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Geopolitical risk dashboard
April 2024 | Geopolitical fragmentation is accelerating in 2024, reinforcing persistent inflation pressures. The first direct strikes between Israel and Iran represent a new escalation in the Middle East and a structural increase of risk in the region. This follows recent Houthi militant attacks on shipping in the Red Sea disrupting supply chains.
BlackRock Geopolitical Risk Indicator
The global BlackRock Geopolitical Risk Indicator (BGRI) aims to capture overall market attention to geopolitical risks, as the line chart shows. The indicator is a simple average of our top-10 risks. The indicator sits at its highest level in a year. Markets are increasingly concerned about the range of risks on the horizon.
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Top 10 risks by likelihood
We keep our Gulf tensions risk at a high level given the ongoing Gaza war and potential for further regional escalation. Israel and Iran have crossed historic red lines with their respective strikes on each other. And the longer and more lethal the Israeli operation in Gaza, the greater the chance of escalation and contagion. We maintain our Major cyber attack(s) risk rating at a high level. Recent large-scale attacks highlight risks to businesses, critical infrastructure and national security. The heightened tensions among key cyber-enabled nations raises the risk of major cyber events – especially during a historic year for global elections. We hold our U.S.-China strategic competition risk rating at a high level. The U.S.- China relationship is experiencing a period of near-term stability but is also marked by targeted decoupling and intense, structural competition – particularly in the areas of advanced technology and defense.
| Risk | Description | Market attention since 2019 | Likelihood | Our view |
|---|---|---|---|---|
| U.S.-China strategic competition | Tensions escalate meaningfully over Taiwan or in the South China Sea. |  |
High | The U.S. and China have settled into a long-term and intensely competitive posture. Increased working-level dialogue and senior visits since last November’s meeting between President Biden and President Xi reflect a serious effort on both sides to bring an improved tone and stability to the relationship. Yet we see the shift as tactical rather than structurally altering the competitive dynamics of the relationship. Persistent and large-scale exporting of excess industrial capacity by China could be the next wave of tension – as could U.S. allegations of support by Chinese financial institutions of the Russian war effort. Although we don’t see a military action in the near term, in our view, a conflict over Taiwan would have a significant global impact. Tensions in the South China Sea have increased significantly and pose a meaningful risk of miscalculation or accident. |
| Global technology decoupling | Technology decoupling between the U.S. and China significantly accelerates in scale and scope. |  |
High | The U.S. and China are engaged in a long-term, zero-sum technological competition. They are pursuing targeted decoupling, focused especially on advanced technologies like AI, semiconductors, and quantum computing, as well as technologies with military application. We monitor potential increased U.S. tariffs on Chinese electric vehicles and other frontier tech including sensitive bulk data, digitally connected vehicles, crane technology, pre-positioned cyber attacks, and biotech. U.S. allies in Europe and Asia are discussing similar measures. China is responding by investing in its own capabilities. We expect ongoing tension and parallel, competing tech stacks, as a result. |
| Russia-NATO conflict | The war in Ukraine becomes protracted, raising the risk of escalation beyond Ukraine. |  |
High | Russia’s invasion of Ukraine is the largest, most dangerous military conflict in Europe since World War Two. The conflict has become a battle between the two sides’ industrial bases, and Ukraine enters the war’s third year in a vulnerable position. Recently approved additional military aid from the U.S. will likely allow Ukraine to improve its posture during 2024. Russia is receiving significant supplies from countries like Iran and North Korea as well as major financial backing from China. We see a ceasefire or diplomatic solution as unlikely in the near term, with the conflict likely to continue this year and into the next. |
| Gulf tensions | Regional conflict escalates, threatening energy infrastructure and increasing volatility. |  |
