Shangri-La Dialogue 2025: AUKUS, US Demands and New Zealand’s Shift

 

 

From May 30 to June 1, 2025, defence ministers, security analysts and regional leaders convened in Singapore for the Shangri-La Dialogue, Asia’s premier strategic forum. This year’s edition was shaped by an evolving security architecture in the Indo-Pacific, as the United States amplified calls for increased defence spending among its allies, Australia defended its budget path, and New Zealand signalled a notable shift in posture, moving from observer to more active contributor. These developments signal a maturing alliance framework facing both opportunity and strain in an increasingly contested region.

KEY POINTS

Increased Assertiveness & Strengthening Alliances

This year’s forum was marked by unusually blunt messaging from Washington. U.S. Secretary of Defense Pete Hegseth openly urged Indo-Pacific allies to increase military spending, singling out Australia to raise its defence budget to 3.5% of GDP, a level not seen since the Cold War. The U.S. framed this not as a request but a strategic necessity to counter growing Chinese assertiveness. In response, Australian Defence Minister Richard Marles reaffirmed Canberra’s long-term plan but rejected externally imposed benchmarks. This marked a more assertive U.S. posture, and a more confident Australian stance. a sign that Indo-Pacific alliances are no longer hierarchical but increasingly negotiated partnerships.

AUKUS Under Pressure, But Holding

Amid growing pressure on budget contributions and capability integration timelines, the AUKUS pact remained a cornerstone of allied cooperation. While no major technical breakthroughs were announced, ministers from Australia, the UK and the U.S. reaffirmed that the AUKUS framework is “on track” for key deliverables by the late 2020s. However, concerns persist around industrial bottlenecks, political continuity, and diverging domestic priorities, especially as Trump’s U.S. administration exerts pressure for quicker returns. The dialogue made clear that AUKUS is no longer just about nuclear submarines: it is evolving into a strategic axis for tech collaboration, defence policy alignment, and containment of Beijing’s influence.

New Zealand’s Strategic Realignment

Perhaps the most surprising intervention came from New Zealand’s Defence Minister Judith Collins, who announced that Wellington will increase its regional presence and intensify cooperation under the Five Eyes and ANZUS umbrellas. This represents a significant shift from the country’s traditionally non-provocative defence posture, reflecting growing domestic consensus on the threat posed by regional instability. New Zealand’s increased participation in joint exercises and strategic planning was received positively, though it also raised concerns about further polarisation of Pacific island states. Still, New Zealand’s pivot underscores a regional convergence of threat perception, even among nations historically inclined to neutrality.

OPPORTUNITIES

Enhanced Diplomatic Engagement

The 2025 Shangri-La Dialogue demonstrated the enduring value of strategic dialogue in mitigating misperceptions and fostering pragmatic cooperation. While tensions dominated headlines, the forum enabled both formal and informal diplomatic engagements between states with opposing interests. For example, side meetings between Chinese and Australian officials provided rare opportunities to reopen communication channels on maritime safety and military transparency. Similarly, trilateral meetings among Australia, the U.S. and New Zealand advanced conversations around humanitarian coordination, cyberdefence, and Pacific resilience. These interactions signal that even in a competitive environment, diplomacy remains a viable pathway to risk reduction and trust-building.

Regional Dialogue Mechanisms

The Shangri-La Dialogue reaffirmed the value of region-led platforms to manage strategic competition. Countries like Indonesia, Vietnam and South Korea used their time on stage to emphasize multilateral approaches over bloc politics. While AUKUS loomed large, the presence and participation of non-aligned and mid-tier powers injected balance and reasserted ASEAN centrality. Importantly, discussions on rules of engagement in disputed maritime zones led to preliminary talks on updating the Code for Unplanned Encounters at Sea (CUES), with the potential for expanded coverage. This reinforces the Indo-Pacific’s ability to generate its own stabilising norms, beyond great-power competition.

Confidence-Building Measures in Military Domains

Beyond speeches, the forum led to the announcement of several new joint training initiatives, including an Australia–New Zealand–Philippines naval patrol coordination programme, and renewed interoperability drills with the U.S. Navy. These practical steps reflect a growing emphasis on confidence-building measures (CBMs), actions that reduce the risk of unintended escalation. Furthermore, Japan and India signalled interest in hosting multilateral tabletop exercises on crisis de-escalation, further broadening the Indo-Pacific security web. These initiatives, though technical, play a crucial role in increasing predictability and operational safety, particularly amid increased Chinese and U.S. activity in disputed waters like the South China Sea.

RISKS

Geopolitical Polarization & Destabilizing Proxy Conflicts

While the forum celebrated allied coordination, it also laid bare the growing polarisation of the regional security environment. As countries take clearer sides, whether through AUKUS, bilateral arrangements, or abstentions, there is a risk of entrenching Cold War-style blocs. This could encourage external powers to exploit regional disputes as proxies, particularly in contested areas like the South China Sea, or among strategically placed Pacific islands. In such a polarised landscape, grey-zone tactics and hybrid threats could escalate into direct confrontations, dragging smaller states into conflicts that undermine the region’s hard-won stability and autonomy.

Erosion of Strategic Ambiguity

The increasingly explicit nature of security commitments, particularly those articulated at Shangri-La, could reduce strategic ambiguity, a tool many Indo-Pacific states use to navigate between the U.S. and China. As New Zealand and others align more openly with Western security frameworks, they risk losing room for manoeuvre, especially in economic relations with Beijing. Similarly, Australia’s push for interoperability and forward presence, while strengthening deterrence, may also invite retaliatory measures from China or third actors. The more binary the region becomes, the harder it will be for middle powers to maintain flexibility without appearing inconsistent or vulnerable.

Strategic Overextension and Political Backlash

A final risk lies in strategic overextension, particularly for U.S. allies under pressure to do more, faster. While greater involvement enhances credibility, it also stretches limited budgets, defence industries and public support. Australia, for instance, is balancing massive AUKUS commitments, Pacific island partnerships, and growing demands in cyber and space domains, all amid domestic debates on fiscal priorities. Meanwhile, New Zealand’s pivot may provoke internal political backlash in a society historically cautious of military entanglements. If public opinion shifts or resources run thin, alliance cohesion could weaken just as external threats intensify.

TAKEAWAYS

• Allied Cohesion Faces Financial Stress. Despite strong rhetorical alignment, Washington’s push for higher defence spending has exposed tensions within AUKUS, testing the sustainability of long-term commitments under fiscal constraints.
• New Zealand’s Strategic Repositioning. Wellington’s shift toward greater security engagement signals a regional realignment, challenging its historical neutrality and redefining its future role in Indo-Pacific defence dialogues.
• Dialogue Remains a Key Stabilizer. Despite growing rivalry, the Shangri-La Dialogue reaffirmed that sustained diplomatic contact and transparency remain essential to de-escalating threats and preventing accidental conflict in contested zones.
• Middle Powers Reclaim Strategic Space. Countries like Indonesia and Vietnam leveraged the forum to reinforce ASEAN centrality, offering alternatives to binary bloc politics and reducing risks of great-power dominance.
• Security Architecture is Evolving Fast. The Indo-Pacific is witnessing rapid institutional transformation, from AUKUS and Five Eyes to ad hoc naval coalitions, reshaping regional deterrence frameworks at an accelerating and unpredictable pace.