From Greenland to canola: how geopolitics is changing trade, commodity markets

• US threats of tariffs against Denmark and European nations over Greenland could raise effective EU tariffs up to 30%, prompting increased European military presence in the Arctic due to the island's critical minerals and strategic location
• Canada signed a trade deal with China reducing tariffs on canola and opening energy export channels, signaling a strategic diversification away from US market dependence under Prime Minister Mark Carney
• Commodity markets show heightened volatility with oil prices fluctuating on Middle East tensions and gold/metals reaching new highs, while financial markets remain resilient with US inflation stabilizing at 2.7% and equity indices hitting record levels

Summary: Geopolitics Reshaping Trade and Commodity Markets

Key Developments:

Geopolitical tensions are increasingly driving commodity market volatility while financial markets remain stable, according to Rystad Energy Chief Economist Claudio Galimberti. Two major developments illustrate this shift:

Greenland Tensions:

The island has become a US-Europe flashpoint due to its strategic value—military positioning, Arctic access, and critical mineral reserves. President Trump's threat of tariffs against Denmark and European nations objecting to US territorial claims could raise effective EU tariffs to 30%. France, Germany, and Denmark have responded with increased Arctic military exercises, introducing uncertainty into transatlantic trade relations.

Canada's China Pivot:

Prime Minister Mark Carney's Beijing visit signals Canada's strategic recalibration amid US tensions. A new trade agreement significantly reduces Chinese tariffs on Canadian canola, benefiting western producers, while making modest concessions on Chinese EV imports. Discussions include potential energy export collaboration as Ottawa reduces dependence on US markets.

Macroeconomic Context:

US inflation stabilized at 2.7% headline and 2.6% core (December, year-over-year) after tariff-related pressures subsided. Consumer spending remains strong, particularly among higher-income groups. Markets anticipate a soft landing, with equity indices hitting new highs despite political tensions, including US-Federal Reserve confrontations.

In Asia, China recorded record trade surpluses by redirecting exports despite weak domestic demand. Germany showed modest 2025 growth; UK activity rebounded. Japan faces risks from potential snap elections, currency weakness, and Bank of Japan policy normalization.

Commodity Market Impact:

Oil prices fluctuate with Middle East tensions and Iran developments. Gold and industrial metals reach new highs as geopolitical hedges. Energy and metals markets show heightened sensitivity to trade measures, sanctions, and security policies, with sustained volatility expected.