High | We believe Iran’s unprecedented and direct aerial attack on Israel lowers the threshold for conflict escalation, increasing structural risk. Although neither side seeks all-out war, Iran has said it would retaliate directly against Israeli attacks in the region, heightening the risk of accidental – or intentional – escalation. Elsewhere, Iran-backed militants in Lebanon, Syria, Iraq and Yemen continue to threaten Israeli and Western assets, including U.S. troops and commercial shipping vessels. An Israeli military operation against Hamas in Rafah is now more likely, we think, though there is currently no plan to adequately address the humanitarian situation nor prepare for post-war governance and security in Gaza. There is still no ceasefire-for-hostages deal as Israeli military operations are likely to continue into next year. A conflict with Hezbollah remains possible if displaced populations cannot return to their homes. |
| Major terror attack(s) | A terror attack leads to significant loss of life and commercial disruption. |  |
High | In March, market attention to global terrorism rose to its highest level since 2017. The conflict in the Middle East increases the threat of terrorism in the region, U.S. and Europe, in our view. Al-Qaida and the Islamic State keep rebuilding their global reach, showing increased motivation and capability to conduct attacks abroad. Law enforcement and intelligence officials have cited violent extremists, lone actors and the emergence of new terrorist hotspots as major areas to watch. The Sahel region is of particular concern as military takeovers have threatened the West’s efforts to fight against terrorism. In the U.S., the Biden administration has flagged the threat of domestic terrorism. We see heightened risk ahead of the 2024 presidential election. |
| Major cyber attack(s) | Cyber attacks cause sustained disruption to critical physical and digital infrastructure. |  |
High | Market attention to cyber attacks has jumped near all-time highs since last September. Mounting geopolitical competition will cause cyber attacks to increase in scope, scale and sophistication, we think. Foreign hackers have increasingly infiltrated critical U.S. infrastructure and the accounts of U.S. officials, exposing key vulnerabilities. Surging ransomware attacks, especially in healthcare and critical manufacturing, highlight the vulnerability of business infrastructure. We see cyber activity increasing in conflict zones and particularly around upcoming elections. This puts increased pressure on national security services to take a more proactive stance, we think. |
| Emerging markets political crisis | Ripple effects from the Ukraine war severely stress EM political systems and institutions. |  |
Medium | Emerging market (EM) economies have been boosted by central bank rate cuts and resilient developed market (DM) growth. Yet China’s challenged economic activity and the long-term costs of fragmentation present risks to EM. We expect divergence in EM outcomes. While countries like India, Mexico and Vietnam are likely to benefit from supply chain diversification, others with substantial short-term debt obligations like Argentina remain vulnerable despite domestic policy adjustment. We worry about a lack of cooperation on debt relief and the impact of a record number of global conflicts around the world. |
| North Korea conflict | North Korea pushes ahead with its nuclear buildup and takes provocative actions such as missile launches. |  |
Medium | North Korea’s nuclear program continues unabated. In January, Kim Jong Un renounced peaceful reunification with South Korea as a key policy goal. We see increased risk of further provocation or even miliary action as Kim looks to build leverage ahead of the U.S. elections. North Korea is also growing closer to China and Russia, a top arms supplier. South Korea and Japan are bolstering their defenses and strengthening ties with each other and the U.S. – a partnership underscored by Japanese Prime Minister Kishida’s April visit to Washington. |
| Climate policy gridlock | Developed economies fail to increase public investment or take action to achieve net-zero emission targets. |  |
Medium | The world is seeking to deliver on decarbonization commitments and energy security goals in a new era of energy pragmatism. Europe and the U.S. are racing against China for clean energy leadership after the passing of the U.S. Inflation Reduction Act (IRA). We think the IRA will help accelerate the development and deployment of low-carbon technologies. We view control of – and access to – clean energy supply chains as critical in an era of accelerated geopolitical competition. Countries may have to choose between cheap clean tech and more protectionist, security-oriented industrial policy. We think this year’s U.S. election represents a pivotal point for the implementation of clean energy legislation. |
| European fragmentation | The energy crunch and inflationary pressures lead to a populist resurgence and economic volatility. |  |
