As Trump Takes Office in the White House, Europe Faces One of Its Deepest Crises in History

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Yesterday, the inauguration of Donald Trump as the new President of the United States took place. The beginning of something new or just the same old story, only differently packaged? Trump promised to help end the Russia-Ukraine war, which could involve easing some restrictions in the Russian energy sector in exchange for a ceasefire in Ukraine. Traders will also seek further details on his trade tariffs for China and potential sanctions for Iran and Venezuela. And now there’s Greenland. Are we heading towards a Chinese century? Last week, China announced that its trade surplus reached a record 992 billion dollars in 2024, an increase of 10.7 percent. This comes as they reduce their holdings of U.S. bonds, produce more gold globally, and remain the largest consumer and importer of gold. The GDP of the world’s second-largest economy in the fourth quarter shows a cyclical growth of 1.6 percent and an annual growth rate of 5.4 percent.

Where does the EU fit in? The European Union today has about 447 million inhabitants and generates about 16 percent of the world’s GDP. Despite these significant figures, Europe is experiencing one of the deepest crises in its recent history. If the eurozone crisis of the last decade primarily affected peripheral countries like Greece and Portugal, this time the main EU economies, such as Germany and France, are facing increasingly severe economic and political situations. From being the “engine,” they risk becoming the weak link in a system struggling to withstand market pressures and social demands.

Has the strong U.S. dollar peaked? That’s what we saw in 2017 when the dollar weakened in the months following Trump’s inauguration. A weaker dollar would help support the prices of dollar-denominated goods, mainly due to better export competitiveness. The market will, besides Trump, focus on the weather (un)favorable conditions in the U.S., improved forecasts in South America, better demand for goods, and announcements of new U.S. policies regarding tariffs, immigration, energy policy, and regulations. Data for the U.S. CPI was released last week. Ultimately, the core CPI rose by 3.2 percent compared to 3.3 percent last month and against an estimate of 3.3 percent. That 0.1 percent makes a difference. The market now believes that we will likely see several interest rate cuts in 2025, but not before July.

The Arctic Gains Strategic Importance

The U.S. wants to take Greenland from Denmark due to its resources. Besides being strategically very important for the U.S., Greenland has significant natural resources. The Arctic is gaining key importance due to melting ice and an increasingly longer navigation window, allowing for fast and economical shipping through the Northern Sea Route. This route starts from Murmansk and broadly connects St. Petersburg with Vladivostok, crossing some of the most remote Arctic seas and reaching as far as the Bering Sea. The length of the Northern Route, compared to traditional routes, is on average almost half as long. This means a significant difference between the route that passes through the Suez Canal and the Arctic Canal, saving thousands of kilometers. Furthermore, the Arctic has vast reserves of hydrocarbons whose exploitation is becoming increasingly feasible due to the shrinking polar ice cap. Russia and China intend to transform this corridor into the ‘Ice Silk Road,’ a project that strengthens the New Silk Road, thereby freeing itself from the traditional southern routes controlled by the U.S. This would also mean a shift in the geopolitical balance. While the U.S. has tried to maintain primacy on routes and canals like the Panama or Suez, the Russian-Chinese project has gained momentum through decisive exploitation of access to Arctic seas.

China’s Arctic strategy, presented in 2018, highlighted how transformative this route could be for global trade. The fear of exclusion from new transport routes and the inability to control them generate increasing tensions, but it is now clear that the Northern Sea Route is a candidate for the fundamental artery of future trade. Oil prices on global markets rose again last week, marking the fourth consecutive increase. The price of a barrel on the London market rose by 1.3 percent last week, while on the U.S. market, a barrel increased by 1.7 percent. Crude oil continues to rise amid the implications of sanctions on Iran and Russia, but also due to positive economic prospects now looking towards 2026. OPEC predicts growth in oil demand, which continues to fit into Trump’s narrative of increasing drilling and exports in the U.S. The U.S. government has imposed sanctions on more than 250 companies and individuals, including a group in China, Turkey, the United Arab Emirates, and Malaysia, to prevent circumvention of the adopted measures.

