Geopolitical uncertainty is heating up

At first glance, geopolitical concerns appear to be getting worse in the media headlines. One way to track this intensity is to count the number of words related to geopolitical events - the Geopolitical Risk Index (GPR), which covers categories such as “terror events” and “war threats” from the electronic archives of 10 newspapers going back to 1900, is running close to its highest level for 20 years.1

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Daniel Casali
Published: 12 Apr 2024 Updated: 12 Apr 2024
Savings and investments

The trend has moved up over the last few years in the build up to the war in Ukraine. It has taken another leg-up amidst the Israel-Hamas conflict, which now runs the risk of spilling over to become a regional issue involving Iran following the Israeli attack on the Iranian consulate in Damascus. There is already some disruption from the Iran-financed Houthi rebels attacking shipping through the Red Sea.

Increasing geopolitical risk is becoming apparent in rising energy and gold prices. The Brent crude oil price has risen 16% so far this year to around $90/barrel, while the gold price is now setting new record highs this month ($2,347/troy oz as at the time of writing).1 However, geopolitics has not disrupted the equity rally so far, but there are two key potential flashpoints below related to the Russia-Ukraine war and events in the Middle East, involving Israel and Iran, worth monitoring.

Russia-Ukraine war

The risk of the conflict spreading outside Ukrainian borders has arguably increased in recent months. Part of the reason may lie in the fact that President Joe Biden now has less control over events than he did in the first few years of his administration when the Democrats controlled Congress. That’s because the Republicans hold a majority in the House and have blocked sending $60 billion in financial aid to Ukraine. The Republicans do not want to be seen approving aid overseas with just seven months to go before an election during a domestic cost-of-living crisis.

A lack of aid to Ukraine could lead to further escalation of the conflict where a lack of resources is leading to the government in Kyiv taking more risks. For instance, Ukraine has successfully launched 23 drone strikes at Russian oil refineries and storage facilities.2 This goes against US foreign policy not to allow the Ukraine war spill over onto Russian soil. Indeed, Ukraine President Volodymyr Zelensky showed his frustration that more aid has not been forthcoming in a recent interview with the Washington Post when asked the about the drone attacks on Russia: "The reaction of the US was not positive on this … We used our drones. Nobody can say to us you can’t."

Perhaps to appease Kyiv, the Secretary of State, Anthony Blinken, made a definitive statement in Brussels last week that Ukraine would become a member of the North Atlantic Treaty Organisation (NATO), though he did not give a timeframe. Such comments coming from the US will be seen as provocative in Moscow and contribute to greater geopolitical risk. Were Ukraine to become a NATO member, under Article 5 in its charter, an attack on Ukraine would be considered an attack on all NATO members, including the US.

NATO’s Secretary General, Jens Stoltenberg, also recently unveiled a proposal to provide long-term military support through a €100 billion five-year fund.3 Though it is not clear how funding can be raised as NATO does not have a budget or means to raise money.

These comments follow on from President Emmanuel Macron’s suggestion that Western troops could be sent to Ukraine. Far from finding an end to this conflict, geopolitical risks are only getting worse. Keep an eye on what comes out of the Washington Summit in July as NATO celebrates its 75th anniversary this year.

Israel and Iran

There are growing concerns about a potential Iranian attack on Israel in response to the Israeli bombing of the Iranian consulate in Damascus on 1 April. The strike killed seven senior Iranian military commanders, including Mohammad Reza Zahedi, who was a key link between Iran’s Islamic Revolutionary Guard and Hezbollah in Lebanon. The bombing is likely viewed as an attack on Iran itself, leaving Tehran under pressure to respond with an attack of their own against Israel. Indeed, in early April, the Wall Street Journal reported that Iran’s Supreme Leader Ayatollah Ali Khamenei and President Ebrahim Raisi vowed to respond to the strike.

There’s a range of possible responses that the Iranians could deploy, but, in our view, three seem most likely.

First, a lower-risk option would be strikes on Israeli-owned assets outside of Israel, either by Iranian military operatives or Iranian-proxies, like the Houthi rebels in Yemen. The advantage would be to avoid a direct conflict with Israel (and possibly the US), but this may not appease the Iranian military and other political factions in Tehran. This attack could also be actioned in the form of a cyber-attack.

Second, a medium-risk option would be a limited drone or ballistic missile attack on Israeli military assets in the disputed area of the Golan Heights. This area was captured from Syria by Israel following the Six-Day War in 1967 and officially annexed by Israel in 1981. Both Syria and Iran claim the Golan Heights are Syrian territory. This would allow the Iranians to claim they have attacked Israeli territory and military assets, but it may not be sufficient for Israel to escalate the situation.

Third, a higher-risk option would be a substantial Iranian strike on essential infrastructure, such as power stations, and military targets within Israel itself. This may lead to a similar retaliatory response from Israel on Iran. Under this scenario, the Iranians may encourage its allies to attack Israeli targets, increasing the likelihood of the US being drawn into the conflict. Though Iran is probably reluctant to seek a direct confrontation since the trauma of a direct conflict with Iraq in the 1980s probably still lingers within the regime.

The bottom line is that Tehran is under pressure to strike back to avoid showing weakness domestically and to its allies. However, it needs to find the right balance and not overstep the mark which could risk a much broader escalation.

Investors should be looking at whether a potential conflict spreads and leads to the closure of the Strait of Hormuz. Goldman Sachs estimated that around 17% of global oil production and 18% of global liquefied natural gas flow through the Strait in late 2023.4 If the flow of energy is disrupted then this could lead to a material rise in oil and gas prices. In turn that could lift consumer prices and complicate the aim of central bankers to bring down inflation and interest rates.

Overall, rising geopolitical risk is balanced by an improving economic picture. With global growth forecasts holding up, analysts are relatively upbeat on the prospects for firms: the consensus expects around 9% and 13% Earnings Per Share growth in 2024 and 2025 for companies in the MSCI All Country World benchmark, respectively.6 Moreover, inflation continues to slow, increasing the likelihood that central banks will cut interest rates. Providing that geopolitical risks do not escalate, there remains scope for equities to rally further after a strong start to this year.


[1] LSEG Datastream/Evelyn Partners.

[2] Ukrainian Strikes on Russian oil refineries: What's the impact? | Euronews

[3] NATO to plan long-term Ukraine aid, mulls 100-billion euro fund (

[4] Goldman Sachs, Oil Comment: Red Sea Disruptions: Larger Potential Price Increases for Freight Rates Than for Commodities, 18 December 2024.

Important information

The content in this article is not intended to constitute advice or a recommendation, and you should not make any investment decision based on it. Our opinions may change without notice.