Low | Market attention to European fragmentation has increased sharply since last fall. Europe remains largely united on key issues: building up its strategic autonomy and de-risking from China, supporting Ukraine, and reforming migration. Disagreements are centered on execution and financing. We await key European Parliament elections in June and the ensuing appointment of the Commission President and Commissioners. While our base case is for a return of a more centrist coalition, several issues could strain political cohesion. This includes irregular migration patterns. Last year, migration to the EU reached the highest level since 2016. |
Sources: BlackRock Investment Institute. Data as of April 2024. Notes: The “risks” column lists the 10 key geopolitical risks that we track. The “description” column defines each risk. “Attention score” reflects the BlackRock Geopolitical Risk Indicator (BGRI) for each risk. The BGRI measures the degree of the market’s attention to each risk, as reflected in brokerage reports and financial media. See the "how it works" section on p.7 for details. The table is sorted by the “Likelihood” column which represents our fundamental assessment, based on BlackRock’s subject matter experts, of the probability that each risk will be realized – either low, medium or high – in the near term. The “our view” column represents BlackRock’s most recent view on developments related to each risk. This is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any funds or security in particular. Individual portfolio managers for BlackRock may have opinions and/or make investment decisions that may, in certain respects, not be consistent with the information contained herein.
Comparing market movements and attention
We have developed a market movement score for each risk that measures the degree to which asset prices have moved similarly to our risk scenarios, integrating insights from our Risk & Quantitative Analysis (RQA) team and their Market-Driven Scenario (MDS) shocks. We do this by estimating how “similar” the current market environment is to our expectation of what it would look like in the event the particular MDS was realized, also taking into account the magnitude of market moves. The far right of the horizontal axis indicates that the similarity between asset movements and what our MDS assumed is greatest; the middle of the axis means asset prices have shown little relationship to the MDS, and the far left indicates markets have behaved in the opposite way that our MDS anticipated.
Risk map
BlackRock Geopolitical market attention, market movement and likelihood
Selected scenario variables
How to gauge the potential market impact of each of our top-10 risks? We have identified three key “scenario variables” for each – or assets that we believe would be most sensitive to a realization of that risk. The chart below shows the direction of our assumed price impact.
| Geopolitical risk | Asset | Direction of assumed price impact |
|---|---|---|
| U.S.-China strategic competition | Taiwanese dollar |  |
| Taiwanese equities | |
|
| China high yield | |
|
| Russia-NATO conflict | Russian equities | |
| Russian ruble | |
|
| Brent crude oil |  |
|
| Major cyber attack(s) | U.S. high yield utilities | |
| U.S. dollar | |
|
| U.S. utilities sector | |
|
| Global technology decoupling | Chinese yuan | |
| U.S. investment grade | |
|
| Asia ex-Japan electrical | |
|
| Gulf tensions | Brent crude oil | |
| VIX volatility index | |
|
| U.S. high yield credit | |
|
| Major terror attack(s) | Germany 10-year government bond | |
| Japanese yen | |
|
| Europe airlines sector | |
|
| Emerging markets political crisis | Latin America consumer staples sector | |
| Emerging vs. developed equities | |
|
| Brazil debt | |
|
| North Korea conflict | Japanese yen | |
| South Korean won | |
|
| South Korean equities | |
|
| Climate policy gridlock | U.S. building products sector | |
| U.S. construction materials sector | |
|
| U.S. utilities sector | |
|
| European fragmentation | Italy 10-year government debt | |
| EMEA hotels and leisure | |
|
| Russian rouble | |
Source: BlackRock Investment Institute, with data from BlackRock’s Aladdin Portfolio Risk Tools application, July 2022. Notes: The table depicts the three assets that we see as key variables for each of our top-10 geopolitical risks – as well as the direction of the assumed shocks for each in the event of the risk materializing. The up arrow indicates a rise in prices (corresponding to a decline in yields for bonds); the down arrow indicates a fall in prices. Our analysis is based on similar historical events and current market conditions such as volatility and cross-asset correlations. See the “implied stress testing framework” section of the 2018 paper Market-Driven Scenarios: An Approach for Plausible Scenario Construction for details. For illustrative purposes only. The scenarios are for illustrative purposes only and do not reflect all possible outcomes as geopolitical risks are ever-evolving. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any funds, strategy or security in particular.
