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Geopolitics has dominated the headlines so far this year. 2026 has seen a potential revolution in Iran, a coup in Venezuela, talk of the US invading Greenland and continuing efforts to try and end the Russia-Ukraine war. And I think it is fair to say that – outside of a few jumps in the oil markets – the effect on markets has so far been very limited. One reason for this is that there is plenty of oil around. The IEA estimates a current surplus of around 4 million barrels per day (or 3.8% of global supply). So, we have room to absorb oil supply shocks. That said, what risks remain out there and what are we OK to continue to ignore? Below is my short and sweet take for each region.
Venezuela
In 1998 Venezuela was the fifth-largest oil producer in the world exporting around 4% of global oil consumption. Today, after years of underinvestment, sanctions and skilled workers running for the exit, that number is 0.7%. So, Venezuela is just not a significant player in the oil market anymore. And to rebuild that oil production will take time and money. Most of Venezuela’s oil is extra-heavy crude which is more expensive to extract and more complex to refine. And the last time foreign money was invested to do this it was effectively expropriated by Hugo Chavez. ExxonMobil has called the country uninvestable. You will need some major changes to legal frameworks and long-term US security guarantees to change that.
This will all take time and in the short term it is not at all clear how friendly the new Venezuelan regime will end up being to the US. I would also add there is nothing particularly new about this: the US played kingmaker in its southern back yard for the last 70 years at least (Nicaragua, El Salvador, Chile and even Brazil in 1964 come to mind). It’s possible that the success in Venezuela will encourage operations in other countries (even Cuba?) but for now the impact on broader markets remains effectively zero. Even oil moved very little on the news of the coup.
Greenland
“To invade Greenland and attack its sovereignty—a fellow NATO country—would be weapons-grade stupid … I don’t think President Trump is weapons-grade stupid” Senator John Kennedy (Rep-Louisiana)
This is, I think, the correct take for Greenland. There is no real security issue here: after Hitler invaded in 1941 the US was granted the right to build airfields and naval bases in Greenland, a right that exists to this day. Nor is it about rare earths: rare earths are not in fact rare, they are just very hard to extract and chemically difficult and environmentally hazardous to process. China dominates rare earth extraction in part because they are less concerned about the toxic environmental side effects of doing so, not because they have a monopoly on the earths themselves. And Denmark has been a staunch US ally. You feel like the US and Denmark could work out any deal about what needs to be done in the future.
So what is going on here? There is almost no strategic objective and Denmark and the US are allies (hence the weapons-grade stupid part). But Trump is a negotiator who loves a deal. A maximalist demand ending up with (perhaps?) an independent Greenland with a US security guarantee wouldn’t change today’s reality much if at all but might help Trump with his legacy. And, inevitably, the Greenland talk continues to drive liberals up the wall which is probably an end in itself. Of all the issues on this list, this is the one I worry least about.
Iran
Iran on the other hand is far more strategically important. Its crude exports flow to China and it sits on the Strait of Hormuz through which around 20% of the world’s oil and liquid natural gas exports flow. Disruption there remains a pretty remote risk: Iran needs its oil revenues so putting them at risk by creating more trouble in the area is not a step it has yet been prepared to take (even after it was bombed by Israel and the US for example). That said, the uprising this time looks more real than ones in the past, Iran is developing nuclear weapons and there is no natural leadership plan. Polymarket (a prediction market where you can bet on real-world events) is showing a 26% chance that Khamenei will not be the supreme leader by the end of March. A failed state in such a key part of the world would likely see oil spike in the short term and oil has been reacting the Iran newsflow (see below). This remains one to watch.
Russia/Ukraine
For lots of basic humanitarian reasons, we should all wish for an end to the war in Ukraine. Polymarket is showing a 40% chance that happens this year. But from a market perspective the status quo has some advantages. A natural aggressor is tied up in what increasingly looks like a stalemate (a snail, if it had left Moscow when the war started, would have arrived in Kyiv two years ago). Meanwhile, Russia’s oil revenues are falling and the country looks as weak as it has ever been. Defense spending is now around 40% of the federal budget (up from around 14% prewar).
But this is where the problem lies. If the war ends, huge parts of the economy that are now directed towards military spending will need to be reallocated to the real economy. This includes the extra 500,000 or so soldiers newly employed by the army. How quickly and easily can these soldiers and resources be redeployed back into the non-war economy? A failed state in Russia would be far worse than one in Iran. For now, the status quo looks the most likely bet. For the people of Russia and Ukraine this is only bad news. But, for investors, status quo is no bad thing.
Chris Brown, CIO
cbrown@ipscap.com
The value of investments may fall as well as rise and you may not get back all capital invested. Past Performance is not a guide to future performance and should not be relied upon. Nothing in this market commentary should be read as or constitutes investment advice.
