Germany Targets India for Major Economic & Defense Pivot

Crude oil prices extended gains for a third consecutive day, driven by escalating protests in Iran that have sparked fears of a potential supply disruption from OPEC's fourth-largest producer. Brent crude futures pushed toward $64 a barrel following a nearly 6% surge over the prior two sessions, the largest two-day gain since October. West Texas Intermediate (WTI) traded near the $60 mark.

US and Iran Exchange Warnings

The situation has drawn international attention, with U.S. President Donald Trump warning of repercussions if Iranian authorities move against the demonstrators. In response, Tehran has cautioned the United States and Israel against intervening in its internal affairs, heightening geopolitical risk in the region.

Supply Glut Fears Ease Amid Disruption Risk

The potential disruption to Iran's daily oil exports, which total nearly 2 million barrels, is shifting market focus away from concerns about a global supply glut. This oversupply had previously weighed on prices and fueled bearish sentiment among investors.

Options Market Signals Bullish Turn

The new supply risk is clearly visible in the options market. The premium for bullish call options on U.S. crude futures has risen sharply, reaching its highest level since July. This indicates that traders are increasingly betting on higher prices in response to the instability.

Iran Protests Overshadow Venezuela's Woes

Developments in Iran have also diverted attention from the ongoing crisis in Venezuela. While President Trump signed an executive order on Saturday to protect Venezuelan oil revenue in U.S. Treasury accounts from the country's creditors, significant political uncertainty continues to threaten the investment needed to sustain its oil production.

The U.S. State Department has issued an urgent warning for American citizens to depart Venezuela immediately, citing a volatile and unpredictable security environment across the South American nation.

This advisory follows a high-stakes U.S. military operation in Caracas last week that resulted in the capture of Venezuelan leader Nicolás Maduro and his wife, Cilia Flores. Both have since pleaded not guilty to a series of federal charges, including narco-terrorism, in a New York court.

Level 4 'Do Not Travel' Advisory in Effect

Venezuela remains under a "Level 4: Do Not Travel" advisory, the highest warning level issued by the U.S. government. The State Department points to severe risks for Americans, including:

• Wrongful detention and torture

• Kidnapping and terrorism

• Arbitrary enforcement of local laws

• Violent crime and civil unrest

• Poor health infrastructure

The advisory specifically highlights reports of armed militias, known as "colectivos," establishing roadblocks to search vehicles for any signs of U.S. citizenship or affiliation.

Even with the resumption of international flights, officials are urging Americans to remain vigilant, be aware of their surroundings, and exercise caution on the roads. The U.S. government has reiterated that it cannot provide any emergency services to its citizens within Venezuela.

A Backdrop of Military and Economic Pressure

The travel warning comes amid a broader pressure campaign by the Trump administration against drug cartels and the socialist regime in Venezuela.

U.S. military initiatives include:

• Operation Southern Spear: Launched in September 2025, this operation involves strikes against vessels in the Pacific and Caribbean suspected of transporting drugs. Officials report that over 100 alleged narco-terrorists have been killed.

• Operation Absolute Resolve: This targeted overnight raid on January 3 led to the capture of Maduro and his wife without any American casualties.

In addition to military action, the U.S. has imposed sanctions on oil tankers moving to and from Venezuela. On Friday, the U.S. seized an oil tanker in the Caribbean Sea as part of this enforcement.

Oil, Investment, and a Diplomatic Opening

Days after Maduro’s capture, President Trump announced that the United States would receive between 30 and 50 million barrels of previously sanctioned Venezuelan oil.

"This Oil will be sold at its Market Price, and that money will be controlled by me, as President of the United States of America, to ensure it is used to benefit the people of Venezuela and the United States!" Trump stated on Truth Social.

The president has directed Energy Secretary Chris Wright to implement this plan and has also said that oil companies are expected to invest at least $100 billion to rebuild Venezuela's oil infrastructure and increase production.

Figure 1: The U.S. Embassy in Caracas, which has been closed since 2019, may reopen as officials explore reestablishing diplomatic ties.

Despite the heightened tensions, both the U.S. and Venezuela have indicated they are exploring the possibility of restoring diplomatic relations. An American delegation recently visited the country to assess the potential reopening of the U.S. Embassy in Caracas. The embassy was closed in 2019 after the United States declined to recognize Maduro as the country's legitimate leader following allegations of election fraud.

