In an environment like this, the key is not reacting to every headline but staying disciplined and focused on the forces that ultimately drive long-term returns.
Just one month into 2026, it already feels like this year will be anything but quiet on the geopolitical front. Tariffs and trade wars dominated headlines throughout 2025, but for now they appear to be on the back burner.
Instead, investors are digesting U.S. strikes in Venezuela, a growing dispute over Greenland, and a massive one day move in the world’s second largest bond market, Japan.
Markets have lived through wars, elections, trade disputes, and pandemics over the past decade. For investors, the challenge is not avoiding the news, but understanding which events actually matter for capital markets and which are largely headline driven. What follows is an overview of key geopolitical developments and our perspective on their implications for financial markets.
The most dramatic geopolitical news to start the year came from Venezuela, where longtime leader Nicolás Maduro was captured and brought to the United States to face federal charges. From a market perspective, Venezuela matters for one primary reason. It holds the world’s largest oil reserves. On the surface, that made this look like the kind of event that should have rattled energy markets.
Instead, oil prices barely moved (see Chart 1).
The reason is simple. Despite holding roughly 300 billion barrels of reserves, Venezuela’s oil industry has been crippled by decades of underinvestment and deteriorating infrastructure. Today, the country produces only about 800,000 barrels of oil per day, most of which is exported to China. In a global market consuming close to 100 million barrels per day, that amount is too small to meaningfully affect prices.
The broader supply picture also matters. The United States is now the world’s largest oil producer, pumping roughly 13.9 million barrels per day. At the same time, OPEC+ has shown little willingness to aggressively cut output, even after oil prices fell about 20% in 2025. The oil market remains well supplied.
Even under a more market-friendly government, increasing Venezuelan production would take years and tens of billions of dollars in investment. As Exxon’s chief executive Darren Woods said: “We have had our assets seized there twice and so you can imagine re-entering a third time would require some pretty significant changes from what we’ve historically seen, today it’s uninvestable.”
Taken together, this looks like mostly noise for global markets. While there may be some small shifts within the energy sector, disciplined capital spending by U.S. producers and ample global supply make it unlikely this situation materially impacts oil markets or prices. By contrast, developments involving Iran, which sits near the Strait of Hormuz through which roughly 20 million barrels of oil flow each day, remain far more likely to move oil prices meaningfully if tensions were to escalate.
Greenland may seem like an unlikely source of market risk given its small economy of just $3.3 billion, but its importance has little to do with size and much more to do with location. Its position along Arctic shipping routes and near critical defense infrastructure has brought it back into focus, prompting renewed pressure from the United States on Denmark and the EU over security and strategic control.
The situation continues to evolve, but some of the initial escalation has already cooled. Talk of military action and sweeping tariffs has faded, at least for now, suggesting negotiations remain the most likely path forward.
For markets, the concern has been whether financial leverage could be used by either side if negotiations were to sour. This may sound familiar. A similar fear emerged last April after Liberation Day, when the “Sell America” trade briefly took hold, with U.S. stocks, bonds, and the dollar all selling off at the same time.
That trade began with new tariffs on physical goods entering the United States from Europe, but ultimately eased when tariff rates settled at 15% a few months later. With the Greenland situation, investors are now concerned the dispute could expand beyond goods and into services through what has been referred to as a trade bazooka. This refers to the European Union’s Anti-Coercion Instrument, which includes measures that could restrict trade, investment, and services from countries deemed to be applying undue pressure on EU member states or companies.
In theory, its use could put at risk roughly €483 billion of EU services imports from the United States, including financial services and technology sold to Europe’s roughly 450 million consumers. Unlike physical goods, United States runs a services surplus with Europe, so the idea is that this would hurt the U.S. more. In practice, however, Europe’s heavy reliance on U.S. technology and services means deploying this tool would likely cause significant economic damage at home, making full-scale use unlikely.
Another concern is whether Europe could sell U.S. financial assets as leverage. While Europe is a major holder of U.S. Treasuries (see Chart 2), these assets are largely owned by pension funds, insurers, and long-term investment vehicles rather than governments. Coordinating large-scale selling would be extremely difficult and would almost certainly push borrowing costs higher globally, further straining already elevated debt burdens across Europe.
For now, these risks appear more consistent with negotiation tactics than realistic endgames. While we remain optimistic negotiations evolve along lines similar to the post Liberation Day period, this remains a situation worth monitoring.
Japan’s situation is very different from Venezuela or Greenland and is currently far more consequential for global capital markets.
What triggered concern was the $7.3 trillion Japanese Government Bond (JBG) market. Following the announcement of a snap election by new prime minister Sanae Takaichi and her plans for tax cuts and higher government spending, the 30-year JGB yield jumped 0.27% in one day to over 3.8% (see Charts 3 and 4). Moves of that size are exceptionally rare in Japan and reflected a sudden shift in investor confidence.
The currency reaction reinforced these concerns. Normally, rising yields would support a stronger yen. Instead, the yen weakened even as bond yields jumped, echoing the UK’s experience in 2022 when bond yields spiked and the British pound fell under Liz Truss, whose tenure became the shortest of any prime minister in modern UK history. In both cases, markets were signaling concern about debt sustainability and policy credibility.
For decades, Japan lived with ultra-low interest rates and unusually stable bond markets. That stability was largely the result of heavy bond purchases by the Bank of Japan. That era is now ending. Inflation is now above the 2% target, and the Bank of Japan is no longer willing to absorb unlimited amounts of new debt without risking its credibility or putting further pressure on the yen. At the same time, Japan’s government debt stands near 230% of GDP, the highest among major developed economies.
This matters well beyond Japan. Japan has one of the largest bond markets in the world, and rising Japanese yields tend to push interest rates higher in the United States and Europe. Japanese investors also own trillions of dollars in foreign assets, meaning higher domestic yields could encourage capital to flow back home, tightening global financial conditions.
Unlike many geopolitical headlines, this is not noise. Regardless of the election outcome, Japan’s bond market appears to be entering a period of price discovery after decades of heavy central bank support. While this process is ultimately healthy for Japan and global markets, given its size and role in global interest rates, shifts like we saw in January can ripple quickly through markets worldwide.
Beyond the events outlined above, investors continue to face broader tensions involving China, ongoing risks around Taiwan, and instability in places such as Iran. Yet markets themselves remain relatively calm. The U.S. 10-year Treasury, the most important interest rate in the world, remains range-bound around 4.25%, and major global equity markets are mostly positive to start the year. In an environment like this, the key is not reacting to every headline but staying disciplined and focused on the forces that ultimately drive long-term returns. At GHPIA, our approach remains unchanged. We emphasize diversification, high-quality businesses, and long-term discipline. Geopolitical risks will come and go, but strong fundamentals remain the most reliable guide through uncertain times.
Estimated reading time: 8 minutes
Top Row L to R: Brad Engle, Mike Sullivan, Sebrina Ivey, Christian Lewton, Jason Kitner
Bottom Row L to R: Carin Wagner, Angela Kennedy Lee, Jenny Merges, Brian Friedman, Deirdre Mcguire, Barbara Terrazas, Reed McCoy
