Iran Protests Flare Amid Economic Collapse & Regional Setbacks

Chinese Foreign Minister Wang Yi recently stated that his country played a mediating role between India and Pakistan during their military clashes last spring. However, an analysis of the region's long-standing diplomatic protocols and geopolitical realities suggests this claim is difficult to substantiate.

The statement echoes similar claims made by U.S. President Trump, which were consistently denied by India and contributed to a deterioration in U.S.-India relations. India's position on this matter has been firm for nearly half a century, making Beijing's assertion particularly noteworthy.

India's Firm Stance on Bilateral Negotiations

Since the 1972 Simla Agreement, India has maintained a strict policy that all disputes with Pakistan are bilateral issues, explicitly rejecting third-party mediation. This long-standing principle shapes how New Delhi engages with other nations during regional crises.

While India cannot stop foreign diplomats from communicating with Pakistan, it treats each interaction as a distinct bilateral engagement. Indian officials will always take calls from international counterparts to present their country's perspective and prevent Pakistan from controlling the narrative. However, these separate conversations do not constitute a trilateral mediation process.

This context is crucial for understanding what likely transpired last spring. Records show Wang Yi spoke with his Pakistani counterpart, Ishaq Dar, and Indian National Security Advisor Ajit Doval on the same day. From India's perspective, these would have been viewed as two separate bilateral calls, not a coordinated mediation effort led by China.

Why China is an Unlikely Peacemaker

China's capacity to act as a neutral arbiter between India and Pakistan is fundamentally compromised by its own strategic interests.

• Territorial Disputes: Beijing has its own unresolved border disputes with New Delhi.

• Military Support for Pakistan: China is a key military supplier to Pakistan, providing advanced weaponry, including the JF-17 fighter jets that were used against India in last spring's conflict.

These factors position China as a party with vested interests in the region rather than an impartial mediator.

The Motive Behind the Mediation Claim

The timing and context of Wang Yi's statement offer clues to its underlying purpose. The claim was made over six months after the events, during a symposium on "International Situation and China's Foreign Relations."

At the event, Wang listed the India-Pakistan de-escalation as one of several examples of the "Chinese approach to settling hotspots."

Figure 1: Chinese Foreign Minister Wang Yi presented a list of conflicts where Beijing allegedly played a peacemaking role, including tensions between India and Pakistan.

Other examples mentioned included:

• Northern Myanmar

• The Iranian nuclear issue

• Disputes between Palestine and Israel

• Conflict between Cambodia and Thailand

Among these, only the ceasefire in northern Myanmar is an indisputable diplomatic achievement for China. The others are either unproven or primarily credited to other actors. The repeated and questionable claims of mediation appear designed to build a specific narrative.

This effort is likely intended to promote President Xi Jinping's flagship Global Security Initiative, a core pillar of China's foreign policy alongside initiatives on development, civilization, and governance. By framing itself as a global peacemaker, Beijing aims to bolster its international standing.

A Calculated Risk for Sino-Indian Relations

It appears Chinese officials made a strategic calculation that the benefits of promoting the Global Security Initiative outweighed the risk of offending India. Wang Yi would have been aware of India's strong negative reaction to Trump's similar claims and the damage it caused to U.S.-India ties.

Despite this, the decision was made to publicly frame the diplomatic calls as mediation. While intended for a global audience, this boast could needlessly complicate the recent, fragile rapprochement between China and India.

A potential second Trump administration's strategy for Venezuela's oil sector appears to fundamentally misread the complex realities on the ground. The ambitious plan to overhaul the nation's energy industry and control its output faces significant obstacles, from geopolitical ties with China to deep-seated technical challenges that simple subsidies cannot solve.

Washington's Demands and a Flawed Vision

The core of the proposed U.S. strategy involves a series of non-negotiable demands directed at Venezuela's interim President, Delcy Rodriguez. These ultimatums include:

• Cracking down on drug trafficking.

• Expelling Iranian and Cuban operatives deemed hostile to Washington.

• Halting all oil sales to U.S. adversaries.

These conditions are unlikely to be met, setting the stage for continued confrontation. The administration's vision for overhauling Venezuela’s oil business seems equally detached from reality. Initial suggestions of a subsidy-funded revival, projected to take less than 18 months, quickly evolved into an admission that "a tremendous amount of money will have to be spent," with the expectation that "the oil companies will spend it."