Despite facing heavy United States sanctions on its energy exports and bombings by Israel, Iran has been producing oil at record levels. By building strong partnerships with China and other global powers, Tehran has successfully sidestepped sanctions to keep its crude flowing—a trend expected to continue into 2026.

However, a new geopolitical shockwave threatens this stability. The recent U.S. military intervention in Venezuela could make Iran's trading partners increasingly wary of buying sanctioned crude, potentially undermining its export growth.

Iran's Enduring Role in Global Energy

While years of sanctions have diminished its former influence, Iran remains a major force in the global energy market. The country’s powerful position is built on vast natural resources.

• Oil Reserves: Fourth-largest proven oil reserves in the world, holding about 9% of the global total, surpassed only by Venezuela, Saudi Arabia, and Canada.

• Natural Gas: Second-largest proven natural gas reserves, accounting for 17% of the world's share.

• OPEC Status: The third-largest crude producer and fourth-largest exporter within the organization.

Washington first reinstated sanctions on Iran in 2018 during President Trump's first term. Since beginning his second term in January of last year, Trump has rolled out several new rounds of sanctions targeting Iranian oil.

Production Ramps Up Against the Odds

At its peak in 1974, Iran was producing over 6 million barrels per day (bpd) of crude. Although years of war and conflict have lowered its capacity, the country has steadily rebuilt its output despite the sanctions regime. Production has climbed from around 2.9 million bpd in 2019 to an estimated 3.2 to 4 million bpd in 2024.

This resurgence is driven by two key factors: lax sanctions enforcement by the United States and Iran's persistent efforts to circumvent the restrictions. This strategy has allowed the nation to re-emerge as a major crude exporter, with one country in particular providing a crucial lifeline.

The China Lifeline: A Key Market for Sanctioned Crude

China, the world's largest oil importer, has become the primary destination for Iranian crude. In the first half of 2025, Iranian oil made up around 13.6% of China’s total purchases.

According to Kpler data, China buys roughly 90% of all oil shipped from Iran, averaging about 1.38 million bpd in the first half of last year. Tehran has successfully attracted Chinese buyers by offering its crude at steep discounts of up to $7 to $8 a barrel below global benchmarks—a tactic also used by Russia to move its sanctioned energy supplies.

The main buyers are China's independent refiners, known as "teapots," which are concentrated in Shandong province and account for about a quarter of the country's refining capacity. In contrast, China's state-owned oil companies have largely avoided purchasing Iranian crude due to the sanctions. In December, these teapot refiners increased their purchases of Iranian oil from bonded storage and offshore tankers after new import quotas were issued in November.

While the Trump administration has penalized three Chinese independent refiners for importing Iranian crude, Beijing continues to reject unilateral sanctions and defends its trade with Tehran as legitimate.

Economic Strain Despite Export Boom

Even with rising oil exports, Iran's economy is in distress. A former senior Iranian oil official highlighted a core issue: "Even if export volumes increase, the key problem is the repatriation of revenues, which faces numerous obstacles. This lack of oil revenue repatriation, despite higher export volumes, puts Iran's economy at risk of bankruptcy."

The economic indicators are grim. Iran's currency has collapsed, and the country faced a headline inflation rate of 42.2% in December. In response to unsustainable subsidies, the government was forced to increase gasoline prices for certain vehicles, sparking widespread protests across the country.

Geopolitical Shockwaves from Venezuela

The U.S. military intervention in Venezuela on January 3rd, which involved the capture of President Maduro and his wife, has intensified geopolitical uncertainty. The unilateral action has raised questions about whether Washington might intervene similarly in Iran. President Trump has suggested that U.S. military action could also extend to Colombia and Mexico. In response, Iranian officials have warned that U.S. troops could be targeted if America intervenes in Iran's protests.

This development is set to shift global oil trade in 2026. Like Iran, Venezuela is a major oil producer under U.S. sanctions, and both China and Iran have bypassed these restrictions to purchase Venezuelan crude. The recent military action may now prompt Chinese refiners to reconsider their reliance on Iranian crude in the coming months, though any concrete shift has yet to materialize.

Demonstrators gather in Washington, D.C., on January 10, 2026, to show support for nationwide protests in Iran.

As major anti-government protests sweep across Iran, a sharp debate is unfolding in Washington over the best course of action for the United States. Key lawmakers from both parties are questioning the wisdom of military intervention, even as President Donald Trump keeps the option on the table.

