U.S. President Donald Trump on the 3rd (local time) abruptly arrested Venezuelan President Nicolás Maduro, spreading tension across global financial markets. Investors are closely watching the ripple effects that geopolitical risk could have on asset prices.
Looking at past U.S. sanctions and the financial market's response, a preference for safe assets stood out in the short term. However, experts commonly analyzed that whether such volatility hardens into a long-term trend depends on how quickly political uncertainty is resolved going forward.
◇ Economic sanctions, physical removal, war… past cases in three branches
U.S. overseas actions taken for geopolitical reasons fall largely into three categories: ▲ economic sanctions ▲ physical measures against individual dictators ▲ war.
A representative case of economic sanctions came right after Russia's invasion of Ukraine on Feb. 24, 2022 (local time). At that time, the United States and the European Union (EU) imposed large-scale sanctions, including freezing about half of the foreign exchange reserves of Russia's Central Bank.
On the day of the invasion, global commodity markets swung wildly. West Texas Intermediate (WTI) crude futures started at $90.94 per barrel and spiked intraday to $98.44, while Brent also touched $105.79 intraday, reopening the $100 era. However, some gains were given back late in the session, closing at $90.24 and $99.08, respectively, showing extreme volatility.
There was also a clear shift of funds into safe assets such as gold and the dollar. Gold futures surged from $1,911 to $1,975 per ounce intraday, and the dollar index jumped nearly 1% in a single day to break above 97. Through early March, when the sanctions package was fleshed out, international oil and gold prices extended their rallies, lifting the market's fear gauge.
A preference for safe assets also appeared when physical measures were taken. On Jan. 3, 2020 (local time), when the United States eliminated Iranian commander Qassem Soleimani, fears of a wider Middle East conflict pushed WTI up 3.07% to $62.82, while gold rose 1.59% to $1,552.4.
In cases where war escalated in earnest, the preference for safe assets strengthened. During the 2003 Iraq War, Middle East geopolitical risk came to the fore and international oil prices jumped, and according to Reuters, gold prices hit a record high for the first time in four and a half years.
By contrast, interventions in countries with low connectivity to the global real economy and financial system had a limited market impact. After the Taliban returned to power in 2021, when the United States froze about $7 billion of overseas assets of Afghanistan's Central Bank, oil fell from $65 to $62, and gold and the dollar index moved sideways.
◇ Oil to rise in the short term… the long-term variable is "moves by Venezuela's military"
Brokerages expect this situation to also spur a short-term preference for safe assets. Lee Jae-man, a researcher at Hana Securities, said, "Geopolitical risk triggers an immediate risk premium in markets," adding, "Given past cases, this event could lift international oil prices by 5% to 10% in the short term." He added, "Gold will try to break above $4,500, and the dollar is also expected to strengthen in the short term."
Whether the shock persists hinges on how quickly political uncertainty is resolved. Ha Gun-hyung, a researcher at Shinhan Investment & Securities, cited the 1989 Panama invasion and the 2003 Iraq War cases, saying, "The key is whether the Maduro regime (Venezuela) collapses swiftly like Noriega (Panama), or whether it leads to prolonged turmoil like Hussein (Iraq)."
In particular, this situation signals a tectonic shift in the global energy supply chain beyond a simple change of government. Ha said, "While this action strongly bears the character of a 'pinpoint removal' targeting a specific individual, we must not forget that Venezuela holds the world's largest crude reserves," warning, "If the situation worsens, the shock to the global energy market will be on a different level from past threats to block the Panama Canal."
Experts pointed to "moves by Venezuela's military" as a key indicator for gauging the outlook. They said the speed of defections within the military and whether it surrenders early will be leading indicators of uncertainty easing.