US’s Venezuelan intervention returns spheres of influence to geopolitics

Barely three days into 2026, geopolitical events are already back at centre stage. In this note we share our first take on market implications of the US’s strike on Venezuela, as we set our tactical views for the start of the year.

The United States on 3 January captured Venezuela’s President, Nicolas Maduro, and his wife to face drug trafficking and other charges in US courts. US President Donald Trump said that the US plans to “run” Venezuela until the country can transition to a new government. The move mirrors the US’s intervention in Panama in 1989 and arrest of Manuel Noriega. The lack of resistance suggests cooperation by the Venezuelan officials with US forces. This means a pro-US transition government will be put in place, with American forces providing security around critical infrastructure including energy and maritime facilities, while a long legal battle ensues around Maduro’s indictment. It remains to be seen whether Maduro’s supporters will resist the intervention.

From Venezuela to global geopolitics: Wild-West Realpolitik

These events will reverberate in global geopolitics and also within the US. Domestic political support for Republicans may see some erosion, raising the probability of the Democrats gaining in November’s mid-term elections. The Venezuela intervention was not pre-authorised by the US Congress. If the Democrats gain control of the House of Representatives, and possibly even the Senate, in November, the second half of President Trump’s term in office will be marked by a more difficult governing climate. We would expect President Trump to keep issuing executive orders, but operations requiring Congressional approval – such as budgetary processes – will likely become more difficult.

International relations will remain tense and require intense diplomacy as the United Nations has lost much of its influence as an arbitrator. In Latin America, the US has re-asserted its regional authority. Mexico and Colombia have been put on notice by Mr Trump over the role of the cartels based there in US drug-trafficking. For the region, which has pivoted towards China as a trading partner, the message is clear too. Indeed, Secretary of State Marco Rubio has said that Cuba’s leaders “should be concerned.” We interpret these recent developments as an application of the ‘Monroe doctrine’, in which the Americas should be an exclusive zone of influence of the US, or “our hemisphere” in the words of Mr Rubio. Commercial ties with China will have to be rebalanced to keep the US satisfied just as China posts record levels of exports, and the rest of the world seeks pragmatic solutions to Mr Trump’s tariff policies. The country most exposed and already politically on difficult terms with the Trump administration in Latin America is Brazil.

International relations are entering a new era of Realpolitik, where regional escalations cannot be excluded

Nor are the ramifications for the rest of the world insignificant. China will seek to secure its own sphere of influence in South Asia through shared infrastructure and commercial ties, while keeping a balance with India. In the Middle East, an Israeli military plan through 2030 involves a significant increase in activity, with implications for Iran, Lebanon, and Syria. This may lead to broader regional responses. In Eastern Europe, Russia’s invasion of Ukraine aims to redraw the NATO-Russian balance of power, while Mr Trump’s appetite to bring Greenland into the US sphere of influence could redefine the dynamics between the US and Europe. In other words, international relations are entering a new era of Realpolitik, where regional escalations cannot be excluded. 

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Market implications

Given the small size of Venezuela’s economy, the implications from recent events are unlikely to alter the global economic outlook. 

In the short term, more cyclical emerging market equities may temporarily see volatility. Chinese equities may give back some of last year’s gains, while US stocks are likely to hold steady. Our investment strategy is moderately pro-risk, with an underweight exposure to US equities, and an overweight in emerging market equities. We will assess our regional equity exposure in light of the new balance of risks. The medium-term outlook for emerging markets remains attractive. Many emerging markets have solid fundamentals and are rich in commodities, which will remain in high demand. The US and China have been on course to strike a reasonable balance of their mutual interests. If the prospect of increased foreign direct investment into Venezuela unleashes stronger Latin American growth, emerging market assets are bound to benefit. 

We maintain our current forecasts for Brent of USD 63 per barrel on a 12-month horizon

At the sector level, Venezuela’s energy industry is the most exposed. We have a neutral view on the global energy sector for now, as we see both upside and downside risks to oil prices in the short term. In the medium term, if investment by the US in the Venezuelan oil sector results in persistently higher production, we expect supply adjustments by OPEC+ to prevent oil prices from falling excessively. Oil trade flows are expected to reflect geopolitical blocs: Venezuelan crude will serve US needs and, through American firms, reach Europe, while Russia will deepen its energy ties with China. The US intervention in Venezuela may also be motivated by an attempt to achieve lower oil prices ahead of the mid-term elections: we maintain our current forecasts for Brent of USD 63 per barrel on a 12-month horizon. 

The US dollar will likely find some near-term support as recent events exacerbate the ‘dollarisation’ of the Venezuelan economy that started with the introduction of the Digital Bolivar or ‘VED’ in 2021. The VED depreciated sharply over the last 12 months, with limited access to the dollar intensifying actual depreciation versus the official rate, and worsening the erosion of real incomes. Improved dollar market liquidity will likely accelerate the shift to the dollar and support demand. Furthermore, as the US plans to increase investments to develop the country’s oil infrastructure, US dollar-based financing will likely rise, both from US entities as well as domestically-based firms involved in the process. In the medium term, we still expect lower short-term US rates to allow for a moderate decline in the dollar, with the euro, Japanese yen, and emerging market currencies remaining stronger. 

…medium term, we still expect lower short-term US rates to allow for a moderate decline in the dollar

In fixed income, we do not foresee much room for yield declines in most developed markets. US 10-year Treasury bonds will likely remain in their 4.0–4.5% range as we approach the end-January deadline of the budgetary process in the US Congress. With a US inflation breakeven rate expected to remain stable around 2.0–2.2%, US 10-year Treasury Inflation-Protected Security (TIPS) yields may move back into the 2.0–2.3% range. In sovereign bonds, we see the best prospects for UK Gilt yields to fall. Corporate bonds offer only narrow spreads over government bonds, but we remain convinced about the potential for emerging market bonds. 

While emerging equity indices are largely dominated by China, US dollar-denominated bond indices include a larger share of Latin American bonds. We expect further spread compression in emerging bonds, as emerging growth remains supported, while US short-term yields continue to decline. Commodities are poised to do well in the near term, with precious metals outperforming due to a rise in the geopolitical risk premium.