BBankers and investors, to decide on the investments they make, use risk analysis. They distinguish two main families: political risk and economic risk.
Political risks, and their economic consequences, have been on the rise in recent years. First, the imposition of customs duties on imports from China by the American administration since 2018, restrictions on imports from China (for example of telecommunications equipment) or exports to China (the microprocessors, among others) decided by most Western countries. The number of global trade barriers measured by the International Monetary Fund has increased from seven hundred in 2017 to nearly three thousand today.
Then, armed conflicts and the risks of armed conflict multiply. The war in Ukraine triggered Western sanctions against Russia: exclusion of Russian banks from Swift, ban on transactions with the Central Bank of Russia, ban on importing oil and coal from Russia, ban on investing in the mining and energy sectors in Russia, closing ports and airspace to Russian operators, banning exports of technological products to Russia.
The war between Israel and Hamas has serious consequences on maritime traffic due to the involvement of Houthi militias in Yemen. Finally, the risk of armed conflict between China and Taiwan has repercussions on the semiconductor market. Venezuela’s desire for expansion in Guyana may have effects on the oil market.
High rate variability
Political risk is the subject of multiple attempts to measure it. For example, the geopolitical risk indicator of the asset manager BlackRock combines an analysis of the frequency of mention of geopolitical risk in all studies of financial information agencies and brokers operating in the markets and an analysis of the possible reaction of financial markets, based on their past reactions to the actual realization of such a risk.
Since mid-2023, this indicator has risen sharply, without however reaching the level observed at the time of the invasion of Ukraine in February 2022. Another geopolitical risk indicator, that of the board of governors of the American Federal Reserve, is based on the frequency with which major international dailies publish articles that concern such risks. This indicator, available since 1900, is well up in 2023, but much less than during the wars of the past (the two world wars) or the attacks of September 11, 2001.
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