Invasion of Venezuela, Nigeria, Taiwan – What Will Hit the Economy and Stock Markets Harder

The Third World War, by some interpretations, has already begun, but even without this grim thesis, it is an undeniable fact that the world is not living in peace at this moment. This year, two major global hotspots have flared up, with one still burning. There seems to be no end to the war in Ukraine, as the Russian leadership shows no willingness to stop its aggressive forces and sit at the negotiating table. The conflict in Gaza, which escalated last summer into a multi-day exchange of rocket strikes between Israel and Iran, is currently at a standstill, although the peace that U.S. President Donald Trump boasts about is of a very fragile nature.

As if these two conflicts were not enough, new hotspots threaten the world. Currently, the most tense situation is around Venezuela, especially after the U.S. aircraft carrier Gerald Ford approached its shores. The Pentagon ordered the deployment of the carrier with the aim of ‘destroying transnational criminal organizations and combating narco-terrorism in defense of the homeland,’ the Navy announced. In addition to Venezuela, Trump has recently somewhat threatened intervention in Nigeria due to attacks on the local Christian community.

The Economic Cost of War

Finally, one should not overlook the ‘mother of all conflicts,’ as geopolitical analysts call the possible invasion of China on the neighboring island of Taiwan. The U.S. is closely monitoring that part of the world, preparing to defend Taiwan from a Chinese invasion. In the context of shifting the focus of U.S. security policy towards Asia, one should also interpret the distancing from Europe and the demand from the U.S. administration for Europe to take greater (financial) responsibility for its own security. Given that the world watched in horror the recent short-lived war between Israel and Iran, fearing the closure of the Strait of Hormuz, the oil lifeline of the world, the question is what the economic cost of new conflicts would be?

Regarding the geopolitical context and possible reactions of the stock markets, energy prices, and precious metals, Lider sought the opinion of geopolitical and financial experts. The Trump administration has been attacking small boats departing from Venezuelan shores for some time. The Pentagon confirmed to the dpa agency that there had been 20 attacks resulting in 79 deaths by the beginning of last week. Trump also recently confirmed that he approved secret CIA operations in Venezuela.

The justification for this practice is found by Americans in the fight against drug smuggling. However, it is well known even to the broader public that the U.S. has its main problem with drug influx from Mexico and the local drug cartels. The influx of drugs from Venezuela is not comparable as a threat to U.S. national security, says Domagoj Juričić, an analyst at MK Business Consulting.

Showing Muscles to Russia and Iran

– The main source of the U.S. drug problem remains Mexico, primarily due to fentanyl and synthetic opioids. Venezuela is involved in cocaine smuggling, but that is a secondary channel compared to Mexican and Central American routes. Therefore, when Washington speaks about fighting drugs in Venezuela, it should be understood more as a political framework attempting to justify a broader goal, which is pressure on Maduro’s regime and limiting Russian and Iranian influence in the region, explains Juričić.

For the United States, Venezuela represents a problem because a strategic bridge of hostile forces is gradually forming there within what America considers its own backyard. – Russia maintains a military and intelligence presence in Venezuela, Iran is building energy and industrial ties, and China is financing and infrastructurally binding the regime to itself. Washington sees all this as the political-economic rooting of rivals in an area that has been considered exclusively America’s sphere of influence since the Monroe Doctrine. In other words, what worries the U.S. the most is not drugs but the possibility that foreign, especially anti-Western regimes, operate freely and without consequences just a few hours flight from Florida, says Juričić.

In political terms, this would mean that America no longer controls its own neighborhood, and in security terms, it allows Russian and Iranian structures to operate right next to its shores, adds this expert. – This is unacceptable for Washington, which is now only masked by a moral narrative about the fight against narcotics, says Juričić.

Weak Effect of Airstrikes

The deployment of the Gerald Ford carrier – the largest warship in the world – has sparked speculation that Washington aims to overthrow the regime in Venezuela, which has very large oil reserves. For now, it seems that the U.S. military will limit itself to airstrikes on targets of the Venezuelan military and government, with no intention of a ground invasion. Domagoj Juričić believes that limited airstrikes alone would not be sufficient to overthrow the regime.

– Maduro’s system of governance is deeply rooted, relying on the military, intelligence services, and loyalty networks that have been built over the years precisely for the purpose of surviving external shocks. Such an operation would have a more symbolic character, for example, to show that the United States again controls what it considers its own backyard and send a message to Iran, Russia, and China that the Caribbean remains an American zone of influence, assesses Juričić.

However, the risk is that any mistake could provoke a broader regional conflict and trigger a new wave of refugees towards the U.S. A strike on Venezuela, but also Nigeria, another major global oil exporter, would certainly cause an increase in oil prices, at least in the short term. Financial analysts at OTP Bank agree that the price of oil would significantly rise upon the announcement of military intervention.

