EU's Energy Warning: Don't Swap Russian Gas for US LNG

The National Bank of Hungary has held its benchmark interest rate at 6.5%, opting for a wait-and-see approach as it looks for more conclusive evidence that slowing inflation is sustainable.

This marks the 16th consecutive month the rate has remained unchanged, tying with Romania for the highest in the European Union. The decision, announced on Tuesday, was in line with the forecasts of 22 out of 23 economists surveyed by Bloomberg.

A Cautious Shift in Monetary Policy

Hungary's central bank recently adjusted its policy guidance. After previously ruling out rate cuts, policymakers now state that decisions will be made on a meeting-by-meeting basis, driven entirely by incoming economic data. The bank's projections indicate that inflation is expected to return to its 3% target, plus or minus a one percentage point tolerance band, over the monetary policy horizon.

However, despite headline inflation slowing in December and moving closer to the target, officials remain cautious. Deputy Governor Zoltan Kurali highlighted a key concern on January 14, pointing to "stubborn" price increases in the services sector, a critical indicator of underlying inflation expectations.

At an annual rate of 6.8%, services inflation was more than double the headline figure last month. Kurali noted that policymakers would need "a lot of conviction" before they could begin cutting rates.

All Eyes on February Inflation Data

With the central bank holding firm for now, market focus is shifting to the next policy meeting in February. A crucial factor in that decision will be the January inflation report, scheduled for release by the statistics office on February 12.

This data will provide the first clear picture of how businesses, particularly in the services industry, have repriced their offerings at the start of the new year.

Market Expectations and Currency Headwinds

Money market traders are already positioning for a change in policy. According to forward rate agreements, investors are anticipating one or two quarter-point rate cuts within the next three months, with the first potentially coming as soon as February.

Adding another layer to the bank's decision-making is the strength of the Hungarian forint. The currency is trading near a two-year high against the euro, buoyed by a broader emerging-market rally and a weaker U.S. dollar. A stronger forint helps to lower the cost of imported goods, including energy, which eases inflationary pressures and gives the central bank more room to consider rate cuts.

This economic maneuvering occurs ahead of parliamentary elections scheduled for April 12, where Prime Minister Viktor Orban's party is reportedly trailing in most polls after 16 years in power.

Recent headlines about Iran’s internal turmoil and potential military confrontations obscure a more fundamental shift in the Middle East. Tehran is no longer the primary force shaping the region’s strategic direction. Instead, a new era is dawning, defined by competition between two emerging coalitions: an Abrahamic bloc and an Islamic bloc. The evolution of this rivalry—not Iran's next move—will determine the future of the region and America's role within it.

The Rise of the Abrahamic Coalition

Though not yet a formal alliance, the first bloc is becoming increasingly coherent. Centered on Israel and the United Arab Emirates, this group extends to include Morocco, Greece, and even India. This coalition aims to reconfigure the region through a combination of military power, technological partnership, and economic integration.

Core members believe the existing Middle Eastern order has failed to stop militant Islam, whether the Shiite version backed by Iran or the Sunni variant supported by Turkey and Qatar. They argue that true stability can only be achieved by intervening in regional conflicts to support more secular forces. Capitalizing on President Donald Trump's push to broaden the Abraham Accords, these nations are prioritizing the expansion of Arab-Israeli normalization, regardless of progress on Palestinian self-determination or a two-state solution.

This Abrahamic coalition is gaining momentum. Israel's military operations following the Oct. 7, 2023, Hamas attack have bolstered its deterrence and power projection capabilities. The UAE, known as "Little Sparta," continues to use its economic might and diplomatic agility to expand its influence far beyond the Gulf. United Nations experts and international NGOs suspect the UAE of supplying weapons to the Rapid Support Forces in Sudan, the Southern Transitional Council in Yemen, and Libyan strongman Khalifa Haftar.