Gas Reserves in England Reach Critical Level

New restrictions have also been introduced for nearly a hundred companies in the Russian financial, energy, and logistics sectors, which could complicate any attempts by the new government led by Donald Trump to lift them. Support for prices has also come from investors’ hopes for a recovery in demand from China, the world’s largest oil importer, after it was announced last week that China’s economy grew by five percent last year, in line with government forecasts. Last year, oil production in Chinese refineries fell for the first time in the last two decades, excluding the decline during the pandemic in 2022, and traders hope that new monetary and fiscal measures from Chinese authorities this year will stimulate faster economic growth, and thus demand for oil.

At the beginning of the new week, oil prices fell due to speculation about possible changes to U.S. sanctions on Russian oil under the upcoming Trump administration. Additionally, easing tensions in the Middle East affected prices after Hamas and Israel exchanged hostages and prisoners on Sunday, marking the first day of a ceasefire after 15 months of conflict.

In the energy world, electricity prices are also in focus. It is interesting to note that throughout the EU, Italy has the most expensive electricity, where the price of electricity per MW/h is 103.7 euros. In comparison, in Germany, it is 71.4 euros, in France 49.3 euros, in Spain 53.3 euros, in Portugal 54.1 euros, while the average for EU countries is 61.4 euros.

Gas reserves in England have reached a critical level, and the current storage fill is about 26 percent lower than at the same time last year. As of January 9, 2025, Centrica, the owner of the largest gas storage facility in England, highlighted this alarming decline, increasing concerns about energy security as winter progresses. Nothing is more optimistic in the rest of Europe either. Europe will purchase Russian gas this year at an unprecedented rate, spending billions of dollars that the Kremlin can use to finance its war in Ukraine, just a few weeks after the end of a major transit agreement that raised hopes that the continent could break its dependence on Moscow. Data reveals that in the first 15 days of this year, 27 EU countries imported 837 thousand tons of liquefied natural gas from Russia.

Fire Damage in LA Estimated at Around $270 Billion

Corn futures prices rose nearly three percent on the week at CBOT, but it should be noted that last Tuesday, the long position reached a level of 41.5 million tons! With this enormous exposure, the market is at risk of liquidation. Only climate damage to South American crops can support prices. Or, a serious devaluation of the euro against the dollar. Wheat ended the week with a rise of 1.5 percent at CBOT, but at the same time, the price of wheat at MATIF fell by more than 6 €/t, due to the weak competitiveness of French wheat in the global market. Unlike corn, wheat has a prevailing short position of 15.4 million tons of winter wheat at CBOT and 5.5 million tons at MATIF, which limits the potential for price decline. The soybean complex is marked by a long position of 5.1 million tons in grain, which is potentially too much if there is no damage to production in South America. For now, in Argentina, the weather is not favorable, while a record harvest is expected in Brazil.

A major fire hit one of the largest lithium battery plants in California, forcing the evacuation of the area and putting more than six million people in Los Angeles on alert. The economic damage is estimated to be between $250 and $270 billion. Speaking of lithium, Russia has captured the largest lithium deposit in Europe in Ukraine.

Copper futures prices fell at the beginning of the new week to around $4.3/lbs, dropping from two-month highs after the Chinese central bank kept key lending rates unchanged for the third consecutive month during January’s fixing, despite Beijing’s commitment to increasing consumption. Caution also prevailed ahead of Donald Trump’s inauguration, as traders awaited greater clarity on his potential policies, especially regarding tariffs. However, there remains hope that China will fulfill its promises of additional stimulus, and state media report that the People’s Bank of China may reduce the reserve requirement ratio for banks ahead of the Spring Festival later this month. On the supply side, Chile has revised its copper production forecast, now expecting 5.54 million tons by 2034, a decrease from the previous estimate of 6.34 million tons.