The Biggest Geopolitical Themes Driving Markets Into 2026

If traders were hoping that 2026 would be more data-driven and predictable, they have been disappointed so far. Geopolitics has emerged as the major headline driver of the new year, with several themes that could shape the market outlook.

Oil Takes Centre Stage

Markets had barely opened for the new year when the US made a surprise move to seize the de facto president of Venezuela, the nation with the largest oil reserves in the world. US President Donald Trump said he would "run" the country for the time being and take control of the massive oil reserves, inviting oil majors to invest in increasing production. But it would take months, if not years, to bring production back up to the former 3 million barrels per day that Venezuela contributed to the market a decade ago. Before crude prices could dip, however, and less than a week later, Trump was threatening intervention in Iran. The oil-rich nation has been hit by massive, days-long anti-government protests after enduring months of economic stagnation. The US President said he was considering military strikes to protect protestors, with reports on Monday suggesting over 2,000 Iranians had been killed in the chaos. It's the worst political crisis the nation has faced in decades and has shifted market attention away from the stalled peace process over the war in Ukraine. Trump also announced secondary tariffs of 25% on countries doing business with Iran, with the leading buyer of Iranian oil, China, protesting the measure and heightening trade tensions between the countries.

Gold prices have risen along with crude due in large part to the geopolitical tensions of the last week. On Wednesday, both gold and silver extended to new record highs following the December CPI report and political uncertainty in support of Fed Chair Powell following Trump’s threat to investigate him. Trump-driven geopolitical tensions aren't just limited to oil-rich countries, as the US President renewed his ambitions to "buy" Greenland, which was forcefully rejected by Denmark and backed by other European leaders. The tensions across the Atlantic have increased, as many worry that Trump's refusal to rule out military action to seize Greenland could break apart NATO. US Secretary of State Marco Rubio and Vice President JD Vance are set to meet with Danish and Greenlandic leaders on Wednesday to discuss options. According to polls, 85% of Greenlanders, who number just over 56,000, oppose becoming part of the US. 

China and Japan Tensions Linger

While headlines have focused on events in the Middle East and the Americas, tensions in Asia continue to simmer between China and Japan. In the latest sign that neither side is willing to de-escalate the situation, China applied new export controls, while Japan reportedly delayed certain shipments. The spat started last November over Taiwan. On Monday, South Korean President Lee Jae-myung visited Japanese Prime Minister Sanae Takaichi, as both nations agreed to step up cooperation as they face increased uncertainty and diplomatic pressure from China. In the markets, the Nikkei stock index shot to a new high while the yen fell to multi-month lows as investors bet the Japanese government will keep spending to boost the economy. There was also rampant press speculation that Takaichi could call snap elections for February to shore up support for her fiscal easing programme.

Nikkei at Record Highs, But Risks Linger

Following the bump to 54,500, which coincides with the upper VWAP, Japan’s 225 index extended deeper into overbought territory while continuing to show bearish divergence on RSI. Notably, the extension to new record highs lies at the measured-move projection target of the 42,500 - 30,400 leg when calculated from the breakout point (42,500). This adds another technical risk factor to the Nikkei’s overextension, making the prior peak of 52,650 all the more important for the sustainability of the uptrend. A break below that level would eye the 50k handle next, with lower support as the middle VWAP of $48,500. Meanwhile, a continuation of the trend will bring into focus the short-term measured-move target of the 52,650 - 48k pullback, seen at around 57,500.

Source: SpreadEx | Japan 225