The situation has triggered diverse reactions among senior U.S. senators:

• Senators Rand Paul and Mark Warner are urging caution, warning that military strikes could backfire.

• Senator Lindsey Graham is advocating for a muscular approach to destabilize the Iranian regime.

• Warner suggests that diplomatic pressure, backed by international allies, is a more prudent path.

Bipartisan Caution on Military Intervention

On Sunday, prominent senators from both Republican and Democratic parties expressed skepticism about using military force against Iran. They argued that such a move could inadvertently strengthen the current regime by unifying the Iranian populace against a foreign aggressor.

"I don't know that bombing Iran will have the effect that is intended," Republican Senator Rand Paul stated on ABC's "This Week."

Democratic Senator Mark Warner echoed this sentiment on "Fox News Sunday," warning that a military strike could risk uniting Iranians against the U.S. "in a way that the regime has not been able to." Warner pointed to history, arguing that the U.S.-backed overthrow of Iran's government in 1953 ultimately paved the way for the rise of the Islamic regime in the late 1970s.

The domestic turmoil in Iran has been described as the most significant in years, leading the Revolutionary Guards to blame the unrest on terrorists while vowing to protect the existing system.

Graham Calls for Aggressive US Stance

In stark contrast, Republican Senator Lindsey Graham advocated for a much more aggressive strategy. A well-known foreign policy hawk, Graham urged President Trump to take decisive action to support the protesters and intimidate the Iranian government.

"If I were you, Mr. President, I would kill the leadership that are killing the people," Graham declared on Fox News' "Sunday Morning Futures." He added that Trump "needs to embolden the protesters and scare the hell out of the [Iranian] regime... You've got to end this."

His comments reflect a push for direct intervention aimed at collapsing the current power structure in Iran.

Trump Weighs Options Amid Escalating Tensions

The debate comes as President Trump is reportedly considering his next steps. According to The Wall Street Journal, military and diplomatic officials are scheduled to brief the president on Tuesday about a range of options, including potential cyberattacks and military action.

In response to the threat of American intervention, Iran has stated it would target U.S. military bases if an attack occurs.

Exiled Prince Eyes Return to Lead Transition

Meanwhile, a prominent opposition figure is preparing for a potential political shift. Reza Pahlavi, the U.S.-based son of the shah ousted in the 1979 revolution, announced Sunday that he is ready to return to Iran and guide a transition to a democratic government.

"I'm already planning on that," Pahlavi said on "Sunday Morning Futures." "My job is to lead this transition to make sure that no stone is left unturned, that in full transparency, people have an opportunity to elect their leaders freely and to decide their own future."

Investors might be underestimating how sharply UK inflation, interest rates, and gilt yields could fall by 2026, according to a new forecast from Capital Economics. While the firm’s predictions point to a significant cooling, it also warns that political pressures could easily derail this economic trajectory.

The firm's projections for GDP growth are largely in line with mainstream expectations. It foresees economic growth slowing from 1.4% in 2025 to 1% in 2026, before rising to 1.2% in 2027—closely matching consensus forecasts of 1.1% and 1.4% for those years. This slowdown is attributed to the lingering effects of past interest rate hikes, tighter fiscal policy, and weak demand from overseas.

Even with expected cuts to the Bank Rate, the average mortgage rate for households will continue to rise. Capital Economics estimates that UK growth will remain below its potential rate of around 1.5%. However, the firm’s analysis diverges from the consensus view in four crucial areas that could reshape the market outlook.

Four Key Predictions That Challenge the Market

Capital Economics has identified four specific points where its forecasts break from the mainstream, painting a different picture for consumer behavior, inflation, interest rates, and government bonds.

1. Weaker Consumer Spending and Wage Growth

The firm anticipates softer consumer spending growth than others, projecting 0.7% in 2026 and 1.2% in 2027, compared to consensus estimates of 0.9% and 1.4%.

This is linked to the labor market. While its unemployment forecast matches the consensus—rising from 4.7% in 2025 to 5.1% in 2026 before falling to 4.9% in 2027—Capital Economics believes this will trigger a more pronounced slowdown in wage growth. As a result, real household income growth is expected to slow from 1.0% in 2025 to just 0.8% in 2026, before recovering to 1.5% in 2027.

2. Inflation Falling Below the 2% Target

Slower GDP and wage growth directly feed into the firm's second contrarian call: inflation will fall further and faster than expected.

