Everybody Drink!

By Michael Every of Rabobank

Key data yesterday pointed directly to the tensions we should all have at back of mind. While the US Beige Book was, well, ‘beige’, China saw a trade surplus for 2025 of $1.2trn, the size of the Dutch economy, and up 20% y-o-y. If that pile grows at the same pace ahead then by 2030 it will be $3.0trn, around the size of the French economy. By 2035, it will be the German plus Italian economies. If you can’t see why isn’t sustainable, you’re in the wrong business. If you can’t plot out the ways this can be addressed, and the problems arising from doing so, the same holds true.

On which, Politico reports ‘EU foreign policy chief Kallas privately told lawmakers that the state of the world means it might be a “good moment” to start drinking. She’s late to the party, but by all means: when I mention geopolitics/geoeconomics/contentious politics, everybody drinks!

In Ukraine –remember them?– President Zelensky declared a state of emergency in the energy sector as the crisis there worsens following Russian attacks targeting its power supply.

There remains a “fundamental disagreement” over Greenland following crunch talks in the US. The Danish foreign minister says they “Did not convince Trump to back off,” while Trump has reiterated that Europe cannot defend the territory, mocking the recent step up in military commitments there. While Denmark has done more than ‘adding another dog sled’, Germany did just send **13** soldiers, and France say it will open a consulate, not a military base.

In the vein of European realpolitik being more politic than real, European Commission President von der Leyen said the EU will become a “military powerhouse.” The rest of the world isn’t trembling in its boots and markets aren’t blinking – which tells you that this isn’t happening as needed. After all, it would require political union – as Brussels just refused to confirm that Greenland is covered by the EU defense clause(!) However big a crisis Greenland is, US-EU war is not going to happen; and if a NATO split does, markets will need to start drinking like sailors.

As a vol-au-vent to nibble on with your tipple, the US just indefinitely halted immigrant visa processing for 75 countries.

The true (toxic) cocktail is Iran. Trump says he’s received assurances “killing in Iran is stopping,” rather public hangings have been stopped, but declined to rule out military action. His options are limited by so much of the US Navy being in the Caribbean –a “military powerhouse” is VERY expensive– but the USS Abraham Lincoln Carrier Strike Group has been redirected to the Middle East from Asia; US troops were evacuated from Middle East bases – but may now be returning; armed Kurdish groups tried to cross into Iran from Iraq, which Turkish intelligence allegedly tipped Iran off about; European officials tip US military intervention in Iran may begin imminently; the Saudis denied the US the use of their airspace for any attack; Western embassies in Iran are closing; and an Israeli order for its public to stay near bomb shelters reportedly may soon go out, as the UK and US tell their citizens not to travel there as well as Iran.

This is as the US will announce the launch of phase two of its Gaza plan and its new technocratic government, following the signing of the Trump Route for International Peace and Prosperity (TRIPP) accord that places it in the heart of the Caucuses, right next to Iran and Russia. Everybody drink! But Europe should note it’s not being invited to any of these parties.

Dozens of ships are anchored outside Iran’s ports. Nobody knows when or how this ends. We may just have seen an off-ramp, with reported fears in the White House that the US can’t repeat its success with Maduro, and could either see casualties or get sucked into a new Afghanistan. On the other hand, this could be a head fake, as we saw in June last year, as other reports have it that the president wants to make a “definitive” strike, not a token one.

Given the current backdrop is potentially existential to the Iranian regime, the kind of actions one would normally dismiss out of hand as self-harm cannot be ruled out, i.e., mining the Strait of Hormuz or even attacks on Israel, or Saudi Arabia despite its hands-off stance. If markets only note geopolitical crises when they impact on supply chains, that fat tail risk could be present here.

In geoeconomics, the US approved the sale of Nvidia’s advanced AI chips to China – a major U-turn; and then China’s customs agents were told that those chips are not permitted, claims Reuters. Meanwhile, the US set a new 25% tariff on some chips as part of the Nvidia deal that isn’t actually a deal for China.

The US also made an initial $500m Venezuelan oil deal, with some proceeds headed to a Qatari bank, as China is reportedly looking for assurances over the billions in loans it’s made to Venezuela.

Canada’s Globe and Mail argues that ‘Rebuilding relations with China is a gamble Mark Carney has to take’, and the government said talks on reducing canola tariffs “have been fruitful.” Yet the PM is walking a tightrope: if he moves too close to China, the US will respond via economic statecraft; and if he stays too close to the US, China can do the same. As the Toronto Sun puts it: ‘Trump doesn’t want Canada building cars – and China wants total domination.’ In realpolitik terms, what does vaunted sovereignty then mean? The answer should be as obvious there as it is in Greenland and Iran.

Meanwhile, the FT explains, ‘Why the world has started stockpiling food again.’

In US domestic politics, Trump is to end federal funding to sanctuary cities and states from February, two Republicans flipped, defeating a Congressional war powers resolution that would have limited the president’s room for manoeuvre in Venezuela, and the FBI searched a Washington Post reporter’s home and devices.

In Australia, the US State Department criticised PM Albanese’s rushed new hate speech bill as “deeply perverse”, the latest in a series of interventions with allies if their policies differ from the goals in the US National Security Strategy. The Aussie opposition called the bill “unsalvageable.”

In the UK, 27 councils, 21 of which are Labour run, said they can’t hold elections this year, the police refused to sack a chief constable for using fake AI evidence to ban Israeli fans from attending a football game, and a far-right Dutch activist was denied entry to the country.

In Japan, a snap election date is close to being set, with PM Takaichi riding a wave of popularity over her tough stance on China, as a government panel proposed a “mandatory integration program” for foreign residents, showing a hard line on that front too.

This backdrop is sobering for many. Yet few will currently be sober if they’ve been following their ‘drink!’ instructions.