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BlackRock's 10 major geopolitical risks

With tensions between the US and other countries dominating the headlines, now seems like a good time to step back and put geopolitical risks in perspective.

With tensions between the US and countries including China and Iran dominating the headlines, now seems like a good time to step back and put major geopolitical risks in perspective.

BlackRock's latest geopolitical risk dashboard highlights the top risks to watch according to its latest BlackRock Geopolitical Risk Indicator (BGRI).

The index is formed from quantitative analysis of newswire databases, analyst reports and Twitter to determine the amount of market attention on each scenario. 

A zero score represents the average BGRI level over its history from 2003 up to that point in time, while a score of one means the BGRI level is one standard deviation above the average. 

From crippling cyberattacks to Europe tearing apart at the seams, here are 10 potential crises examined by the firm's experts.

 

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With tensions between the US and countries including China and Iran dominating the headlines, now seems like a good time to step back and put major geopolitical risks in perspective.

BlackRock's latest geopolitical risk dashboard highlights the top risks to watch according to its latest BlackRock Geopolitical Risk Indicator (BGRI).

The index is formed from quantitative analysis of newswire databases, analyst reports and Twitter to determine the amount of market attention on each scenario. 

A zero score represents the average BGRI level over its history from 2003 up to that point in time, while a score of one means the BGRI level is one standard deviation above the average. 

From crippling cyberattacks to Europe tearing apart at the seams, here are 10 potential crises examined by the firm's experts.

 

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10. Major terror attack

BGRI level: -0.77

Key risk:

A coordinated terror attack in a major western city that leads to significant loss of life and commercial disruption, potentially provoking a military response in the Middle East.

BlackRock's view:

'The recent Sri Lanka attacks illustrate the ongoing threat of ISIS-inspired local assaults. The principal threat remains autonomous cells or individuals.

'We see the market risk as greatest in case of a successful attack on the US homeland.'

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9. Russia-NATO conflict

BGRI level: -0.67

Key risk:

Tensions between Russia and NATO escalate to tit-for-tat actions, military preparations and – potentially – open conflict.

BlackRock's view: 

'Tensions remain high between Russia and the West.

'We could see them increasing further with the suspension of a nuclear arms control treaty, President Vladimir Putin’s declining approval ratings, and proposed US legislation targeting Russian energy, finance and oligarchs.'

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8. North Korea conflict

BGRI level: -0.45

Key risk:

The US takes military action against North Korea in response to its nuclear programme, drawing in South Korea, though the North backs down due to a lack of support from China.

BlackRock's view:

'The failed summit between the US and North Korea shows significant gaps between the parties on core issues, highlighting a long road to any resolution.

'Despite recent North Korean provocations, we could see continued diplomatic engagement by the Trump administration. We see the 2019 risk of military conflict on the Korean peninsula as low.'

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7. Latin American policy

BGRI level: -0.25

Key risk:

Populism in countries such as Brazil, Mexico, Argentina and Venezuela hurt investor confidence, and US-Mexico relations fray due to social, political and economic tensions.

BlackRock's view:

'Brazil’s government is facing obstacles addressing the country’s fiscal ills.

'We see risks in Argentina rising amid economic crisis and October election uncertainty, and worry about the spillover effects of a protracted crisis in Venezuela.'

 

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6. Major cyberattacks

BGRI level: 0.05

Key risk:

Cyberattacks become more damaging and frequent, with targets potentially including the US power grid, global financial system and industrial infrastructure.

BlackRock's view:

'Cyberattacks have increased in sophistication and quantity. We see a persistent risk of attacks on business-critical infrastructure and major elections.

'There is heightened risk of nation-state attacks on the US in the wake of increasing tensions with China, Iran and Russia.'

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5. Global trade tensions

BGRI level: 0.69

Key risk:

Tensions between the US and its trading partners continue to escalate into new sanctions and the possible scrapping of key agreements, fuelling market fears of a global trade war.

BlackRock's view:

'The US is shaking up the system of global trade with the aim to reduce its trade deficit.

'The US is moving toward a trade deal with China, but we see structural tensions persisting. We could see frictions with the EU rising with potential auto tariffs and believe ratification of the US trade deal with Canada and Mexico has become less certain.'

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4. South Asia tensions

BGRI level: 1.21

Key risk:

Cross-border attacks mark a significant escalation in hostilities between India and Pakistan.

Our view:

'Indian Prime Minister Narendra Modi’s tough approach may bolster his electoral prospects in the May elections, although we view an opposition victory as an underappreciated risk.'

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3. US-China competition

BGRI level: 1.62

Key risk:

Tensions between the US and China continue to build, leading to long-term geopolitical rivalry.

BlackRock's view:

'We see the US and China ultimately securing a trade deal, with significant implementation challenges to follow.

'Yet tensions between the two countries are broadening out to include economic, military and ideological dimensions. We see these tensions as structural and long-lasting.

'The rivalry is focused on technology and could lead to the progressive decoupling of the US and Chinese tech sectors.'

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2. Gulf tensions

BGRI level: 1.85

Key risk:

The war in Yemen, political unrest in Saudi Arabia and new sanctions on Iran lead to increased regional instability.

BlackRock's view:

'The US has extended its maximum pressure campaign against Iran.

'We see the decision to move to a global ban on importing Iranian oil materially increasing US-Iran tensions, putting the US at odds with China and India, and putting upward pressure on oil prices.

'US-Saudi relations remain strained due to a US congressional push for additional sanctions and decreased cooperation, which president Trump has strongly resisted.'

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1. European fragmentation

BGRI level: 2.65

Key risk:

Italy's government continues to clash with the European Union over its policies, while Brexit and rising populism elsewhere further undermine an already fragile Europe.

BlackRock's view:

'A six-month Brexit delay reduces near-term risks, but uncertainty over the long-term UK/EU relationship remains elevated.

'We expect a strong showing from populist parties in May's European elections, which remain a long way from a majority, but can negatively impact the pan-European initiative.

'The budget dispute between Italy and the European Commission has receded for now.'

 

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