The analysts project that CPI inflation will drop from 3.2% in November 2025 to meet the 2% target by April 2026, eventually hitting 1.8% by December 2026. This is a more aggressive decline than the consensus forecast, which sees inflation only reaching 2.2% by the fourth quarter of 2026.

3. Deeper Interest Rate Cuts

With inflation under control, Capital Economics predicts the Bank of England will cut its key interest rate to 3%—significantly lower than the 3.50% currently expected by investors. This rate aligns with the firm’s estimate of the neutral rate of interest. To support its view, the brokerage noted it correctly predicted last year that the Bank Rate would fall to 3.75% when financial markets were pricing in a rate between 4.25% and 4.50% at the start of 2025.

4. Lower Gilt Yields

The fourth divergence concerns government bond yields. Capital Economics forecasts the 10-year gilt yield will fall from 4.40% to 4.25% by the end of 2026 and then move sideways in 2027. This outlook is more bullish for bonds than the consensus, which projects yields will only decline to 4.35% and 4.30% over the same period.

The Political Wildcard: Fiscal Policy Risks

While the economic data points one way, political decisions could shift the outcome. Capital Economics suggests that fiscal policy may not be tightened as much as the Chancellor currently plans.

The firm's forecasts are consistent with the Chancellor's fiscal "headroom" growing from £21.7 billion in the Budget to about £40 billion. The recent fall in gilt yields has already increased this headroom to an estimated £24 billion. This financial flexibility means the budget deficit can be reduced without implementing such severe fiscal tightening.

Political pressure will likely lead the Chancellor to use this extra headroom to increase public spending. In a departure from consensus, Capital Economics argues that higher public spending and borrowing are more probable than additional tax hikes.

The extent of this fiscal shift could depend on whether Prime Minister Starmer and Chancellor Reeves remain in their roles before and after the local elections on May 7. The firm outlined three scenarios if they are replaced, most of which would result in looser fiscal policy and slightly stronger GDP growth, but also higher inflation, interest rates, and gilt yields. The biggest domestic political risk to their forecast would be a leadership change that causes a sharp spike in gilt yields.

Long-Term Outlook: An AI-Powered Rebound

Looking beyond the next few years, Capital Economics is optimistic. An easing of inflation and a return to a neutral interest rate would support stronger economic growth. The firm expects UK GDP growth to accelerate in the 2030s to an average of 2%, forecasting that the UK is positioned to benefit more than many other economies from productivity gains linked to artificial intelligence.

President Donald Trump is weighing a range of potential actions against Iran, with aides reportedly preparing to brief him on military, cyber, and economic options. This development comes amid the most significant anti-government protests in Iran since 2022, prompting a series of warnings from the White House to Tehran.

Figure 1: President Donald Trump is reportedly considering a range of actions against Iran as tensions escalate.

White House Considers Military and Economic Options

According to reports from MS Now and other media outlets citing U.S. officials, the president has been presented with plans that include everything from direct military strikes to non-military measures. Trump’s advisors are scheduled to brief him on Tuesday regarding these options, which are designed to follow through on his recent threats against the Iranian government.

In recent days, Trump has warned Iran’s leaders against using force on protestors and said on Saturday that the U.S. is "ready to help."

Mass Protests and Government Crackdown

The deliberations in Washington are set against a backdrop of major civil unrest in Iran. The country's clerical leadership is facing a third week of widespread protests fueled by an ongoing economic crisis.

Human rights agencies report that more than 500 people have been killed as the government intensifies its crackdown, which has reportedly included internet blackouts to disrupt communication among demonstrators.

Economic Crisis Fuels Unrest

Iran, a nation of 92 million people, is struggling with one of the world's highest inflation rates, which currently stands above 50%. This severe economic pressure is a key driver of the public's discontent.

The country has been an Islamic Republic since the 1979 revolution, which deposed the U.S.-backed Shah. It is currently led by the Supreme Leader, Ayatollah Ali Khamenei.

Tehran Issues Warning of Retaliation

Earlier this week, President Trump threatened direct military intervention if Iran moves to crush the protest movement. In response, Tehran issued a stern warning on Sunday, stating that any U.S. strike would trigger retaliation against both American and Israeli military bases in the region.

The White House and the U.S. Department of Defense have not yet responded to requests for comment on the matter. This story is developing and will be updated.