Geopolitical conflict and its impact on global markets

Geopolitical market update: Venezuela, oil, and global investment impacts

This past Saturday, the U.S. military conducted a large-scale strike against Venezuela, capturing President Nicolas Maduro and his wife, and bringing them to the U.S. to face criminal charges for narco-terrorism conspiracy. The operation followed months of U.S. warship deployments and interdiction of alleged drug-smuggling boats in the region. President Donald Trump pledged the U.S. would run Venezuela until they arrange a suitable power transition, although specific details have not yet been revealed. Despite the dramatic events, markets experienced little disruption, reflecting the brief nature of the U.S. engagement on Venezuelan soil.

Geopolitical conflicts continue to shape headlines, as they constrain commerce, damage property and infrastructure and, tragically, claim lives. The ongoing war between Russia and Ukraine, the Israel-Hamas conflict in the Gaza strip, Yemeni-based Houthi rebel attacks on maritime vessels in the Red Sea and the most recent U.S. conflict in Venezuela underscore the risks these events pose to global markets. Investors must remain vigilant, as declining market confidence and weakening earnings can trigger temporary equity market declines. According to a recent International Monetary Fund paper, such events typically cause an average one-month equity market drop of around 1%. ¹ Disruptions in major oil producing countries often lead to oil price spikes as they threaten production and supply infrastructure, making it essential to monitor both immediate and long-term effects on markets and client portfolios.

U.S. maintains Venezuela oil embargo

Venezuela produces nearly 10% of global petroleum and holds the world’s largest oil reserves according to 2024 OPEC data. The U.S. imposed an embargo on Venezuelan oil exports to the U.S. in in 2019, responding to escalating terrorism and narcotics trafficking. As part of its enforcement effort, the U.S. recently seized oil tankers carrying Venezuelan crude. Following the U.S. strike, President Trump pledged to rebuild Venezuelan oil infrastructure by reopening the country to corporate investment. As of 2024, Venezuelan oil production stands at just one-third of its output a decade ago.

Oil prices responded modestly to the U.S. strike. U.S. West Texas Intermediate Crude Oil prices rose slightly in the first two days of trading following the action but remained well below December levels. ¹ The prospect of expanded production, combined with a well-supplied global oil market, kept prices subdued. U.S. energy companies saw a more positive reaction, with the S&P 500 Energy index reaching its highest level since March, driven by hopes for new opportunities in Venezuela. However, the sector eased during the week as investors recognized that realizing these opportunities could take quarters or years.

Oil market dynamics

Middle Eastern OPEC countries produce 25% of the world’s oil and export more than two-thirds of their output. As of 2024, all OPEC members account for over 79% of proven global oil reserves and 36% of oil production. ² Disruptions in these regions can alter the delicate global supply-demand balance. The 1973 OPEC embargo against the U.S. and several European nations remains the most extreme historical case, when oil prices quadrupled and the U.S. entered a deep recession.

After the U.S. strike in Venezuela, oil prices rose 2.7% over two days but quickly subsided as the conflict did not threaten major exporters. In contrast, oil prices jumped 9.3% immediately after Israel attacked Iran, which threatened to block oil tanker movement through the Strait of Hormuz, a major oil shipping channel. Prices then dropped precipitously after the U.S. attacked Iran. ³ “Investors observed that the conflict remained contained between Israel, U.S., and Iran,” says Tom Hainlin, national investment strategist with U.S. Bank Asset Management. “If the conflict escalated to other countries or if Iran successfully restricted oil flows, we would have seen a bigger capital market response.”

Equity market reactions

Fundamental factors like a healthy economy and strong corporate earnings typically drive capital markets, but political events can periodically overshadow these fundamentals. “Geopolitical conflicts are always a consideration,” says Terry Sandven, chief equity strategist with U.S. Bank Asset Management Group. “Investors are navigating a lot of moving parts in 2026, including a potential government shutdown, a change in Federal Reserve leadership, and midterm elections along with ongoing overseas conflicts.”

Stock Markets initially fell as Russia invaded Ukraine and Hamas attacked Israel but showed little reaction after the U.S. strike on Venezuela. Sandven notes that the broader inflation risk following an upturn in oil prices is another market consideration. “Inflation is kryptonite to stock valuations,” says Sandven. “If energy prices rise and the price of other goods follow, this might force the Federal Reserve to raise interest rates, which could temper corporate earnings.”

In all three cases, equity prices quickly recovered once investors assessed the conflicts’ scope and potential outcomes, and oil prices receded. U.S. equity markets remain near record highs, rebounding decisively from repeated setbacks. Company fundamentals and generally stable economic data, including robust consumer spending, continue to support higher trending stock prices.

Investors continue to capitalize on a favorable environment

Resilient consumer spending and business investment benefit equity markets, with major companies reporting strong profit growth. While geopolitical events introduce additional risks, they have not escalated to broader conflicts with negative economic effects. Market fundamentals appear well-positioned for ongoing growth in the near term. Now may be an opportune time to connect with your wealth planning professional to discuss your portfolio’s alignment with economic changes, personal objectives, and risk appetite.