Taiwan's Political Showdown Over a $40B Defense Budget

President Donald Trump's pledge to deliver affordable energy to Americans has created a fundamental conflict with the U.S. oil industry, which has been struggling with low prices. As the prospect of cheap Venezuelan crude enters the market, this rift is deepening, leaving geopolitical instability as the main force supporting prices—a positive for producers but a negative for consumers.

A Bearish Consensus Was Forming

At the start of the year, most market forecasters anticipated that oil prices would fall even further than they did in 2025, when benchmarks lost about a fifth of their value. The consensus view put Brent crude at an average below $60 per barrel, with West Texas Intermediate expected to hover closer to $50 and possibly dip lower.

This forecast was built on a solid argument: sustained low prices would compel a production response from non-OPEC nations, particularly the United States. At $50 or less, American shale drillers—who drive the majority of U.S. output—would struggle to remain profitable and would eventually curb production. While this historical logic holds, any resulting price increase would directly contradict President Trump’s campaign promise.

The Strain on the U.S. Oil Industry

From the beginning, Trump's cheap oil pledge was a risky proposition for independent oil companies. While major integrated firms, or "Big Oil," can withstand prolonged periods of low prices, smaller independents in the shale patch face greater pressure.

The Trump administration has made efforts to support the industry by easing regulations and opening new areas for exploration. However, the simultaneous promise of cheap oil has made it difficult for producers to capitalize on these changes.

This pressure isn't limited to the U.S. The sustained price decline last year drove down global capital expenditure on exploration and production below 2024 levels. According to Wood Mackenzie, upstream capex is projected to fall again in 2026. The energy consultancy noted that spending declines are expected in North America and Europe, while investment is set to rise in Latin America, the Middle East, and Africa.

The bearish sentiment has been fueled by perceptions of a global oversupply, supported by:

• Record amounts of oil in transit on the water.

• A gap between China's oil import volumes and its processing rates.

• Forecasts from the International Energy Agency (IEA) and the U.S. Energy Information Administration (EIA) predicting that crude supply will exceed demand by six figures this year.

Geopolitical Tensions Reshape the Outlook

Despite the bearish fundamentals, oil prices are climbing again as geopolitical risks take center stage. Intensifying protests in Iran have sparked trader concerns over the security of OPEC supply, which is exported almost exclusively to China.

This anxiety appears significant enough to overshadow the bearish news of the U.S. beginning to sell Venezuelan oil. Adding to the complexity, reports indicate that not all major oil companies are eager to help rebuild Venezuela's oil sector. Exxon, for instance, called the country "uninvestable," which prompted President Trump to threaten to block the supermajor from operating there.

Meanwhile, trouble in Iran raises the risk of disruptions to oil transport through the Strait of Hormuz, the world's most critical chokepoint for oil markets. Given the Trump administration's surprise incursion into Venezuela, markets are now on edge for potential military actions beyond South America.

However, market analysts suggest that expectations alone won't be enough to drive prices substantially higher. "The market is saying show me the disruption to supply before materially responding," Saul Kavonic, head of energy research at MST Marquee, told Reuters.

That disruption could be imminent. ANZ energy analysts noted in a report that "there have also been calls for workers in the oil industry to down tools amid the protests." They added, "The situation puts at least 1.9 million barrels per day of oil exports at risk of disruption."

Trump's Policy Dilemma

This turn of events places President Trump in a complicated position. Higher oil prices would benefit the domestic energy industry, a priority in his second term. Yet, they would break his promise of affordable energy for consumers.

Adding another layer of uncertainty, OPEC could reverse its production policy and decide to cut output once again. With these conflicting pressures, the oil market is set for another interesting year.

U.S. President Donald Trump said on Monday that any country that does business with Iran will be subjected to a tariff rate of 25% on any business conducted with the United States.

"Effective immediately, any Country doing business with the Islamic Republic of Iran will pay a Tariff of 25% on any and all business being done with the United States of America," Trump said in a post on Truth Social.

"This Order is final and conclusive," he said.

Source: Reuters

Source: Reuters

Japanese stocks are gearing up for a strong open after a long weekend, propelled by a weakening yen and growing speculation that Prime Minister Sanae Takaichi will call a snap election.

As of 8 a.m. Tuesday, Nikkei 225 futures in Osaka were trading 4% higher at 54,150. Meanwhile, the yen sits near its weakest point since January 2025, trading at approximately 158.18 to the dollar. This combination of factors is setting a bullish tone for the Tokyo market.

The Return of the "Takaichi Trade"

Chatter about Takaichi dissolving parliament as early as next month intensified over the weekend following local media reports. This has reignited interest in the so-called "Takaichi trade," a market strategy centered on the prime minister's expansionary fiscal policy and accommodative monetary stance.

The core bet is that Takaichi's ruling Liberal Democratic Party (LDP) would secure a stronger mandate in an election, paving the way for more stimulus. This scenario historically fuels equity gains while pushing the yen lower.

Analysts at Citi Research, Ryota Sakagami and Keishi Ueda, noted that the market is leaning into this narrative. "The market view is likely to increasingly be that high cabinet approval ratings mean an LDP victory and hence a stable political platform, making the initial Japanese market reaction likely to be a renewed flare-up of the Takaichi trade," they wrote.

