On February 20, 2026, the US Supreme Court ruled 6-3 in Learning Resources Inc. v. Trump that the International Emergency Economic Powers Act does not authorise the President to impose tariffs. That ruling reshapes the legal foundation of trade policy that drove US effective tariff rates to 7.7 percent in 2025, the highest since 1947.

Two months earlier, the US and China extended tariff reductions through November 2026, but with pharmaceutical tariffs potentially climbing toward 200 percent by mid-2026 and USMCA’s first joint review scheduled for July 2026, the trade landscape remains volatile.

Meanwhile, Houthi attacks in the Red Sea have forced nearly 80 percent of container ships to avoid the Suez Canal since late 2023, extending transit times from Southeast Asia to the US East Coast by 47 percent and tripling freight rates on some lanes.

The UNCTAD estimates these disruptions could raise global consumer prices by 0.6 percent. Add in expanding OFAC sanctions enforcement, export controls on critical minerals and semiconductors, and armed conflicts across multiple regions, and geopolitical risk has moved from the strategy committee’s agenda to the board’s standing item.

Yet most organisations still lack a structured approach to geopolitical risk. A 2025 survey by the US Chamber of Commerce Foundation found that while companies recognise geopolitical risk as a top concern, few have formalised governance structures or assessment methodologies in place.

This guide gives you the practitioner framework. It covers what geopolitical risk actually means, the categories that matter most in 2026, a five-step assessment process you can implement, monitoring tools and KRIs for your risk dashboard, and the common mistakes that leave organisations exposed.

What Is Geopolitical Risk Assessment?

Geopolitical risk assessment is the systematic process of identifying, analysing, monitoring, and mitigating risks arising from political events, government actions, interstate conflicts, regulatory shifts, and macroeconomic policies that could affect an organisation’s operations, supply chains, market access, financial performance, or strategic objectives.

The Federal Reserve’s Geopolitical Risk (GPR) Index, developed by Caldara and Iacoviello, provides a quantitative foundation. It measures adverse geopolitical events based on newspaper article tallies covering geopolitical tensions since 1900, splitting the index into two sub-components: geopolitical threats (risk of future events) and geopolitical acts (events that have occurred).

This distinction matters because threats affect investment decisions and risk premiums before any actual disruption occurs.

Geopolitical risk assessment differs from traditional country risk analysis in scope and application. Country risk evaluates the overall investment climate of a specific jurisdiction. Geopolitical risk assessment looks at cross-border dynamics, systemic threats, and cascading effects that can disrupt operations across multiple countries simultaneously.

The Red Sea shipping crisis is a clear example: a regional conflict in Yemen disrupted 10 percent of global seaborne trade and affected companies with no direct exposure to the Middle East.

Where Geopolitical Risk Sits in ERM

Within an enterprise risk management framework, geopolitical risk cuts across multiple risk categories. It is a strategic risk when it changes market dynamics or competitive positioning. It is an operational risk when it disrupts supply chains or infrastructure.

It is a compliance risk when sanctions or export controls change the legal landscape. And it is a financial risk when currency volatility, trade barriers, or asset expropriation affect the balance sheet.

This cross-cutting nature is precisely why geopolitical risk requires its own assessment methodology rather than being fragmented across existing risk categories. The World Economic Forum’s integrated framework recommends combining scenario planning with emerging world identification, enhanced by AI-based analytical tools, to develop what it calls ‘radar’ for imminent disruptions and ‘sonar’ for deeper, slower-moving drivers of geopolitical change.

Six Categories of Geopolitical Risk

Understanding the specific types of geopolitical risk your organisation faces is the first step in building an effective assessment framework. Below are the six categories that matter most for US-focused businesses in 2026.

1. Trade Policy and Tariff Risk

Trade policy risk refers to the exposure created by tariffs, trade agreements, retaliatory duties, and trade enforcement actions. The 2025 tariff escalation demonstrated how rapidly this risk can materialise. The effective US tariff rate hit 7.7 percent, the highest since 1947.

Even with the Supreme Court’s February 2026 ruling limiting IEEPA-based tariffs, Section 232 tariffs and 15 percent Section 122 tariffs remain, estimated to raise USD 668 billion in revenue from 2026 to 2035 and reduce US GDP by 0.2 percent before foreign retaliation.

The Tax Foundation’s analysis projects that real wages could decline by 1.4 percent by 2028 under current trade policies, with manufacturing seeing a temporary employment surge while services and agriculture decline.

