For decades, investors and insurers spoke of political risk—the possibility that government actions might impair investments or disrupt operations. The concept was well understood, the insurance products mature, the frameworks familiar. Then, almost imperceptibly, the terminology shifted. Today, everyone speaks of geopolitical risk. The prefix matters more than it might appear.

Political risk, as traditionally conceived, was essentially a domestic affair. The U.S. Overseas Private Investment Corporation (OPIC), established in 1969, defined it simply: the possibility that political decisions in a country will affect the business climate such that investors lose money. The risks were concrete—expropriation, currency inconvertibility, political violence.

This framework served investors well. Multinational corporations could purchase insurance against nationalisation, assess regulatory risk country-by-country, and build political risk premiums into their discount rates. The World Bank’s Multilateral Investment Guarantee Agency, established in 1988, institutionalised these approaches multilaterally. The market worked.

The implicit assumption was that political risks were fundamentally local. Even during superpower confrontation, businesses could treat international tensions as background noise—manageable through geographic diversification and appropriate coverage. You could buy your way out of political risk.

“Geopolitics” itself carries historical baggage explaining its delayed adoption in finance. Rudolf Kjellén coined the term around 1900; it gained prominence through Halford Mackinder’s theories and, more darkly, through association with Nazi expansionism. After 1945, the word became professionally toxic.

Henry Kissinger rehabilitated geopolitical thinking in the 1970s for foreign policy circles. But here lies an instructive irony: strategists embraced geopolitics decades before the financial community caught up. Bankers remained wedded to political risk frameworks while diplomats had moved on. The conceptual lag would prove costly.

The Caldara-Iacoviello Geopolitical Risk Index, developed at the Federal Reserve, reveals something striking. The index spikes predictably around major events—the Gulf Wars, the Cuban Missile Crisis. But after September 2001, something different happens: the baseline........

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