– How long prices would remain elevated would depend on the ability to substitute potentially lost production due to the military intervention itself. In this case, the crucial role is played by other oil exporters and their willingness to increase production to stabilize the price and supply of this raw material (OPEC+ capacities and U.S. reserves). The perception of market participants regarding the possible duration and escalation of the conflict is also important, as an extension of the conflict’s duration could create additional instabilities and affect the maintenance of high price levels, they believe at OTP.

Earnings Only on Oil Stocks

When it comes to the reaction of stock markets in Europe and the U.S., historical experiences show varying degrees of sensitivity of stock markets to military interventions, depending on the economic and geopolitical importance of the countries involved in the conflict. At OTP, they say that for interventions in Venezuela and Nigeria, a more moderate market reaction is to be expected, given that both countries have limited influence on global indices.

– However, sectoral impacts would be significant, the energy sector would receive support from high oil prices, while the industrial and consumer sectors could suffer from new inflationary pressures, primarily due to increased input costs. For American and European stock indices, we can expect a short-term correction unless interventions escalate into broader regional conflicts, which could lead to additional market instability, they warn from OTP.

When it comes to Nigeria, the situation there is difficult to describe in a few sentences. The country is facing multiple crises: Islamist violence, conflicts between herders and farmers that often take on a religious dimension, and a wave of crime and kidnappings.

– The main sponsors of violent groups in Nigeria come from regional jihadist networks linked to the Islamic State and Al-Qaeda. Boko Haram and ISWAP are financed through a combination of arms and human smuggling, kidnappings for ransom, and illegal resource trading, especially gold, fuel, and livestock. There are also channels of cash flows that pass through the Sahel, from countries like Mali and Niger, where after the withdrawal of Western forces, Russian paramilitary structures linked to Wagner, now under the name Africa Corps, have strengthened, explains Domagoj Juričić.

Thus, behind the Nigerian violence today, a geopolitical layer is visible: the entry of Russia and Iran into the African security space, while China remains restrained and focused on economic interests. The attacks on Christian communities that Trump speaks of are real and brutal, but American military intervention in the classical sense is unlikely or will be limited to possibly striking rebel positions with rapid air intervention to assist the Nigerian government, believes Juričić. It is important to mention that Nigeria is a U.S. partner in the fight against terrorism and an important oil exporter to the U.S. market.

Trump’s recent announcement on the X platform should be viewed primarily as a political signal to the domestic conservative base, which is sensitive to the persecution of Christians worldwide. Juričić assesses that a more likely form of pressure would be through sanctions, conditioning military aid, and limited intelligence operations, rather than sending U.S. troops to African soil. – Washington will be careful not to destabilize a partner that is important for its energy security and counter-terrorism operations in West Africa, asserts our interlocutor.

For China, War Is Not in Its Interest

Finally, the question of Taiwan remains. Every few months, the Chinese military conducts large military exercises around that island, often on the brink of a real invasion. However, the possibility of a Chinese invasion in the next year or two is very low, according to Juričić, between ten and twenty percent. – During this period, China is primarily testing the West’s resolve and looking for ways to politically and economically isolate Taiwan, rather than militarily occupy it. What is more realistic to expect in the next two years are more aggressive gray zones, such as Chinese customs inspections in Taiwanese waters, temporary port blockades, cyber-attacks, and propaganda operations. All of this would allow Beijing to demonstrate power while avoiding direct war with the United States, says Juričić.

China will try to avoid war with the U.S. for as long as possible. Beijing knows that such a conflict would overturn the global economy and perhaps destroy exactly what it is trying to build, which is the status of a global power. China has the patience of generations and would rather try to bring Taiwanese politics closer to itself, which it has been doing for some time. In Taiwan, there are already parties and politicians advocating for unification with China, reminds Juričić.

China’s caution is understandable because a Chinese invasion of Taiwan would represent one of the greatest geopolitical risks to the global economy in recent decades, according to OTP. – Even a short-lived conflict could potentially produce serious long-term economic consequences. A potential blockade of Taiwan and the Taiwan Strait could paralyze global trade and affect the reduction of global GDP. Due to Taiwan’s strategic role in global supply chains, as this country produces over 60 percent of the world’s most advanced semiconductors, a potential disruption of supplies could paralyze global production of electronics, automobiles, and medical equipment. A Chinese invasion would lead to a conflict between the two largest world economies (China and the U.S.), which would cause disruptions in global trade and instability in financial markets, ultimately causing a recession in the global economy, they assess at OTP.

The Danger of Small Conflicts

Taiwan is not the only potential hotspot in the Pacific region. Analysts warn that there is a possibility of a broader conflict in that area, especially in the South China Sea, where Chinese interests collide with those of several countries: Japan, the Philippines, Vietnam, and Malaysia, a group of countries that have the support of the U.S.

– It is precisely the incidents involving the navies and coast guards of multiple countries that are much more dangerous because they increase the risk of unintended escalation. History teaches us that great wars rarely start with a grand plan, but often with a small incident that no one knew how to stop in time, warns Domagoj Juričić.

Welcome to the century of war.