So far, it seems that 2026 is the year when markets are defined by geopolitics rather than economic data. So much is going on in global politics and international relations that it’s hard to keep up. With the markets on tenterhooks and price action hinging on unexpected events, traders are understandably nervous, and safe havens remain in demand.
Gold prices recently hit a new record above $4,600 per ounce, but retreated on Monday amid profit-taking. Meanwhile, there is renewed confidence in tech performance after Micron updated its outlook, stating that supply will not meet demand for memory until 2028. Memory chips are a key element needed for AI development, and the news helped renew confidence that there is still strong growth potential in the space.
What Are the Themes Driving Markets?
While markets resumed some risk appetite at the start of the week, that doesn’t mean that the geopolitical risks aren’t looming large on traders’ radars. And prior uncertainty and volatility could return quite quickly. To better understand the multiple fronts on which geopolitics drives markets, we can consolidate them into themes.
The subject receiving the most attention in headlines is geopolitical actions related to oil. Crude prices have been climbing amid uncertainty about the situation in Venezuela and ongoing protests in Iran. US President Donald Trump continues to threaten military action in Iran to support the largest protests in the oil-rich country in decades. With the internet having been cut off in Iran for days at this point, reports on what’s going on there are at best incomplete. Reportedly, over 2,000 people have died in the protests so far. That’s a particularly alarming statistic considering that Trump threatened military action to protect protestors.
Rising Global Fragmentation
Recent events mean that market attention has shifted back to the Middle East, and away from Russia. Ahead of the holidays, there is increasing hope that a peace deal could be reached to end the war in Ukraine. However, that appears to have stalled in the new year, and the prospect of additional Venezuelan oil returning to the market in the medium term is being weighed against a potential supply disruption from Iran.
Venezuela and Iran are by no means the only sites of geopolitical tensions, indicating a general fragmentation of global concerns. This is notable amid rising tensions among NATO allies as Trump renews his campaign to “buy” Greenland, a notion reportedly rejected by 85% of Greenlanders in recent polling. Nevertheless, US officials are meeting with Danish and Greenlandic leaders this week to discuss proposals.
A Breakup of NATO?
Trump has refused to rule out military action in Greenland following the success of the raid on Venezuela. However, such action against a NATO ally would certainly break up the alliance and is regarded as a very remote possibility. Until the Greenland issue is resolved, heightened tensions across the Atlantic could divert attention from other areas, potentially triggering additional surprises that could drive markets.
Meanwhile, trade wars have not abated, with Trump imposing 25% secondary tariffs on countries buying Iranian oil. The US Supreme Court has yet to rule on whether that kind of tariff application is legal, which could generate a whole new trading paradigm depending on what the ruling says.