with greater resiliency and liquidity, hampering startups and commercial innovation, more broadly. In this scenario, capacity growth will be moderate and highly dependent on domestic production and usage.
Price: The increased support for SAF under energy independence initiatives likely leads to price parity within allied blocs. There is less opportunity to reduce production cost by scaling up operations since the demand will be dampened, which will need to be offset by government incentives and tax credits.