However, major U.S. energy firms are hesitant to invest billions in a nation facing potential chaos, especially if Washington attempts to install a new government over its 28 million citizens.

The Goal: Controlling PDVSA to Lower Global Oil Prices

The ultimate objective behind this high-stakes plan is to drive global oil prices down to a maximum of $50 per barrel. To achieve this, a Trump administration would theoretically seize total control of Venezuela's state-owned oil company, PDVSA, managing the acquisition and sale of nearly all its production.

U.S. Energy Secretary Chris Wright confirmed this strategy at a Goldman Sachs conference, stating, "We are going to market the crude coming out of Venezuela... we will sell the production that comes out of Venezuela into the marketplace."

This plan effectively involves capturing the revenue from PDVSA's crude sales, with the proceeds theoretically deposited into U.S.-controlled offshore accounts for the "benefit of the Venezuelan people." Unsurprisingly, the government in Caracas is expected to reject what it views as outright theft. This strategy is backed by what Homeland Security Advisor Stephen Miller has described as a "military threat" to maintain control over Venezuela.

The China Factor: More Than Just a Buyer

While the U.S. focuses on control, it overlooks China's deeply entrenched role in Venezuela's energy sector. Although China's daily imports of roughly 746,000 barrels from Venezuela are not irreplaceable—Beijing can easily source oil from Iran, Russia, and Saudi Arabia—its relationship goes far beyond simple trade.

For the past two decades, China has become the operational backbone of Venezuela's oil industry. Its contributions include:

• Refinery technology and heavy crude upgrading systems

• Infrastructure design and control software

• Spare parts logistics and software support

Removing Chinese engineers, technicians, and supply chains would not "liberate" a functioning oil industry. It would leave behind an inert shell. Industry experts estimate that converting Venezuela's Chinese-built oil infrastructure into an American-operated system would take a minimum of three to five years.

Furthermore, Beijing sees the U.S. push in the region as an attempt to force it to purchase energy using petrodollars. This is unlikely to succeed, as China increasingly settles energy transactions with Russia and Gulf nations in petroyuan.

Technical Hurdles and Years of Sanctions

The physical nature of Venezuelan oil presents another major challenge. The country produces superheavy crude, which is as thick as tar and requires specialized processes for extraction. It must be melted to reach the surface and then mixed with a diluent to prevent it from hardening again. For every barrel of oil exported, approximately 0.3 barrels of diluent must be imported.

This technical complexity is compounded by an energy infrastructure that, while shaped by Chinese technology, has been degraded by years of American sanctions. The damage is considered even more severe than that inflicted on Iraq's oil sector in the early 2000s, making any quick revival of production highly improbable.

Financial Speculators Circle the Chaos

While the strategic goals of the U.S. plan face serious questions, the turmoil has created opportunities for financial players. Hedge fund vultures are circling, anticipating massive returns. Paul Singer, whose firm Elliott Management acquired the Houston-based subsidiary of CITGO in November for $5.9 billion—less than a third of its $18 billion market value—is a prominent example. Singer has also been a major donor to MAGA-aligned super PACs, contributing $42 million in 2024.

The broader speculative market is eyeing potential profits of up to $170 billion in Venezuela's debt market, with defaulted PDVSA bonds alone valued at over $60 billion. This financial maneuvering underscores how instability, regardless of policy outcomes, generates immense wealth for a select few. Ultimately, the intricate web of technical, geopolitical, and financial factors makes the situation in Venezuela far more complex than a simple strategy of control can address.

Speculation is mounting that Japanese Prime Minister Sanae Takaichi may call an early general election, with reports suggesting a vote could happen as soon as February. The move would allow Japan's first female prime minister to capitalize on high approval ratings she has maintained since taking office in October.

Takaichi's popularity has been bolstered by her firm stance on China, a position that appeals to right-wing voters but has also triggered a significant diplomatic dispute with the neighboring economic power.