Greece has become a vital partner in the Eastern Mediterranean, collaborating with Israel on military drills and energy projects to counter their shared competitor, Turkey. Further east, India’s growing ties with both Israel and the UAE—through bilateral agreements and multilateral platforms like I2U2 and the India-Middle East-Europe Economic Corridor—give the bloc strategic depth far beyond the region itself.

The Islamic Bloc Forms a Counterweight

Opposing the Abrahamic axis is the Islamic coalition, a counterbalancing effort led by Saudi Arabia and including Turkey, Pakistan, Qatar, and a more cautious Egypt. These nations view the Israel-UAE axis as a source of instability, arguing that its support for separatist groups worsens fragmentation in conflict zones. They see the narrative of pushing back against Islamists as a self-serving excuse to project power.

This group prefers to preserve and operate within existing structures, however flawed. In Yemen, Sudan, and elsewhere, they are backing weak states struggling to maintain sovereignty and territorial integrity.

Over the past year, Saudi Arabia has bolstered its defense relationship with Pakistan, creating a mutual security pact after an Israeli airstrike on Qatar. Its military cooperation with Turkey has also grown, with a more formal defense agreement seemingly on the horizon. Egypt, concerned by Israeli and Emirati activities in the Horn of Africa, is also discussing closer coordination with Riyadh on Sudan and Somalia. Together, these states are forming a loose but expanding counterweight across the region.

The Saudi-UAE Rivalry at the Center

At the heart of this realignment is the most critical bilateral rift in the Middle East today: the escalating rivalry between Saudi Arabia and the UAE. Once close partners, the two Gulf powers are now strategic competitors. This divergence was highlighted in Yemen, where Saudi Arabia struck the Port of Mukalla to stop Emirati arms shipments, ultimately forcing a UAE withdrawal.

If left unchecked, this competition could escalate from proxy conflicts to direct confrontation. Threats of airspace restrictions, border closures, and even a UAE withdrawal from Saudi-led institutions like OPEC+ have already been voiced by senior officials. Such moves, once unthinkable, would disrupt energy markets, regional travel, and cross-border business. While Gulf diplomacy has contained the friction so far, the underlying divide is structural, not merely personal.

U.S. Strategy in a New Regional Order

This new competition complicates a key U.S. foreign policy goal: Saudi-Israeli normalization. Riyadh still sees the value in a deal that would grant it a U.S. security treaty in exchange for integrating Israel into the region. However, without significant changes in Israeli policy, especially regarding Gaza and the West Bank, the kingdom is more likely to align with Turkey and Pakistan than with Israel.

For the United States, the primary challenge is no longer countering an Iranian regime that appears critically weakened. The new task is managing the damaging rivalries among its own partners to prevent further fragmentation. This is made more difficult by divisions within Washington, where officials reportedly have diverging views and independent business interests in the region, leading to a hands-off approach.

To achieve a breakthrough, the Trump administration must take two steps. First, it needs to actively manage the rivalries among its partners and its own aides, perhaps by appointing a special envoy to coordinate a unified regional strategy. Second, it must preserve a viable path to Saudi-Israeli normalization by influencing political outcomes in Jerusalem after upcoming elections. The next Israeli government cannot be beholden to radical elements opposed to Palestinian self-determination.

Saudi Arabia is the Middle East's crucial swing state. A senior Saudi official described the kingdom's policy as pragmatic, guided by "maximum flexibility at a time of maximum uncertainty." If President Trump can secure Saudi-Israeli normalization, he could steer Riyadh and the wider region away from its current path of rivalry. This would fold both coalitions into a broader American-led framework, stabilizing the post-Iran Middle East for decades to come.

EU/India Reach Trade Deal

European Session - Puma Soars 19%

Economic Calendar and Final Thoughts

Chart of the Day - FTSE 100

Source: marketpulse

While many investors focus on big tech, the precious metals sector has delivered stunning returns, with silver leading the charge. Prices for the metal have soared by an incredible 240% over the last 12 months, driven by supply concerns from China and political uncertainty in the U.S.

