The Underlying Conflict in Greenland: How an Arctic Dispute Could Trigger a Global Economic Crisis of 2.6% of GDP

A report released by Oxford Economics in 2025 exposes a disturbing reality: behind the apparent global economic stability, there is an underlying conflict with catastrophic potential. The geopolitical dispute over Greenland, if it escalates into a tariff war between the United States and the European Union, could reduce global economic growth to a mere 2.6% — the lowest since the 2009 crisis, with the exception of the pandemic year 2020.

The Origin: Why Greenland Has Such Deep Strategic Significance

To understand why a small Arctic island can threaten the global economy, it is necessary to grasp its exceptional geopolitical significance. Greenland is not simply a peripheral territory; it is a convergence point of incompatible strategic interests.

Its location in the Arctic offers control over emerging new shipping routes and key military oversight positions in a region where competition among powers is intensifying. Additionally, it hosts vast unexplored reserves of rare minerals — critical elements for modern technologies, semiconductors, and the transition to renewable energy. The renewed interest of the United States in acquiring this territory from Denmark is not historically new but has gained urgency with the acceleration of competition in the Arctic.

The European Union, with Denmark as a member state, perceives any attempt to alter Greenland’s status as a direct challenge to its strategic autonomy. This fundamental clash of ambitions creates the tinder for a large-scale trade conflict.

The Risk Model: How Oxford Economics Quantified the Economic Impact

Oxford Economics built a precise economic scenario based on structured assumptions. The model begins with a tariff escalation: the United States imposes an additional 25% tariff on imports from six key EU nations, in response to diplomatic tensions over Greenland. The European reaction would be immediate — substantial retaliatory tariffs on a wide range of American products.

This “tit-for-tat” trade dynamic risks not only the two largest economic blocs in the world but reverberates throughout the entire global economy. The direct impacts are severe:

• US GDP growth could fall by up to 1.0% relative to baseline forecasts
• Eurozone would experience a reduction of 0.9% to 1.1%, with effects persisting over a longer period
• Global economic growth would slow from ~3.1% to 2.6%

To put this decline into context: the global growth average between 2019 and 2023 was 2.8% to 2.9%. A contraction to 2.6% would not only fall below this historical line but would return to the most problematic levels in recent economic history.

Cascading Reaction: The Underlying Mechanisms of Global Economic Contamination

The reason why a bilateral conflict between the US and the EU affects the entire planet lies in the mechanisms of the modern integrated economy. The United States and the European Union together account for approximately 45% of global GDP. Their supply chains are deeply intertwined — not by choice, but through three decades of economic integration.

This web of trade relations, reciprocal direct investment, and technological interdependence transforms, in a conflict scenario, into channels of mutual contamination. Shockwaves do not remain contained; they spread through global financial markets, affect investor confidence in distant economies, and disrupt supply chains connecting all continents.

Oxford Economics economists highlight an important distinction from previous trade conflicts: a US-EU confrontation is fundamentally more dangerous than the US-China tensions of the 2010s because transatlantic integration is deeper and the damage mechanisms are more numerous and severe. As the report states: “The integration that was a driver of mutual growth becomes, in a conflict scenario, a conduit for mutual contraction.”

Critical Sectors at Risk: Differential Impacts on Major Economies

Economic effects are not evenly distributed. Certain sectors would suffer immediate and severe disruptions:

Automotive manufacturing: Highly integrated production, with components circulating between continents multiple times before reaching the end consumer. Tariffs would double costs in a cascading manner.

Aerospace: Critical dependence on transatlantic supply chains, with extended production timelines making rapid adaptation impossible.

Agricultural products: European export markets would lose access to the American market, while American farmers would face increased competition from other suppliers.

Pharmaceuticals and luxury goods: Sectors with narrow margins would suffer immediate profit compression.

Beyond specific sectors, a tariff war would trigger an accelerated re-fragmentation of global supply chains. Multinational companies would “decentralize” operations, relocating production to neutral countries with higher costs, resulting in persistent inflation.

Financial Contagion and Global Instability

Financial markets would react with extreme volatility. Currency markets would face turbulence as investors reallocate capital seeking safety. Stock markets would experience sustained downward pressure due to prolonged uncertainty about the conflict’s duration and severity.

Developing countries — particularly those dependent on exports in Africa, Asia, and Latin America — would suffer doubly. Reduced global demand would diminish their access to markets, while commodity price instability would exacerbate their vulnerabilities. Global inequality would widen as a consequence.

The World Trade Organization (WTO) would become even more marginalized, eroding the rules-based trading order that has supported global commerce since the post-war era.

The Significance Beyond Numbers: A Crossroads for the Global System

The Oxford Economics report offers more than numerical forecasts; it illustrates a profound meaning about the fragility of the contemporary global economy. A conflict over a sparsely populated Arctic island is not merely a regional problem — it becomes a planetary economic crisis through the invisible threads of modern interdependence.

The analysis emphasizes that the geopolitical ambitions of great powers cannot be isolated from their economic consequences. Policymakers face a clear imperative: weigh the strategic appeal of territorial possessions against deep and predictable economic costs.

The scenario modeled by Oxford Economics does not represent inevitability — it is explicitly presented as a potential risk analysis, not a certain forecast. Its significance lies precisely in this: quantifying geopolitical bets and providing visibility into the costs that an unnecessary escalation could impose on billions of people.

The main lesson is strategic prudence: in the integrated economy of 2025 and beyond, local geopolitical frictions do not remain local. They propagate, amplify, and return to affect the instigators of the conflict with multiplied force. The underlying conflict over Greenland illustrates this reality in a crystal-clear way.