Coalition Partner Fuels Election Talk

The possibility of a snap election gained traction after Hirofumi Yoshimura, leader of Takaichi's coalition partner, the Japan Innovation Party (Ishin), commented on the matter. In an appearance on public broadcaster NHK on Sunday, Yoshimura said he met with the prime minister on Friday and sensed her thinking on an election's timing had entered a new "stage."

Japanese Prime Minister Sanae Takaichi meets with Hirofumi Yoshimura, leader of the coalition partner Japan Innovation Party, to discuss political strategy.

"I won't be surprised if she made the decision as reported by media," Yoshimura stated, though he confirmed they did not discuss specific dates during their meeting.

Media Reports Point to a February Vote

Yoshimura's comments follow a report from the Yomiuri newspaper on Friday, which cited government sources. According to the newspaper, Prime Minister Takaichi is actively considering holding a snap election on either February 8 or February 15.

An early election would be a strategic maneuver to secure a stronger mandate while her public support remains strong.

Takaichi Stays Focused on Economic Policy

Despite the growing rumors, Takaichi herself has remained non-committal. In an interview with NHK recorded on Thursday and broadcast on Sunday, the prime minister deflected questions about a potential election.

Instead, she emphasized her immediate priorities, stating she had instructed her cabinet to focus on two key areas:

• Ensuring the timely execution of the current fiscal year's supplementary budget.

• Securing parliamentary approval for the budget for the fiscal year starting in April.

"At present, I am focusing on the immediate challenge of ensuring that the public feels the benefits of our stimulus policies aimed at cushioning the blow of inflation," Takaichi said.

China, long a critical driver of global demand for liquefied natural gas (LNG), is rapidly boosting its domestic production. This strategic shift means that forecasts banking on China's massive appetite for LNG imports will need a major revision.

Less than a decade ago, China struggled to unlock its vast shale gas reserves, facing geological challenges different from those in U.S. basins. Today, the country's state-owned energy giants are not only pumping more natural gas than ever but also announcing significant new discoveries, particularly in its shale regions.

The Shale Revolution Arrives in China

The production numbers speak for themselves. Citing official data, energy analytics firm Kpler reported that China's natural gas output reached 22.1 billion cubic meters in November of last year, a 7.1% increase year-over-year. This growth was largely driven by a faster-than-expected ramp-up of shale gas projects in the Sichuan Basin.

Based on this momentum, Kpler projects China's total domestic gas production will hit 263 billion cubic meters in 2025 and climb to 278.5 billion cubic meters this year. The continued expansion of shale gas operations in the Sichuan and Shanxi basins is expected to fuel this growth.

A Shrinking Appetite for LNG Imports

As with oil, a surge in domestic production inevitably curtails the need for imports, even as China increases its reliance on natural gas to meet emissions targets. Last year provided a clear example: as domestic output rose, China’s LNG imports fell to their lowest level in six years after 12 consecutive months of declines.

Looking ahead, Kpler anticipates that Chinese demand for LNG will continue to fall this year. The increase in shale gas production alone is expected to displace roughly 600,000 tons of LNG demand, bringing the country's total imports down to 73.9 million tons.

While 600,000 tons is a relatively small volume in a market where the United States alone exported over 100 million tons last year, it highlights a powerful trend. Beijing is determined to reduce its dependence on energy imports, a policy with far-reaching implications for global commodity markets that have long counted on China as the ultimate source of demand growth.

Ripple Effects Across the Global LNG Landscape

The projected decline in China's LNG demand could disrupt ambitious plans for new LNG capacity worldwide. Major exporters like the United States and Qatar are planning a wave of new supply set to come online by the end of the decade. Softening Chinese demand could shrink producer profits and complicate these projects.

Many analysts already expect an oversupplied LNG market by 2030, which would put sustained pressure on prices. China's growing self-sufficiency only adds weight to this forecast.

New Suppliers and Shifting Alliances

Competition within the LNG market is also intensifying. Amid ongoing trade disputes, China is no longer importing U.S. LNG. Instead, Russia is exporting record volumes to its neighbor. While these volumes are not yet massive, they demonstrate that gas, much like oil, will find a market if the price is right, even from sanctioned facilities.

These dynamics could be further amplified by the European Union's plan to ban Russian energy imports, including gas, next year. As the current largest buyer of Russian LNG, the EU's ban will force Moscow to redirect these flows, with China and India as the most likely destinations.

