In an increasingly volatile world, geopolitical events can send shockwaves through markets and economies. Whether it’s a military conflict, sanctions, or diplomatic fallout, the ripple effects are felt across sectors and borders. To make sense of these uncertainties, analysts and institutions rely on a range of geopolitical risk indices—tools designed to quantify, track, and sometimes forecast global instability. This article explores how these indices are constructed, the assumptions behind them, and what they reveal about the state of international affairs.
What Are Geopolitical Risk Indices?
Geopolitical risk indices are structured attempts to quantify the likelihood and impact of political instability and international conflict. These indices are critical for investors, policymakers, and corporations managing exposure to global markets. Each index uses a unique methodology—some rely on media analysis, others on expert scoring or macroeconomic data—to measure tensions that are otherwise hard to capture numerically.
The Caldara and Iacoviello GPR Index
One of the most widely used measures is the Geopolitical Risk Index (GPR) developed by economists Dario Caldara and Matteo Iacoviello. This index is built using a text-based methodology that counts the frequency of specific keywords related to geopolitical tension in major newspapers. Keywords include terms such as “war,” “military threats,” “terrorist activity,” and “sanctions.” Articles are scanned from leading publications including The New York Times, The Wall Street Journal, and The Guardian, dating back to 1985. All keywords are equally weighted, and the final index is generated monthly based on the volume and context of these mentions.
The key assumption is that more frequent discussion of these terms in global media reflects heightened geopolitical risk. The index also has variations, such as the GPR Threat Index (anticipating risk) and GPR Acts Index (measuring actual conflict or violence), as well as country-specific breakdowns.
BlackRock’s Geopolitical Risk Dashboard
BlackRock’s Geopolitical Risk Dashboard blends expert judgment with real-time market data to assess risk levels. This approach scores potential geopolitical flashpoints based on perceived likelihood and severity, using inputs from analysts and financial indicators like CDS spreads, equity volatility, and foreign exchange fluctuations.
Weights are dynamic and not publicly disclosed, but the methodology suggests a balance between qualitative assessments and quantitative market signals. The dashboard assumes that financial markets effectively absorb and reflect geopolitical risk, especially when informed by expert interpretation.
Eurasia Group’s Top Risks Report
Each year, the Eurasia Group releases its Top Risks report, a forward-looking analysis that ranks the most pressing geopolitical threats. This index is purely qualitative, based on expert evaluation of each risk’s likelihood, severity, and potential global impact. While no fixed scoring or weighting system is used, the ranked format inherently implies a hierarchy of importance.
This model assumes that seasoned geopolitical experts can foresee and contextualize risks better than algorithms or market data. It is particularly useful for long-term strategic planning in government and business sectors.
The ICRG by PRS Group
The International Country Risk Guide (ICRG), published by the PRS Group, offers a more data-driven alternative by combining both qualitative and quantitative methods. It assesses 22 variables across political, financial, and economic dimensions, with a strong emphasis on institutional stability and governance.
Within the political risk category, variables such as government stability, internal and external conflict, corruption, law and order, and ethnic tensions are evaluated. Each variable is assigned a fixed weight—for example, internal conflict and government stability each carry a 12% weight in the overall political risk score.
The ICRG assumes that governance quality and institutional resilience are reliable predictors of political instability. Data is updated monthly, based on in-house analysis and global information sources.
Comparing the Indices
Each index offers a different lens through which to view geopolitical risk. Some, like the GPR, aim for objectivity by relying on media data, while others, like BlackRock’s dashboard and the Eurasia Group’s report, lean heavily on expert judgment. The ICRG provides a structured blend of both, grounding its ratings in country-specific data with predetermined weights.
No single index is perfect, but together, they offer a comprehensive picture of global tension and uncertainty. Investors, analysts, and policymakers can use them in combination to assess short-term threats and long-term strategic risks.