2. Sanctions and Export Controls Risk

Sanctions risk arises from government-imposed restrictions on transactions with specific countries, entities, or individuals. In 2026, OFAC is intensifying enforcement on gatekeepers, meaning professional service providers (investment advisors, accountants, attorneys) who fail to properly screen for sanctions exposure.

The ‘maximum pressure’ campaigns on Iran and expanded export controls on semiconductors and critical minerals add layers of compliance complexity.

Export controls have expanded beyond traditional military technology to cover dual-use items, AI chips, quantum computing components, and critical minerals. The US-China chip war continues to reshape technology supply chains, forcing companies to choose between market access and compliance.

3. Armed Conflict and Political Violence Risk

Armed conflict risk covers exposure to wars, civil unrest, terrorism, and state-sponsored violence that can physically disrupt operations, displace workforces, destroy infrastructure, and close market access. The ongoing conflicts in Ukraine and the Middle East demonstrate how regional conflicts generate global economic spillovers.

The Red Sea crisis provides the most quantifiable recent example. Since November 2023, over 190 Houthi attacks on shipping have collapsed Suez Canal container traffic by approximately 75 percent compared to 2023 levels.

Despite a January 2025 ceasefire between Israel and Hamas, attacks resumed and canal traffic in November 2025 remained 49 percent below pre-crisis levels. War risk insurance premiums have added hundreds of thousands of dollars per voyage.

4. Regulatory Divergence and Fragmentation Risk

As geopolitical blocs harden, regulatory frameworks diverge. Data localisation requirements, privacy regulations, ESG disclosure mandates, and technology standards increasingly differ between the US, EU, and China.

Companies operating across jurisdictions face growing compliance costs and the risk that a product, process, or business model that is legal in one market becomes prohibited in another.

The EU’s Digital Markets Act, AI Act, CSRD, and Carbon Border Adjustment Mechanism create an increasingly distinct regulatory environment from the US approach. Companies must monitor not just individual regulations but the systemic divergence between regulatory philosophies across their operating jurisdictions.

5. Supply Chain Concentration and Chokepoint Risk

Supply chain risk in the geopolitical context refers to the vulnerability created by dependence on specific countries, trade routes, or suppliers for critical inputs.

The Red Sea crisis demonstrated how a single maritime chokepoint (the Bab el-Mandeb Strait, which facilitates transit of over 30 percent of global container trade) can disrupt global supply chains for over two years.

Critical mineral concentration is another major concern. The IEA reports that China controls over 60 percent of global processing for lithium, cobalt, and rare earth elements, creating strategic dependencies for technology, defence, and clean energy sectors. China’s periodic restrictions on gallium and germanium exports have demonstrated its willingness to weaponise this dominance.

6. Sovereign and Country Risk

Sovereign risk encompasses the political, economic, and institutional factors that affect the business environment in a specific country. The PRS Group’s International Country Risk Guide (ICRG) tracks 22 variables across political risk (12 variables including government stability, corruption, military in politics, and law and order), financial risk (5 variables), and economic risk (5 variables) for 141 countries.

Country risk matters most when organisations have concentrated operations, assets, or revenue in volatile jurisdictions.

Asset expropriation, currency controls, contract repudiation, and political instability can wipe out years of investment. The ECB’s 2026 thematic stress test will specifically focus on geopolitical risk, requiring banks to demonstrate readiness for geopolitical shocks in their capital and liquidity frameworks.

Geopolitical Risk Categories at a Glance

Five-Step Geopolitical Risk Assessment Process

The following process integrates geopolitical risk assessment into your existing ERM framework. It draws on the US Chamber of Commerce Foundation’s ‘High Stakes’ framework, BlackRock’s geopolitical risk methodology, and the WEF’s integrated approach.

Step 1: Map Your Geopolitical Exposure

Start by mapping every point where your organisation touches geopolitical risk. This is not just a list of countries you operate in. It is a comprehensive assessment of your geopolitical footprint across revenue, operations, supply chain, workforce, capital, and regulatory exposure.

• Revenue exposure: What percentage of revenue comes from each jurisdiction? Which markets are subject to sanctions, trade restrictions, or political instability?
• Operational exposure: Where are your critical facilities, data centres, and infrastructure? Which are located in conflict zones or near maritime chokepoints?
• Supply chain exposure: Map your Tier 1, Tier 2, and Tier 3 suppliers by country. Identify single-source dependencies and critical inputs that transit through chokepoints like the Suez Canal or Strait of Malacca.
• Workforce exposure: Where are your employees located? Which jurisdictions have travel advisories, political instability, or labour restrictions?
• Capital exposure: What assets, investments, or joint ventures are located in high-risk jurisdictions? What is your exposure to sovereign default or currency controls?
• Regulatory exposure: Which sanctions regimes, export controls, and trade regulations apply to your operations? Where do jurisdictional requirements conflict?