This month, silver prices topped $100 per ounce for the first time ever. But before jumping into the frenzy, it's worth examining the drivers behind this rally and why history suggests it may not be sustainable.

What's Driving the Record-High Silver Price?

The current surge in silver's value isn't based on a single factor but a combination of geopolitical tensions, currency weakness, and supply chain fears.

Geopolitical Risk and a Weaker Dollar

A primary catalyst is growing geopolitical turmoil. The Trump administration's unpredictable trade policy, which has imposed tariffs ranging from 10% to 50% on most of the world, has rattled international investors. This uncertainty is raising questions about the U.S. dollar's long-term stability as the world's primary reserve currency.

Reflecting this sentiment, the U.S. dollar index, which measures the greenback against other major currencies, has fallen nearly 10% in the past year, signaling that some investors are moving their capital elsewhere.

Further eroding confidence in the dollar are concerns over rising deficit spending and the independence of the central bank. President Trump has repeatedly pressured Federal Reserve Chairman Jerome Powell to lower interest rates. While Powell has resisted, these confrontations risk reducing trust in the U.S. monetary system.

China's Export Policy Stokes Supply Fears

Adding to the momentum, China announced new export restrictions that fueled market anxiety. Under the policy, only 44 companies will be permitted to export silver from 2026 to 2027.

However, the real-world impact of this announcement may be limited. According to Bloomberg, a similar licensing system has been active since 2019 without causing any significant supply bottlenecks. Furthermore, China’s silver exports reached 5,100 tons last year—the highest volume in 16 years—suggesting that supply remains robust for now.

A Familiar Story: Silver's History of Booms and Busts

Over the last century, silver has experienced several massive speculative rallies, all of which ultimately ended in a crash. The current situation bears a striking resemblance to previous cycles.

Echoes of the 2011 Price Collapse

The most recent boom and bust occurred in 2011, following the Great Recession. The drivers then were remarkably similar to today's: macroeconomic anxiety fueled by the first-ever U.S. credit rating downgrade, the eurozone debt crisis, and fears of runaway inflation.

That rally, however, was short-lived. After its peak, silver's price collapsed, shedding approximately 70% of its value by 2015 before beginning the slow climb that led to the current surge.

Figure 1: The historical price of silver shows a recurring pattern of sharp peaks followed by significant corrections, such as the spike around 2011 and the subsequent downturn leading into the mid-2010s.

The Industrial Demand Problem

Speculative rallies often lose steam because they are fueled by hype rather than sustainable, fundamental demand. For silver, industrial use is a critical and often overlooked factor.

Industrial applications account for about 59% of all silver consumption, with major demand coming from the solar and electric vehicle (EV) industries, which value its high conductivity.

Cheaper Metals Poised to Replace Silver

When silver prices rise to uneconomical levels, manufacturers begin substituting it with cheaper alternatives like copper or aluminum. This trend is already underway.

Bloomberg recently reported that major Chinese solar cell manufacturer LONGi Green Energy Technology has started replacing silver with base metals to cut costs. This shift is likely to continue across other industries until silver prices return to more reasonable levels. In the long run, high prices will also incentivize increased mining output, further boosting supply and putting downward pressure on prices.

What Should Investors Do Now?

When a commodity price hits unprecedented highs, it’s easy to believe that "this time is different." But history shows it rarely is. Silver, much like crude oil and cobalt, has a long record of boom-and-bust cycles.

The current rally appears driven by speculation that will likely fade as market hype subsides and industrial users shift to alternatives. For now, investors should consider taking profits or avoiding new positions in this volatile market.

Russian forces have launched a significant wave of drone strikes across Ukraine, heavily targeting energy infrastructure in the southern port city of Odesa. Ukrainian President Volodymyr Zelenskiy stated the attack directly threatens ongoing diplomatic efforts to end the war.