Key Sectors to Watch

A renewed push for Takaichi's economic agenda is expected to benefit specific industries. According to the Citi analysts, investors should watch for potential "significant gains" in several key areas:

• Government Spending Beneficiaries: Sectors like defense and nuclear power are expected to gain from increased fiscal spending.

• Exporters: A weaker yen is a major tailwind for forex-sensitive exporters, particularly auto manufacturers.

• Financials: The analysts also predict that long-term Japanese government bond yields could climb on expectations of fiscal expansion. Higher yields would likely boost the performance of financial stocks.

Mexican President Claudia Sheinbaum held a productive conversation with U.S. President Donald Trump on January 12, covering critical issues like security, drug trafficking, and trade. While the dialogue was described as positive, Sheinbaum reaffirmed Mexico's opposition to the deployment of U.S. military forces on its soil.

A 'Productive Dialogue' on Security and Trade

In a social media post on Monday, Sheinbaum characterized her discussion with Trump as "very good." She noted that their conversation touched on a range of mutual concerns, including security, drug trafficking reduction, trade, and investment.

"Collaboration and cooperation within a framework of mutual respect always yield results," Sheinbaum stated, signaling a commitment to partnership despite underlying tensions.

Mexican President Claudia Sheinbaum discusses the outcome of her call with U.S. President Donald Trump.

Rising Pressure and the Military Option

The call comes amid increased pressure from the Trump administration on Mexico and other Latin American nations to intensify their efforts against drug trafficking. Following the capture of Venezuelan leader Nicolás Maduro by U.S. forces in a pre-dawn raid on January 3, Trump urged Mexico to "get its act together" in dealing with drug cartels.

Trump has consistently offered to send U.S. forces to assist Mexico in these efforts. On January 8, he escalated his rhetoric by suggesting that future U.S. military strikes could target land-based cartel operations inside Mexico.

Sheinbaum Rejects US Troops on Mexican Soil

During a press conference on Monday, Sheinbaum confirmed that she and Trump discussed the possibility of a U.S. force deployment. She recounted that she once again declined the offer and that Trump was understanding of her position.

"He didn't insist," Sheinbaum explained. "I told him, 'Well, no, I've already told you several times that that's not on the table,' but we continue to collaborate within the framework of our sovereignties."

US Diplomatic Pressure Extends Across the Region

The high-level conversation between the two presidents is part of a broader diplomatic push by the United States. On January 11, U.S. Secretary of State Marco Rubio held a separate call with Mexican Foreign Secretary Juan Ramón de la Fuente.

State Department spokesman Tommy Pigott reported that their discussion focused on "the need for stronger cooperation to dismantle Mexico's violent narcoterrorist networks and stop the trafficking of fentanyl and weapons." Pigott added that Rubio stressed the need for "tangible results."

Tensions with Colombia and Cuba

The Trump administration, emboldened by the Maduro raid, is also applying pressure on other nations in the region, including Colombia and Cuba.

• Colombia: Trump and Colombian President Gustavo Petro have recently exchanged criticisms, with Trump faulting Petro for insufficient cooperation on curbing cocaine production. However, Trump later reported a productive phone call with Petro and announced plans to host him at the White House soon.

• Cuba: In a Truth Social post on Sunday, Trump declared that he had cut off Cuba from Venezuelan oil supplies. "There will be no more oil or money going to Cuba—zero! I strongly suggest they make a deal, before it is too late," he wrote.

For decades, the United States has maintained limited engagement with Cuba's communist government. In response to Trump's comments, Cuban leader Miguel Díaz-Canel Bermúdez stated that U.S.-Cuba relations "must be based on International Law rather than on hostility, threats, and economic coercion."

U.S. President Donald Trump announced the new tariff policy amid rising tensions over Iran's handling of domestic protests.

U.S. President Donald Trump announced on Monday a sweeping new policy, imposing an immediate 25% tariff on any country that conducts business with Iran. The move comes as Washington monitors Tehran's response to widespread anti-government protests.

An Immediate Economic Ultimatum

In a post on the social media platform Truth Social, Trump laid out the new economic penalty.

"Effective immediately, any Country doing business with the Islamic Republic of Iran will pay a Tariff of 25% on any and all business being done with the United States of America," he wrote. He emphasized the decisiveness of the move, adding, "This Order is final and conclusive."

The announcement signals a significant escalation in economic pressure, directly linking international trade relations with U.S. foreign policy on Iran.

Policy Follows Crackdown on Protests

This new tariff is framed as a response to the Iranian government's handling of recent nationwide demonstrations. According to reports, hundreds of protesters have been killed in over two weeks of demonstrations fueled by economic difficulties and other grievances.

Earlier this month, Trump stated that the United States would "come to their rescue" if Iran "violently kills peaceful protesters."

White House Keeps All Options Open

The tariff policy was announced shortly after comments from White House Press Secretary Karoline Leavitt. Speaking to Fox News, Leavitt confirmed that while diplomacy remains the administration's "first option" in dealing with Iran, the use of military force is still among the options available to the president.