Deliverable: Geopolitical exposure map with heat-coded risk concentrations, dependency matrix, and jurisdiction-level risk profile for each category.

Step 2: Identify and Prioritise Geopolitical Scenarios

With your exposure map in hand, develop a set of geopolitical scenarios that could materially affect your organisation. The BlackRock Geopolitical Risk Dashboard provides a model: define precise scenarios with well-defined catalysts, then use an econometric framework to translate scenario outcomes into plausible shocks to market indexes and risk factors.

Your scenario set should cover three horizons:

• Near-term (0-6 months): Events with identifiable catalysts, such as the USMCA review in July 2026, upcoming elections in key markets, or expiration of trade agreements.
• Medium-term (6-24 months): Structural shifts such as supply chain reshoring, regulatory divergence between US and EU, or escalation of technology decoupling with China.
• Long-term (2-5 years): Systemic changes such as multipolar trade bloc formation, critical mineral scarcity, or climate-driven migration and state instability.

For each scenario, estimate the probability of occurrence and the potential impact on your operations using both qualitative assessment (expert judgement from internal and external sources) and quantitative modelling (scenario-based stress testing of financial variables).

Deliverable: Scenario library with probability estimates, impact assessments, catalyst triggers, and early warning indicators.

Step 3: Quantify Financial Impact Through Stress Testing

Move from qualitative scenarios to quantitative impact analysis. The ECB’s approach to geopolitical stress testing provides a model: examine how geopolitical shocks affect revenue, costs, asset values, liquidity, and capital adequacy across your scenario set.

Key variables to stress test:

• Revenue impact: Model revenue loss from market access restrictions, customer attrition in affected jurisdictions, and demand shifts. Use the CEPR trade war model as a reference: US welfare declines by approximately 2 percent under status quo scenarios and nearly 4 percent under full retaliation.
• Cost impact: Quantify the effect of tariffs on input costs, freight rate spikes (200-400 percent increases observed during Red Sea crisis), insurance premium increases, and compliance costs from new sanctions or export controls.
• Asset impairment: Assess the risk of stranded assets, expropriation, or write-downs in high-risk jurisdictions. Include currency depreciation scenarios for countries with political instability.
• Liquidity impact: Model cash flow disruptions from payment delays, currency controls, sanctions-related transaction blocking, and supply chain payment term changes.

Use Monte Carlo simulation to generate probability distributions for key financial metrics under each scenario. Present results as confidence intervals rather than point estimates to give the board a realistic picture of the range of outcomes.

Deliverable: Geopolitical stress test report with scenario-based P&L impact, balance sheet exposure, liquidity stress results, and sensitivity analysis (tornado charts).

Step 4: Design Mitigation Strategies and Contingency Plans

For each high-priority scenario, develop a mitigation strategy that reduces either the likelihood or the impact of the geopolitical risk. Strategies fall into four categories aligned with your risk appetite statement:

• Avoid: Exit or do not enter jurisdictions where geopolitical risk exceeds appetite. This may mean divesting from sanctioned markets or declining business in conflict zones.
• Reduce: Diversify supply chains away from single-source dependencies. Build inventory buffers for critical inputs. Establish alternative logistics routes. Develop multi-jurisdictional compliance capabilities.
• Transfer: Use political risk insurance (MIGA, OPIC, private markets), contractual protections (force majeure clauses, arbitration agreements), and financial hedging (currency forwards, commodity hedges) to transfer residual risk.
• Accept: For risks within appetite, document the acceptance rationale with clear escalation triggers. Set thresholds at which accepted risks must be reassessed (e.g., if the GPR Index exceeds a specified level for three consecutive months).

Develop business continuity plans specific to geopolitical scenarios. These plans should include pre-positioned response playbooks for sanctions escalation, supply chain rerouting, workforce evacuation, crisis communications, and regulatory engagement.

Deliverable: Geopolitical risk mitigation register, contingency playbooks for top 5 scenarios, insurance and hedging review, and RACI matrix for geopolitical crisis response.