The overnight assault involved some 165 drones deployed against cities from Lviv in the west to Kharkiv in the east. The main focus was Odesa, where Zelenskiy reported on social media platform X that over 50 unmanned aerial vehicles struck energy facilities, injuring dozens.

This strategy appears timed to exploit harsh winter conditions, with freezing temperatures straining heat and water supplies for Ukrainian families. The strikes aim to cripple the nation's already damaged energy system.

Peace Negotiations Falter Amid Airstrikes

The attacks coincide with a series of US-brokered peace talks between Russian and Ukrainian negotiators, part of an initiative sought by President Donald Trump. Zelenskiy argued that the Kremlin's actions are undermining the fragile diplomatic process.

"Every such Russian strike erodes the diplomacy that is still ongoing and undermines the efforts of partners who are helping to end this war," he said, calling for increased pressure on Moscow from the US and European allies. "Without pressure on the aggressor, wars do not stop."

Negotiations, which began last week in the United Arab Emirates, are set to continue but have yet to produce tangible results. The talks in Abu Dhabi have been described as constructive by Trump officials, particularly because the two sides met face-to-face instead of through intermediaries.

Key Sticking Points in Negotiations

Deep disagreements over territorial control remain the primary obstacle. Russia continues to demand that Ukrainian forces withdraw from areas in the eastern Donbas region that its troops have not yet seized. This demand, which covers parts of the Donetsk and Luhansk regions, has been rejected by Zelenskiy.

Despite the deadlock, the Ukrainian leader has pointed to some progress, especially regarding the establishment of security guarantees from the United States.

Why Odesa Remains a Critical Target

Odesa and its surrounding region host vital Black Sea port infrastructure that is essential for Ukraine's grain exports. This strategic importance has made the city a frequent target of Russian attacks since the full-scale invasion began in February 2022.

According to the national grid operator Ukrenergo, the latest strikes damaged the region's power infrastructure, triggering local blackouts. These power failures add to more than 500 weather-related outages across the country. However, no damage to the port facilities themselves was reported.

Saudi Arabia's state-owned oil giant, Aramco, has successfully issued a $4 billion bond, marking its first entry into the debt market this year. The move comes as global oil prices remain weak, hovering in the low $60s per barrel range.

The company, which is the world's largest crude exporter, initially announced its plan to issue U.S. dollar-denominated international bonds under its Global Medium Term Note Programme, stating the final amount would depend on market conditions.

Overwhelming Demand Signals Investor Confidence

The offering ultimately raised $4 billion through a four-tranche bond that attracted more than $21 billion in orders from investors.

This exceptionally high demand allowed Aramco to secure more favorable terms. According to market sources, the company was able to offer lower yields compared to benchmark U.S. Treasuries than it had initially guided, reducing its borrowing costs.

A Pattern of Increased Borrowing

While this is Aramco's first bond sale of the year, it represents the company's second debt issuance in the last five months, highlighting a growing trend. In September 2025, the oil firm offered Islamic bonds, known as sukuk, with five and ten-year maturities.

The turn to debt markets follows a period of financial pressure caused by declining oil prices. Lower prices have already reduced Aramco's cash flows, with Q1 figures showing a decline and Q2 results revealing an even larger drop in both cash flow and profits as prices slumped.

Kingdom's Finances Strained by Oil Price Slump

Aramco's recent bond sale is part of a broader pattern of increased borrowing by Saudi Arabia as the Kingdom grapples with the financial impact of lower oil revenue. This trend suggests that the country's finances are under strain.

Other recent debt activities include:

• Saudi Arabia: The Kingdom sold $5.5 billion in Islamic bonds, which received orders totaling $17.5 billion.

• Public Investment Fund (PIF): The nation's sovereign wealth fund raised $2 billion by selling 10-year dollar bonds to help finance its investment plans.

Saudi Arabia’s budget deficit expanded last year as oil prices have remained well below the estimated $90 per barrel the Kingdom needs to balance its budget, prompting both the government and its flagship company to increasingly tap debt markets for funding.