Geopolitics as an Investment Factor: Wars, Supply Chains, Reshoring, and the Rise of the Defense Economy

How the collapse of the post-Cold War order is creating structural investment themes — and why Central & Eastern Europe sits at the epicenter of the opportunity.

By the Neo Ventures Investment Team  

For three decades after 1991, geopolitics was a background variable in investment analysis — a risk to be hedged, not a theme to be tracked. That era is over. The war in Ukraine, accelerating US-China decoupling, resurgent protectionism, and a historic reshuffling of global supply chains have made geopolitical positioning one of the most consequential determinants of investment returns over the coming decade.

At Neo Ventures, operating at the intersection of deep technology and real assets across Central and Eastern Europe, this shift is not merely an observation — it is the operating environment. This article examines the core geopolitical investment themes reshaping global capital flows, and makes the case for why our region is uniquely positioned to benefit.

1. The End of the Peace Dividend

The post-Cold War consensus rested on a set of assumptions that investors treated as structural: that great-power war was essentially impossible, that global supply chains could be optimized purely for cost, that liberal institutions would gradually bring adversarial powers into an integrated economic order, and that defense spending would continue to decline as a share of GDP. Each of these assumptions has now been tested to destruction.

Russia’s full-scale invasion of Ukraine in February 2022 was the most visible break with the old order, but it was not the first. The US-China trade war beginning in 2018, China’s accelerating military buildup in the Indo-Pacific, the weaponization of rare-earth minerals and semiconductor supply chains, and the fracturing of WTO-based trade norms had already signaled that the rules of the game had changed. The war in Ukraine made the new reality unavoidable for European policymakers and, crucially, for European capital allocators.

“Geopolitical risk has returned to the center of global economic policymaking — reshaping trade, investment, and supply chain design along political alignments rather than pure economic fundamentals.”

The consequences for investment are profound and structural, not cyclical. This is not a temporary spike in a risk premium that will revert to mean. It is a fundamental repricing of global production location, security infrastructure, and industrial capacity — and it is being reinforced by trillions of dollars in government policy across Europe and the United States.

2. The Defense Economy: From Afterthought to Structural Megatrend

Defense spending is undergoing its largest structural expansion in Europe since the Cold War. The numbers are striking in their scale and pace. EU member states collectively spent €343 billion on defense in 2024, a 19% rise from the year prior, and are projected to have reached €381 billion in 2025. Under the NATO Hague Summit agreement in 2025, member states committed to raising defense expenditure to 5% of GDP by 2035 — nearly triple the previous 2% benchmark that only a handful of countries actually met.

€800B

EU ReArm Europe / Readiness 2030 mobilization target

€150B

EU SAFE instrument for joint defense procurement

6.8%

Projected annual growth of European defense budgets 2024–2035

$55.6B

Global PE defense deal value in 2025 — a record

At the EU level, the “ReArm Europe / Readiness 2030” initiative aims to mobilize up to €800 billion for defense investment, deploying fiscal flexibility measures, EU-level borrowing instruments, and mechanisms specifically designed to attract private capital. The Security Action for Europe (SAFE) instrument — the €150 billion financing facility at the heart of ReArm — is already distributing approved national defense investment plans, with Bulgaria, Romania, Croatia, and six other member states among the first cohort to receive approval for combined plans worth €38 billion.

For private investors, the structural signal is clear: defense is no longer a niche sector prone to procurement volatility. It is entering a multi-decade spending supercycle with demand visibility that most growth sectors can only envy. The question for venture capital and growth equity is not whether to engage with the defense economy — it is how to do so intelligently through dual-use technologies, autonomous systems, cybersecurity, and resilient communications.

The dual-use opportunity

The most interesting investment territory is not traditional defense primes, but the emerging ecosystem of dual-use technology companies whose products have simultaneous commercial and defense applications. Autonomous systems, satellite communications, drone logistics, secure networks, AI-driven surveillance and logistics, and advanced robotics all fit this profile. These companies benefit from the defense demand surge while retaining commercial market optionality — reducing the political and procurement risk inherent in pure-play defense contracting.

