Tariff Uncertainty Weighs on Risk Assets as Oil Prices Climb on Supply Concerns

Geopolitical tensions and trade policy uncertainty are reshaping global markets as the new year unfolds. Proposed tariffs on major trading partners have sparked concern among investors, triggering a pullback in equities across Asia and weighing on risk appetite in cryptocurrencies. Bitcoin has retreated from recent highs as traders reassess exposure to volatile assets amid the shifting policy landscape.

Energy markets are moving in the opposite direction, with oil prices climbing on structural supply concerns. Tightening inventories of refined products, combined with geopolitical pressures affecting liquefied natural gas flows through critical chokepoints, are pushing crude and fuel costs higher. Policymakers are responding to the surge, with discussions underway about relief measures as energy prices accelerate.

The divergence reflects a classic risk-off environment where investors are rotating away from speculative assets and toward traditional safe havens, while simultaneously facing higher input costs for energy. Currency markets are responding in kind, with the dollar strengthening as bond yields reflect expectations of a more hawkish monetary backdrop. The combination of trade uncertainty and energy inflation is creating a complex backdrop for portfolio managers navigating 2025.