Meanwhile, pipeline gas is also set to play a larger role. Kpler estimates that imports through Russia's Power of Siberia pipeline could increase by 8 billion cubic meters compared to 2025, contributing to an overall 8% rise in pipeline imports to 80.7 billion cubic meters. In contrast, pipeline gas imports from Central Asian nations are projected to fall by 4 billion cubic meters in 2026 as those countries prioritize their own domestic demand.

Outlook: A Gradual but Decisive Shift

Beijing's priority is clear: reduce reliance on energy imports by ramping up domestic production. However, this transition will be gradual and will eventually face natural limits. Until then, price will remain a key factor driving import decisions.

While China's pivot will undoubtedly influence the global LNG market, its impact may be less dramatic than trends in its oil demand. The reason is simple: plenty of other nations have a strong appetite for liquefied gas, especially if lower Chinese demand and new supply capacity cause prices to fall and stay there.

Recent tensions between the United States and China are showing signs of easing. Following a pivotal October 2025 meeting between President Donald Trump and President Xi Jinping, officials from both nations have launched dialogues on a range of critical issues, from fentanyl and soybeans to Ukraine and Taiwan. President Trump, in a notable shift, has moved from threatening China to courting it. The key question is whether this strategic pivot is enough to win over American public support.

Evidence suggests it might be. Before the Trump-Xi negotiations, U.S. public opinion was decidedly against Trump's aggressive stance, with a clear preference for more engagement with China. While Americans view China as a threat, they seem to consider the risks of direct competition too high. Polling indicates that if the Trump administration continues to seek a more stable equilibrium with Beijing, the American public will back the policy.

The Unpopular Hardline on China

Prior to the recent diplomatic thaw, President Trump's approach to China was deeply unpopular, particularly amid escalating trade disputes. A public opinion poll from the Institute for Global Affairs at Eurasia Group, conducted from October 6–14, 2025, revealed that most U.S. voters felt Trump's policies were actively worsening tensions. Of 13 foreign policy issues surveyed, Trump's net approval was negative on 11, with his China policy ranked as the absolute worst.

This sentiment was echoed in other surveys. An October 2025 poll by the Chicago Council on Global Affairs found that 54% of the American public opposed higher tariffs on Chinese goods—the kind Trump had threatened earlier that month. For the first time since 2019, a majority of respondents believed the U.S. should pursue friendly cooperation with China. Less than four in ten Americans supported further reductions in trade or increased tariffs.

Parsing the Threat: Concerns vs. Confrontation

One reason for this shift may be that competition with China doesn't rank as a top daily concern for most Americans, even though they acknowledge the threat. The Institute for Global Affairs report noted that while a majority of the public views China as a moderate threat, almost none consider it a primary day-to-day worry.

Still, the perception of China as a national security risk remains strong.

• The Chicago Council found that 50% of the U.S. public sees China as a critical threat.

• The Institute for Global Affairs reported that 62% view China as at least a moderate threat.

When asked what shaped their view, respondents most often cited China's powerful technology (31%). Many also believe China has hostile intentions, with 22% saying it aims to replace the international order and 15% believing it wants to destroy the United States—a view most common among Republicans.

Despite these concerns, Trump's confrontational approach lost its appeal. For years, a tough stance on China was a rare point of bipartisan consensus, but that agreement has collapsed. By 2025, nearly a quarter of Trump's own Republican base disapproved of his China policy.

From Campaign Threats to a Policy U-Turn

On the campaign trail, Trump promised sweeping changes to the U.S.–China relationship, including a 60% tariff on all Chinese goods, crackdowns on espionage, and a push to reshore industry. The administration appeared ready to deliver in early 2025, threatening tariffs over 100%, imposing new restrictions on Chinese student visas, and creating licensing requirements for semiconductor sales to China.

However, as public opinion turned, the administration adjusted its course. New tariffs on Chinese goods were lowered to around 20%, all restrictions on Chinese student visas were lifted, and the White House signaled an openness to the sale of advanced U.S. semiconductors to China. This suggests that despite its rhetoric, the administration has proven remarkably responsive to public sentiment.