Neo Ventures context

Neo Autonomy, Neo’s 2025 fund focused on autonomous systems, robotics, and transportation, is directly positioned to capture the dual-use opportunity.

What is more, portfolio companies like EnduroSat (part of Neo Ventures’ portfolio) — a leading small satellite manufacturer that attracted Peter Thiel’s backing — represent the intersection of commercial deep tech and sovereign capability that defines the highest-value segment of the defense economy.

3. Supply Chain Fragmentation: The Great Restructuring

The era of frictionless global supply chains optimized for a single variable — cost — is finished. The compounding effect of the COVID-19 pandemic, the US-China trade war, Russia’s war in Ukraine, and an escalating pattern of weaponized trade restrictions has forced corporations, governments, and investors to fundamentally rethink where production, sourcing, and inventory should be located.

The vocabulary has evolved rapidly: reshoring, nearshoring, friend-shoring, and strategic redundancy are now standard terms in corporate strategy presentations. But beneath the buzzwords lies a complex empirical reality with important investment implications.

Diversification, not wholesale reshoring

Research on firm-level supply chain behavior shows that companies are not simply bringing everything home. Firms exposed to rising geopolitical risk — particularly China exposure — are diversifying production toward trusted regional partners rather than engaging in full decoupling. They strengthen domestic capabilities in high-value, strategically sensitive segments while preserving cost advantages through regional diversification. Resilience, the evidence suggests, does not equal reshoring. It equals intelligent diversification.

This has critical implications for capital allocation. The investment opportunity is not in domestic manufacturing incumbents protected by tariff walls — those tend to be uncompetitive absent subsidy. The opportunity is in the infrastructure, technology, and industrial capacity that makes diversified “trusted partner” supply chains viable: logistics automation, secure communications, advanced manufacturing, energy independence, and the digital infrastructure that coordinates complex multi-site operations.

Critical materials: the new battleground

Few supply chain vulnerabilities have attracted more attention than critical materials. China produces over 60% of global rare-earth minerals and controls over 85% of refining capacity for heavy rare-earth elements. The country has repeatedly demonstrated its willingness to deploy these materials as geopolitical leverage, tightening export controls on gallium, germanium, and antimony in successive rounds since 2023. For semiconductor manufacturers, battery producers, and defense contractors alike, this concentration represents a single-point failure in supply chains for the technologies that will define the next decade.

The investment implication is a structural bid for companies that reduce this exposure: alternative materials suppliers, refining capacity outside China, recycling technologies, and the engineering firms that can redesign products around alternative material profiles.

4. The Reshoring Economy: What Actually Gets Built Where

Policymakers in both the United States and Europe have committed enormous capital to reshoring strategic industrial capacity. The US CHIPS and Science Act ($280 billion), the Inflation Reduction Act’s manufacturing provisions, and Europe’s various industrial sovereignty programs collectively represent the largest peacetime government intervention in industrial location decisions since World War II.

The investment thesis for reshoring-adjacent plays is not that governments will successfully rebuild the full supply chains of the 1970s — they will not, and trying to do so carries prohibitive costs. The opportunity lies in the enabling technologies that make modern reshored manufacturing economically viable: robotics and automation (which replace the labor cost advantage of offshore production), AI-driven quality control, advanced logistics, and the digital systems that make smaller-batch, higher-mix manufacturing efficient.

“As automation advances, the incentive for manufacturers to move operations closer to home intensifies — undermining the historical advantage held by emerging markets in labor-intensive production.”

For investors, this means that the reshoring trend is fundamentally a technology investment story as much as a manufacturing one. Every factory that relocates to Europe or North America will be a highly automated factory. The companies that build that automation capability — in robotics, sensing, AI-driven process control, and flexible manufacturing systems — are among the primary beneficiaries of the geopolitical realignment.