We detail the key geopolitical events over the next year in the table below.
| 2024 | Location | Event |
|---|---|---|
| January | ||
| January 1 | G7 | Italy G7 Presidency Begins |
| January 1 | Euro Area | Belgian EU Council Presidency Begins |
| January 13 | Taiwan | Presidential and Legislative Elections |
| January 15 | U.S. | Iowa Caucus |
| January 15-19 | Switzerland | World Economic Forum Annual Meeting |
| January 20-23 | Uganda | Third South Summit of the G77 |
| January 23 | U.S. | New Hampshire Presidential Primary |
| January 23 | Japan | Bank of Japan Meeting |
| January 25 | Euro Area | European Central Bank Meeting |
| January 31 | U.S. | Federal Reserve Meeting |
| February | ||
| February 1 | UK | Bank of England Meeting |
| February 3 | U.S. | South Carolina Democratic Presidential Primary |
| February 8 | U.S. | Nevada Caucus |
| February 8 | Pakistan | General Election |
| February 14 | Indonesia | General Election |
| February 16-18 | Germany | Munich Security Conference |
| February 24 | U.S. | South Carolina Republican Presidential Primary |
| February 26-29 | UAE | World Trade Organization Ministerial Conference |
| March | ||
| March 5 | U.S. | Super Tuesday Presidential Primaries. |
| March 7 | Euro Area | European Central Bank Meeting |
| March 17 | Russia | Presidential Election |
| March 20 | U.S. | Federal Reserve Meeting |
| March 21 | UK | Bank of England Meeting |
| March 21-22 | Euro Area | European Council Meeting |
| April | ||
| April 11 | Euro Area | European Central Bank Meeting |
| April 19-21 | U.S. | IMF/World Bank Meetings |
| April 26 | Japan | Bank of Japan Meeting |
| April TBD | India | General Election |
| May | ||
| May 1 | U.S. | Federal Reserve Meeting |
| May 9 | UK | Bank of England Meeting |
| May 20 | Taiwan | Taiwan presidential inauguration day |
| June | ||
| June 2 | Mexico | General Election |
| June 6 | Euro Area | European Central Bank Meeting |
| June 6-9 | Euro Area | Parliamentary Elections |
| June 9 | Belgium | Belgian federal election |
| June 12 | U.S. | Federal Reserve Meeting |
| June 13-15 | G7 | G7 leaders' summit |
| June 20 | UK | Bank of England Meeting |
| June 27-28 | Euro Area | European Council Meeting |
| June TBD | Italy | G7 Leaders' Summit |
| July | ||
| July 1 | Hungary | European Council Presidency Begins |
| July 9-11 | NATO | NATO Summit |
| July 15-18 | U.S. | Republican National Convention |
| July26-August 11 | France | Summer Olympics |
| July 18 | Euro Area | European Central Bank Meeting |
| July 31 | U.S. | Federal Reserve Meeting |
| July 31 | Japan | Bank of Japan Meeting |
| August | ||
| August 1 | UK | Bank of England Meeting |
| August 19-22 | U.S. | Democratic National Convention |
| August 22 | Jaskson Hole | Jackson Hole Economic Symposium |
Source: BlackRock Investment Institute, February 2024.
How it works
The quantitative components of our geopolitical risk dashboard incorporate two different measures of risk: the first based on the market attention to risk events, the second on the market movement related to these events.
