In Summary
2026 started off on a strong footing with geopolitics taking on center stage, again. Market reactions have been fairly muted so far, with global equities, rates and FX remaining stable. Only gold and oil briefly reached highs of +7% and +8%, respectively, year-to-date (YTD), reflecting investor uneasiness and rising probabilities of downside scenarios. We anticipate two tail-risk events that could trigger a strong global market reaction: 1) an escalation in the Middle East, where higher oil prices could push the world back toward stagflation, and 2) a forceful annexation of Greenland by the US, which would have repercussions for NATO, trade and the Ukraine conflict. A resulting global one-standard-deviation confidence shock, comparable to the period between Liberation Day and the onset of the pandemic, would reduce global GDP growth by approximately 1pp (from 2.9% in 2026) and trigger severe market disruptions, including falling equities (except defense), widening credit spreads, steeper yield curves and a weaker euro.
In Venezuela, the status quo is the most likely scenario. The country would remain unstable and unattractive to oil companies. No significant global market impact is expected, as oil prices would remain unaffected. However, regional instability and escalation with US interventions in other regional countries (e.g. Cuba or Colombia) would lead to a negative global market reaction due to increased uncertainty. A swift realignment of Venezuelan politics with US demands and increased oil production would push down oil prices, leading to a slightly positive market reaction, with lower global rates. What to watch: The evolution of trade deals, including the USMCA, and the extent to which negotiations might break down, leading to an increase in tariff and non-tariff barriers; election cycles in Costa Rica, Colombia, Peru and Brazil and risks in fiscally strained countries in the region, such as Argentina and Colombia.
On Greenland, we expect the US to eventually tone down its rhetoric and abandon plans for tighter control or outright annexation amid domestic political headwinds and strong pushback from allies. Informal control via a “New Greenland Deal” with very generous economic sweeteners and strong security guarantees (including for a ceasefire in Ukraine) is a plausible scenario, and one to watch. A full-fledged annexation by force is unlikely: A US attack would immediately put an end to NATO and trigger major market disruptions, while Russia would likely advance in Ukraine, pushing uncertainty to unprecedented levels, particularly in Europe. The response of the EU and Denmark to the US military presence, strategic interests and Greenland's independence movement, as well as the potential economic incentives from the US, need to be scrutinized.
In Iran, the probability of a regime change is low at this stage, though an escalation of tensions is also likely. A significant risk would be an all-out war in the Middle East involving the US military, which would lead to significantly higher oil prices (120 USD/bbl) and a negative reaction in the global market.