If President Trump can steer his foreign policy toward a more stable and predictable relationship with China, he may finally gain the voter approval that previously eluded him. The challenge will be restraining his administration's inclination toward policy chaos, which appears unpopular regardless of the issue.

The future of the U.S. economy has split investors and analysts into two distinct camps. One side anticipates a massive liquidity injection that could fuel a prolonged expansion. The other sees structural weaknesses that even aggressive stimulus can't fix, echoing the 2008 crisis when bank bailouts failed to revive the broader economy. A third group remains on the sidelines, waiting for a clearer signal.

The Bull Case: Betting on a Stimulus-Fueled Expansion

Optimists point to the momentum from ongoing fiscal and monetary stimulus, which they expect to accelerate under a potential "Trump 2.0" administration. The Federal Reserve has already cut interest rates multiple times, and Trump has suggested he could replace Fed Chair Jerome Powell with a more dovish successor. Such a move could open the door for "ultra-dovish" rate cuts and a significant infusion of liquidity.

Some analysts believe this stimulus could be timed to secure political victories for Republicans in the midterm elections and bolster approval ratings.

This strategy draws comparisons to the deregulation policies of the 1980s under Ronald Reagan, with proponents arguing that similar policies could extend economic growth if liquidity is deployed effectively. This was a key topic in a recent episode of Token Narratives, where Bitcoin.com’s Graham Stone and David Sencil discussed the potential impact of direct liquidity measures.

One key example is Trump's directive for Fannie Mae and Freddie Mac to purchase up to $200 billion in mortgage-backed securities (MBS) to lower mortgage rates.

"Trump just went out and posted something like, 'I'm telling Freddie Mac to buy MBS.' That's like straight-up 2020, 2008-style QE," Sencil noted. "That's QE infinity. So if that kind of thing does happen... what happens when he gets control of the Fed when Powell steps down?"

Sencil concluded that such a massive liquidity injection would likely benefit risk assets, including crypto.

The Bear Case: Why Liquidity Can't Stop a Downturn

Conversely, the bearish camp argues that while liquidity injections may seem inevitable, they can only delay—not prevent—an economic downturn. Marc Faber, editor of the Gloom Boom & Doom Report, has warned of "doom" in 2026. He advises investors to exit U.S. equities, citing persistent asset price inflation and the Federal Reserve’s weakening control over bond markets. In his view, the era of exceptional market gains is over, with inflation and economic strain set to rise.

Other bearish arguments focus on several key risks:

• Consumer Strain: Rising debt levels and financial pressure on households could overwhelm the positive effects of stimulus.

• Asset Bubbles: Valuations in the tech and AI sectors appear increasingly frothy and vulnerable to a correction.

• Political Risk: Sliding approval ratings for Trump and the upcoming 2026 midterms could trigger a premature "Trump put"—an attempt to boost the market for political gain that may not be sustainable.

These analysts believe the era of effective quantitative easing has passed, and any new interventions may come too late to alter the fundamental trajectory.

Sizing the Odds: What Prediction Markets Say About 2026

Forecasts for a 2026 recession vary. JPMorgan Global Research estimates the probability of a U.S. and global downturn at 35%, driven by persistent inflation and slowing growth.

Prediction markets, however, are pricing in lower odds. As of January 10, 2026, bettors on Polymarket gave a 21% chance of a U.S. recession by the end of the year, in a market that has seen over $140,571 in volume.

Figure 1: Polymarket data shows the perceived probability of a U.S. recession by the end of 2026 has trended down to 21% as of early January.

A separate contract on Kalshi places the odds of a recession beginning in the first quarter of 2026 at just 10%. The divergence in these forecasts highlights the deep uncertainty facing investors.

Figure 2: A prediction market on Kalshi indicates traders see only a 10% chance of a U.S. recession beginning in the first quarter of 2026.

Market Outlook: A Cautious Standoff

For now, the market remains guardedly optimistic, pricing in potential risks without fully committing to either a growth or recession scenario. This tension between stimulus hopes and underlying economic fears is likely to define the year ahead.

If a wave of liquidity arrives early and decisively, risk assets could rally, validating the expansionist view. However, if stimulus measures are delayed or prove insufficient, the bear case could quickly gain ground, sending recession probabilities higher. Until a clear direction emerges, the most crowded trade may be watching from the sidelines.