5. Central & Eastern Europe: From Periphery to Strategic Center

The CEE investment thesis

Central and Eastern Europe — Poland, Romania, the Czech Republic, Slovakia, Hungary, Bulgaria, and the broader Balkans — is not merely an observer of the geopolitical transformation described in this article. The region is at its epicenter. Proximity to the Ukraine conflict, NATO membership, EU integration, a cost-competitive talent base, and accelerating defense and nearshoring investment flows make CEE one of the most structurally compelling investment regions of the 2020s.

Defense: from consumer to manufacturer

A landmark KPMG analysis published in April 2026 declared that Central and Eastern Europe is “no longer the periphery of European defence, but the space where security, industry, and competitiveness converge.” This shift is already measurable in capital flows. Cumulative CEE defense spending is projected at nearly $200 billion over the next five years, growing at approximately 5% per year, with over $53 billion earmarked for hardware procurement alone.

Poland leads the way — in 2025 it devoted 4.7% of GDP to defense, the highest share in NATO, and is set to be the largest beneficiary of EU SAFE funding at €43.7 billion. Romania, another CEE neighbor, has had its national defense investment plan approved as part of the first cohort of SAFE recipients. Even smaller markets like Bulgaria are receiving EU defense financing as part of the bloc’s broad commitment to building sovereign industrial capability.

The structural shift is from consumer of defense hardware to producer and developer. Countries across CEE are demanding local industrial participation and technology transfer as conditions of major procurement decisions. This creates a self-reinforcing loop: foreign defense primes establish local manufacturing presence, building indigenous industrial capability, growing the local talent base, and creating the commercial ecosystem that enables startups and scaleups to emerge.

Nearshoring: CEE as Europe’s manufacturing backbone

The nearshoring trend — multinationals relocating production from Asia (principally China) to European-proximate locations — has been the defining FDI story in CEE over the past three years. The region’s combination of EU membership (with its regulatory harmonization, legal certainty, and single market access), lower labor costs than Western Europe, strong engineering talent, and improving infrastructure has made it the default destination for European manufacturers seeking supply chain resilience.

EY’s analysis of CEE mergers and acquisitions through 2025 identifies nearshoring and supply chain diversification as key structural drivers of the regional investment case, noting that “structural shifts such as nearshoring and supply chain diversification are set to benefit the Region over the medium term.” Investment volumes in CEE commercial real estate — often a leading indicator of industrial investment decisions — rebounded strongly in 2025, with a 34% year-on-year increase to €11.3 billion across major markets.

The startup ecosystem: deep tech and defense tech

The geopolitical environment has catalyzed a surge of venture-backed innovation across CEE. Over 170 defense tech startups and 270 cybersecurity firms now operate in the region, capitalizing on EU funding and urgent demand created by the war in Ukraine. Poland and Romania have captured major funding rounds and attracted top-tier global investors including a16z and Khosla Ventures. Deep tech, robotics, and defense have emerged as dominant sectors in Poland, reflecting a strategic shift toward globally scalable, dual-use technology companies.

The European Defense Fund and the European Peace Facility have injected €24.3 billion into R&D for AI, quantum computing, and autonomous systems, creating a fertile ground for dual-use technology companies. CEE-based firms — from satellite manufacturers to battlefield robotics developers to secure communications providers — are among the primary beneficiaries of this funding landscape.

Regional insight

Bulgaria’s EnduroSat — a Neo Ventures portfolio company — is a concrete embodiment of the CEE deep tech thesis. A small satellite manufacturer competing globally, attracting Peter Thiel’s backing and delivering Neo’s highest fund return (7x CoC), EnduroSat demonstrates how the region can produce world-class companies at the frontier of space technology. The defense economy and the commercial space economy are converging — and CEE is building the companies that sit at that intersection.

Investment Implications: How to Think About Geopolitical Tailwinds

Translating geopolitical analysis into investment decisions requires discipline. Not every company operating in a geopolitically favored sector will be a good investment. Subsidy-dependent manufacturers lack competitive moat. Defense contractors with concentrated government customer exposure carry significant procurement cycle risk. Pure reshoring plays without automation advantage face structural cost headwinds.

