Inflation is likely to be a casualty of fraught superpower politics, these strategists say

By Jules Rimmer

Venezuela operation just latest example of competition for natural resources

William Blair's economists view this weekend's events in the context of great superpower competition for strategic resources

What this weekend's events in Caracas have clearly illustrated is that as the world's geopolitics fracture and multipolarity becomes ever more pronounced, control of natural resources has become the priority.

This is the conclusion of William Blair strategists Richard de Chazal and Louis Mukama in the immediate aftermath of the U.S. military operation to capture and rendition Venezuela's Nicolas Maduro over the weekend. In their weekly market monitor the economists highlight the contrast between the pre-pandemic world of abundant supply in both materials and labor, the swift and seamless dispatch of goods and services across the globe, and the frequent disruptions to trade witnessed in the more recent environment.

The trends of multipolarity, deglobalization and nearshoring all suggest supply shocks will become more frequent. The upshot of this? Stickier, more volatile inflation, they say.

How long the oil price can remain below its breakeven production cost is uncertain to William Blair. Superpower competition for resources is likely to mean higher inflation.

The research piece states that the ousting of Maduro is "one further step toward reordering global power and trade."

As the world deglobalizes and economic competition between the two superpowers escalates, de Chazal and Mukama describe how access to and availability of resources are becoming ever more restricted and more expensive nearshoring is unavoidable. Specifically, the authors point out, these resources subject to contention mean energy, advanced semiconductor chips and rare earth metals required to assemble them.

The consequences for corporates of these repeated disruptions and supply shocks could see them obliged to carry higher levels of inventories, "just in case," as the note puts it.

The report makes the point that while events in Venezuela represent a positive supply shock to the market for crude right now, how long oil prices (CL00) can stay below $60 when breakeven production costs are assessed between $61 and $66 per barrel is an open question.

Standing back from markets in the short-term, the report posits that the chief economic policy driver is becoming the Trump administration's fiscal policy rather than the monetary policy adopted by the Fed. De Chazal and Mukama observe the Fed is increasingly obliged to react to decisions, rather than pre-emptively adjusting monetary policy in anticipation of what the economy is doing next.

S&P 500 futures (ES00) were pointing to a positive start that would put the benchmark index near record highs. Gold futures (GC00) rallied more than 2%.

The yield on the 10-year Treasury BX:TMUBMUSD10Y slipped 2 basis points. Yields move in the opposite direction to prices.

-Jules Rimmer

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01-05-26 0741ET