The World Uncertainty Index (WUI)
In addition to the indices discussed earlier, the World Uncertainty Index (WUI) offers a unique, globally comparative measure of economic and political uncertainty. Constructed by Ahir, Bloom, and Furceri, the WUI is based on the frequency of the word “uncertainty” in quarterly country reports published by the Economist Intelligence Unit (EIU). The index spans 143 countries and dates back to 1952, making it one of the most comprehensive uncertainty measures available. To ensure consistency across countries and time, the raw frequency of the term “uncertainty” is normalized per thousand words in each report, accounting for differences in document length.
What sets the WUI apart is its standardized source and structure, which ensures comparability across both advanced and developing economies. Unlike market-based or newspaper-driven indices, the WUI draws on a single, editorially consistent source focused on country-specific developments. It also includes category-specific indices such as Trade Uncertainty, Pandemic Uncertainty, and spillovers from systemic economies like the U.S. and U.K. The underlying assumption is that increased mentions of uncertainty reflect heightened risk perceptions by expert analysts. Empirical validation supports this view: spikes in the WUI often precede slowdowns in GDP, especially in countries with weaker institutions or higher financial constraints, confirming its predictive utility for macroeconomic forecasting.
References
Caldara, D. and Iacoviello, M. (2022), “Measuring geopolitical risk”, American Economic Review, Vol. 112, No 4, pp. 1194-1225.https://www.matteoiacoviello.com/gpr_files/GPR_PAPER.pdf
BlackRock Investment Institute. Geopolitical Risk Dashboard. BlackRock, 2025. https://www.blackrock.com/corporate/insights/blackrock-investment-institute/interactive-charts/geopolitical-risk-dashboard
Eurasia Group. Top Risks 2024. New York: Eurasia Group, 2024.https://www.eurasiagroup.net/issues/top-risks-2025
Political Risk Services (PRS) Group. International Country Risk Guide (ICRG) Methodology. Syracuse, NY: PRS Group, 2024. https://www.prsgroup.com/explore-our-products/icrg/
World Uncertainty Index Website.
Appendix : How Are Geopolitical Risk Indices Constructed?
Each index uses a different methodology, but most fall into one of two categories: text-based models (e.g., news frequency) and expert-based models (e.g., subjective assessments). Let’s break down the key components that go into their construction:
1. Caldara and Iacoviello Geopolitical Risk (GPR) Index
Methodology:
This index is based on the frequency of specific keywords in leading international newspapers. It is fully text-based and relies on a pre-defined dictionary of terms that signal geopolitical risk.
Data Source:
• 10 major newspapers, including The New York Times, The Wall Street Journal, and The Guardian, dating back to 1985.
Keywords Include:
• “war,” “military tensions,” “terrorist threat,” “nuclear conflict,” “sanctions,” “geopolitical tensions”, etc.
Process:
• Articles are scanned monthly.
• The index rises when there is an increased number of articles containing the keywords in relevant contexts (not just casual mentions).
• The resulting count is normalized and smoothed to construct the final index.
Variants:
• GPR Index (global)
• GPR Threat Index (mentions of risk/tensions)
• GPR Acts Index (actual conflict or violence)
• Country-specific indices
Weights & Assumptions:
• All keyword occurrences are weighted equally.
• Assumes media coverage is a reliable proxy for geopolitical tension.
• Assumes language contextually reflects real-world risk.
2. BlackRock Geopolitical Risk Dashboard
Methodology:
BlackRock’s model combines subjective risk assessment with market-based signals, such as volatility in equity, bond, and FX markets.
Components Include:
• Scenario-based risk scoring by BlackRock analysts.
• Sentiment and market data (e.g., CDS spreads, volatility indices).
• Event likelihood and severity scoring (0–10 scale).
Weights:
• Not publicly disclosed, but likely weighted based on expert judgment and exposure to global asset classes.
• Risk scoring is scenario-specific and dynamic — e.g., “U.S.-China tensions” may be ranked higher if recent events elevate that risk.