The geopolitical investment themes that translate most cleanly into durable returns share three characteristics. First, they address structural demand that is policy-reinforced but not policy-dependent — the demand will persist even if specific subsidy programs change. Second, they involve genuine technological defensibility, not merely favorable location. Third, they operate in markets that are scaling, not contracting — defense tech, autonomous systems, secure communications, and industrial automation are all in early growth phases of much larger addressable markets.

The highest-conviction themes

Within this framework, several themes stand out as having the strongest combination of structural tailwind, technological substance, and regional relevance for CEE-focused investors.

Autonomous systems and robotics sit at the convergence of defense demand, reshoring-driven manufacturing investment, and commercial logistics modernization. These are markets where European and CEE companies can compete globally on engineering quality, not just cost. Dual-use capabilities — systems that serve both military and commercial customers — provide the business model resilience that single-market defense primes lack.

Space technology, particularly small satellites and their ground infrastructure, has become strategically critical infrastructure in a way that was unimaginable a decade ago. The Ukraine conflict demonstrated the battlefield importance of satellite communications and imagery. European governments are investing heavily in sovereign space capability through programs like IRIS² to reduce dependence on US commercial providers. Companies that have already established themselves in this space with commercial viability have enormous tailwinds.

Cybersecurity and resilient communications are the invisible backbone of both the defense economy and the nearshored supply chain economy. Every factory that moves to CEE, every defense system that is digitized, every supply chain that is reorganized around trusted partners requires security infrastructure. This is a market with structurally growing demand and a favorable competitive dynamic in CEE, where engineering talent is world-class and costs remain competitive.

Industrial automation and advanced manufacturing technology is where the reshoring thesis directly requires capital. The only way European manufacturing can compete with Asian cost structures is through automation. The investment opportunity spans robotic systems, AI-driven quality control, flexible manufacturing cells, and the software that orchestrates them.

The Risk Side: What Can Go Wrong

Intellectual honesty requires acknowledging the risks embedded in geopolitical investment themes. The most significant is policy reversal or fatigue. Defense spending commitments made in the heat of geopolitical crisis have historically proven difficult to sustain as threat perceptions fluctuate and domestic fiscal pressures reassert themselves. The EU’s €800 billion ReArm pledge is unprecedented, but it requires sustained political will across 27 member states with divergent fiscal situations and geopolitical threat perceptions.

A second risk is technological obsolescence. The defense and dual-use technology market is evolving at extraordinary speed, particularly in the domain of autonomous systems and AI. Companies that are well-positioned today can be disrupted by faster-moving competitors or by shifts in the technological approaches favored by military customers. This argues for portfolio diversification within the theme and a bias toward companies with adaptable platforms rather than narrow product bets.

Third, the geopolitical situation itself could evolve in ways that alter the investment landscape. A negotiated settlement in Ukraine, a strategic US-China accommodation, or a shift in European political priorities could reduce the urgency — though not the structural reality — of the defense economy and supply chain resilience themes.

None of these risks are arguments against engaging with geopolitical investment themes. They are arguments for doing so with analytical rigor, portfolio construction discipline, and a multi-year time horizon — precisely the approach that has defined Neo Ventures’ investment philosophy across 17 years and four market cycles.

Conclusion: Positioning for the New Order

Geopolitics is no longer background noise for investors — it is the signal. The structural forces examined in this article — the collapse of the post-Cold War security order, the European defense supercycle, the restructuring of global supply chains, and the reshoring of strategic industrial capability — are not short-term disruptions. They are multi-decade realignments that will define the competitive landscape for technology, industry, and capital well into the 2030s.

For investors with the right positioning, these forces are not threats to manage — they are tailwinds to harness. Central and Eastern Europe, with its combination of NATO membership, EU integration, engineering talent, defense economy emergence, and nearshoring momentum, sits at the center of these structural shifts in a way that is only beginning to be reflected in valuations.

At Neo Ventures, we have spent 17 years building the local expertise, institutional relationships, and portfolio construction discipline to navigate this landscape. The geopolitical moment calls not for caution, but for conviction — backed by analysis, regional knowledge, and the operational depth to support the companies that will define the new order.