Geopolitics is the study of how geography affects politics and international relations. Analysts study actors (the individuals, organizations, companies, and national governments) that engage in political, economic and financial activities, and their interactions with one another.

The risk posed by tensions and actions between actors that affect the normal and peaceful course of international relations is known as geopolitical risk. When the geographic and political factors underpinning country relations change, geopolitical risk tends to increase. A change in policy, a natural disaster, a terrorist act, a theft, or war could all result in a shift.

Geopolitical risk can impact economic expansion, interest rates, and market volatility in the capital markets.

Geopolitical risk can affect whether a security or investment strategy is suitable for an investor's objectives, level of risk tolerance, and time horizon. The expected return on an asset class might increase or decrease depending on the likelihood of geopolitical risk, which can affect how appealing it is for an investment plan.

National Governments and Political Cooperation

There are two main types of actors relevant to geopolitical risk.

State actors exert authority over a country's security and resources through national governments, political organizations, and country leaders.

Non-state actors engage in global political, economic or financial activities but do not have direct control of national security or country resources.

At the most fundamental level, state actors can be cooperative or non-cooperative.

Cooperation is the process by which nations get together to cooperate toward a common objective. A cooperative nation participates in and supports international accords on commerce, immigration, and regulation, as well as standardization of laws, tariff harmonization, and the free flow of information, including technology transfer.

A non-cooperative nation has erratic, often arbitrary policies, limits cross-border trade in capital, goods, and people, engages in retaliation, and offers little in the way of technological exchange.

Motivations for Cooperation

Reasons why a country may cooperate with others include:

National security or military interest. National security protects a nation, including its inhabitants, economy, and institutions, from external threats like terrorism and natural catastrophes.

Geographic factors are crucial in determining how a nation will approach national security and how much cooperation it will choose. Countries that are well-connected to trade routes, like Singapore, or nations that operate as a conduit for trade, like Panama, may be able to influence larger international dynamics by their physical location.

Economic interest, such as access to energy, food or water.

Geophysical resource endowment. Some nations might be completely self-sufficient, while others might depend heavily on others for vital production inputs.

Standardization is the process of creating protocols for the production, sale, transport or use of a product or service. It helps support expanded economic and financial activities across borders. Rules standardization can take different forms, including operational synchronization, process standardization, and regulatory collaboration.

Countries may have cultural reasons for cooperating with others.

Other Topics

The Role of Institutions. Generally, strong institutions contribute to more stable internal and external political forces. Countries with strong institutions, including organizations and structures promoting government accountability, rule of law, and property rights, allow them to act with more authority.

Hierarchy of Interests. A nation's objectives and aspirations make up its national interest. It might be a need for independence or for the nation-state to grow. Many of the other crucial demands of the nation may conflict with these. The hierarchy of interests serves as a behavioral guide for governments. The needs at the top of the hierarchy are given priority over those at the bottom.

Power of the Decision Maker. The duration of a nation's electoral cycle significantly affects priority classification. Political parties and individuals making decisions at the national level each have their own set of requirements and influences. It is crucial to recognize that a nation's cooperative and non-cooperative decisions can be influenced by the motivations of decision-makers.

Political Non-Cooperation. Most nations work together to standardize some norms on a global level. However, for some countries their political self-determination is more important than the benefits of cooperative actions.