Assumptions:
• Market pricing reflects real-time perceptions of geopolitical risk.
• Experts can reasonably assess likelihood and impact of events.
3. Eurasia Group Top Risks
Methodology:
This index is qualitative and based on geopolitical expert opinion. Each year, Eurasia Group publishes a Top 10 Risks report.
Scoring Includes:
• Event probability
• Severity of potential impact
• Likely duration and scale
Assumptions:
• Subjective risk analysis can capture nuances not reflected in market or text data.
• Analysts assess how risks interact across geographies and sectors.
No fixed weights are disclosed, but the ranking itself implies a prioritization.
4. ICRG by Political Risk Services (PRS) Group
Methodology:
This is a quantitative + qualitative index based on country-level analysis across 22 variables in three categories: Political, Economic, and Financial Risk.
Political Risk Variables (weighted total = 100 points):
• Government stability
• Socioeconomic conditions
• Investment profile
• Internal and external conflict
• Corruption
• Law & order
• Ethnic tensions
• Bureaucracy quality
Weights Example:
• Government stability: 12%
• Internal conflict: 12%
• Law & Order: 6%
Assumptions:
• Political institutions and governance quality directly affect country-level risk.
• Quantitative ratings (0–12 or 0–6 scale) can be reliably assigned to qualitative conditions.
Data Collection:
• Monthly updates by in-house analysts, drawing on a mix of reports, expert input, and publicly available data.
5. World Uncertainty Index (WUI)
Developed by: Hites Ahir, Nicholas Bloom, and Davide Furceri
Source: Economist Intelligence Unit (EIU) Country Reports
Coverage: 143 countries (quarterly data from 1952 onward)
Calculation Process
1. Data Source:
The WUI uses quarterly reports from the Economist Intelligence Unit (EIU), which cover economic, political, and financial developments in 189 countries.
2. Keyword-Based Text Search:
The core measure is based on counting the occurrences of the words “uncertain,” “uncertainty,” and “uncertainties” within each country’s EIU report for a given quarter.
3. Normalization:
To account for variation in report length across countries and time, the index is scaled as the number of “uncertainty” mentions per 1,000 words.
4. Standardization of Reports:
EIU reports follow a five-step editorial process to ensure consistency and comparability: writing, editing, second-check, sub-editing, and production. This helps standardize language and reduce bias across countries.
5. Index Variants:
o Global WUI: A GDP-weighted average across all countries.
o Alternative versions: Based on neutral or negative synonyms (e.g., “vague,” “precarious”) for robustness testing.
o Category-specific indices: Include Trade Uncertainty, Pandemic Uncertainty, and Spillover Uncertainty from systemic countries (e.g., the U.S., China, UK).
6. Frequency:
o Quarterly reports are used. From 2008 onwards, monthly EIU reports are averaged within each quarter.
7. Data Availability and Processing:
o Digitized from 1996 onward.
o OCR (Optical Character Recognition) was used to process earlier scanned reports dating back to 1952.
Underlying Assumptions
1. Textual Frequency Reflects Real-World Sentiment:
Increased mention of uncertainty in country reports corresponds to actual rises in economic and political uncertainty.
2. Source Reliability:
Relying on a single, standardized source (EIU) ensures consistency across time and countries, minimizing ideological or editorial bias.
3. Comparability Across Nations:
Standardization and normalization procedures allow the WUI to be used for cross-country comparisons, even between developed and developing nations.
4. Institutional Quality Matters:
The effect of uncertainty (as measured by WUI) on economic performance is larger and more persistent in countries with lower institutional quality, confirming that uncertainty interacts with governance quality.
5. Uncertainty is Predictive:
The WUI often precede declines in GDP and investment, indicating its forward-looking economic relevance.
6. Spillover Effects:
Uncertainty in systemic economies (like the U.S. or U.K.) significantly contributes to global uncertainty levels, especially during events like Brexit or U.S.-China trade tensions.
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