The price of optionality: Geoeconomic fragmentation and the repricing of middle-power hedging

Middle powers in Southeast Asia have long been credited with a distinctive competence: the ability to remain economically engaged with rival great powers simultaneously. This commentary argues that the analytical vocabulary used to describe this competence, hedging, multi-alignment, and non-alignment, was developed under conditions that no longer hold and that the strategy is now being systematically repriced. Drawing on the empirical literature on geoeconomic fragmentation and international relations scholarship on small-state alignment, this commentary advances three claims. First, fragmentation research and hedging research have proceeded in parallel without engaging one another, producing a blind spot: the former treats alignment as an exogenous covariate of trade costs, while the latter treats trade costs as the background to alignment choices. Second, hedging is best understood as a portfolio of options whose premium was historically close to zero and is now being converted into contingent obligations, rules-of-origin scrutiny, transhipment penalties, alignment-conditional market access, and reciprocal commitments negotiated bilaterally rather than multilaterally. Third, the binding constraint on the returns to hedging is not diplomatic skill but domestic policy coherence. When the trade regime is internally contradictory, external optionality cannot be converted into industrial upgrading. Indonesia's 2025–2026 sequence of overlapping commitments provides the illustrative case. The commentary closes with three testable propositions and a research agenda.