Market attention
The BlackRock Geopolitical Risk Indicator (BGRI) tracks the relative frequency of brokerage reports (via Refinitiv) and financial news stories (Dow Jones News) associated with specific geopolitical risks. We adjust for whether the sentiment in the text of articles is positive or negative, and then assign a score. This score reflects the level of market attention to each risk versus a 5-year history. We use a shorter historical window for our COVID-19 risk due to its limited age. We assign a heavier weight to brokerage reports than other media sources since we want to measure the market's attention to any particular risk, not the public’s.
Our updated methodology improves upon traditional “text mining” approaches that search articles for predetermined key words associated with each risk. Instead, we take a big data approach based on machine-learning. Huge advances in computing power now make it possible to use language models based on neural networks. These help us sift through vast data sets to estimate the relevance of every sentence in an article to the geopolitical risks we measure.
How does it work? First we “train” the language model with broad geopolitical content and articles representative of each individual risk we track. The pre-trained language model then focuses on two tasks when trawling though millions of brokerage reports and financial news stories:
- classifying the relevance of each sentence to the individual geopolitical risk to generate an attention score,
- classifying the sentiment of each sentence to produce a sentiment score
The attention and sentiment scores are aggregated to produce a composite geopolitical risk score. A zero score represents the average BGRI level over its history. A score of one means the BGRI level is one standard deviation above its historical average, implying above-average market attention to the risk. We weigh recent readings more heavily in calculating the average. The level of the BGRIs changes slowly over time even if market attention remains constant. This is to reflect the concept that a consistently high level of market attention eventually becomes “normal.”
Our language model helps provide more nuanced analysis of the relevance of a given article than traditional methods would allow. Example: Consider an analyst report with boilerplate language at the end listing a variety of different geopolitical risks. A simple keyword-based approach may suggest the article is more relevant than it really is; our new machine learning approach seeks to do a better job at adjusting for the context of the sentences – and determining their true relevance to the risk at hand.
Market movement
In the market movement measure, we use Market-Driven Scenarios (MDS) associated with each geopolitical risk event as a baseline for how market prices would respond to the realization of the risk event.
Our MDS framework forms the basis for our scenarios and estimates of their potential one-month impact on global assets. The first step is a precise definition of our scenarios – and well-defined catalysts (or escalation triggers) for their occurrence. We then use an econometric framework to translate the various scenario outcomes into plausible shocks to a global set of market indexes and risk factors.
The size of the shocks is calibrated by various techniques, including analysis of historical periods that resemble the risk scenario. Recent historical parallels are assigned greater weight. Some of the scenarios we envision do not have precedents – and many have only imperfect ones. This is why we integrate the views of BlackRock’s experts in geopolitical risk, portfolio management, and Risk and Quantitative Analysis into our framework. See the 2018 paper Market Driven Scenarios: An Approach for Plausible Scenario Construction for details. MDS are for illustrative purposes only and do not reflect all possible outcomes as geopolitical risks are ever-evolving.
We then compile a market movement index for each risk.* This is composed of two parts:
- Similarity: This measures how “similar” the current market environment is to our expectation of what it would look like in the event the particular MDS was realized. We focus on trailing one-month returns of the relevant MDS assets.
- Magnitude: this measures the magnitude of the trailing one-month returns of the relevant MDS assets.
These two measures are combined to create an index that works as follows:
- A value of 1 would means that the market has reacted in an identical way as our MDS indicated. We call this “priced in.”
- A value of zero would indicate that the pattern of asset prices bears no resemblance at all to what the MDS for a particular risk would indicate.
- A value of -1 would indicate that assets are moving in the opposite direction to what the MDS would indicate. Markets are effectively betting against the risk.
*This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any funds, strategy or security in particular. The scenarios are for illustrative purposes only and do not reflect all possible outcomes as geopolitical risks are ever-evolving.
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