Step 5: Monitor, Report, and Escalate

Geopolitical risk changes faster than most risk categories. Your monitoring capability must operate at a frequency that matches the speed of geopolitical events, not the quarterly cycle of traditional ERM reporting.

Build a geopolitical risk monitoring system with three layers:

• Strategic radar (monthly): Review of macro-level geopolitical trends, updated scenario probabilities, and emerging risks. Use the WEF’s ‘sonar’ concept to identify slow-moving structural shifts.
• Operational watch (weekly): Tracking of active geopolitical events affecting your exposure map. Monitor sanctions updates, trade policy announcements, conflict developments, and regulatory changes.
• Crisis trigger (real-time): Automated alerts when predefined thresholds are breached. Examples: GPR Index spike above historical 90th percentile, sanctions designation of a counterparty, outbreak of armed conflict in an operating jurisdiction.

Report geopolitical risk to the board as a standing agenda item with a one-page dashboard showing current scenario status, KRI positions, exposure concentrations, and recommended actions. The US Chamber Foundation’s framework recommends governance that is ‘well-informed, holistic, enduring, authoritative, and tailored’ for geopolitical risk decisions.

Deliverable: Geopolitical risk dashboard, escalation matrix, monitoring calendar, board reporting template, and lessons learned log.

Geopolitical Risk KRI Dashboard

The following key risk indicators provide early warning of geopolitical risk materialisation. Set thresholds based on your risk appetite and calibrate them against historical events.

Geopolitical Risk Monitoring Tools and Data Sources

Effective geopolitical risk monitoring requires a combination of quantitative indicators, qualitative intelligence, and structured analytical tools. Here are the resources that practitioners rely on.

Quantitative Indexes and Dashboards

• Caldara-Iacoviello GPR Index: Free, publicly available index measuring geopolitical risk since 1900 based on newspaper article analysis. Provides both threats and acts sub-indexes. Updated monthly.
• BlackRock Geopolitical Risk Dashboard: Tracks market attention and market movement related to specific geopolitical risks. Uses NLP-based analysis of brokerage reports and financial news with sentiment adjustment.
• ICRG (PRS Group): Monthly political, economic, and financial risk ratings for 141 countries. The 22-variable model is the gold standard for sovereign risk quantification.
• S&P Country Risk Investment Model (CRIM): Calculates country risk premiums across 10 risk dimensions including expropriation, political violence, and regulatory change.

Qualitative Intelligence Sources

• Eurasia Group: Annual ‘Top Risks’ report and ongoing geopolitical analysis with scenario-based assessments.
• Control Risks: Operational risk consulting with country-level risk maps and security assessments.
• Oxford Analytica: Daily briefings on political and economic developments affecting business risk.
• Government sources: US State Department travel advisories, OFAC sanctions lists (SDN List), BIS Entity List, and US Trade Representative reports.

Eight Common Mistakes in Geopolitical Risk Management

1. Treating geopolitical risk as someone else’s problem. Geopolitical risk is not confined to companies with overseas operations. US tariffs, sanctions, and export controls affect purely domestic businesses through supply chain costs, input availability, and customer spending power. Every company has a geopolitical risk profile.
2. Relying on a single country risk rating. Country risk ratings from agencies like ICRG or S&P provide useful baselines, but they do not capture the specific transmission channels through which geopolitical risk affects your business. A country rating downgrade tells you the environment is worse; it does not tell you which of your supply chains, contracts, or assets is at risk.
3. Confusing scenario planning with prediction. The goal is not to predict which geopolitical events will occur. It is to identify the scenarios that would have the greatest impact on your organisation and build the capabilities to respond. Organisations that try to predict geopolitical events waste resources and miss the scenarios they did not foresee.
4. Ignoring second and third-order effects. The Red Sea crisis demonstrates this clearly. Houthi attacks on shipping were a first-order risk. The 47 percent increase in transit times was a second-order effect. The 200-400 percent freight rate spikes, inflationary pressure on consumer prices, and greenhouse gas emission increases from longer routes were third-order effects. Map the cascade.
5. Monitoring without thresholds. Tracking the GPR Index or reading geopolitical briefings is not risk management. Without predefined thresholds that trigger specific actions (scenario review, hedge activation, supply chain switch, board escalation), monitoring is information without decision value.
6. Failing to integrate with business continuity. Geopolitical scenarios need business continuity plans and tested response playbooks. A sanctions escalation playbook should be as detailed as your IT disaster recovery plan, specifying who does what within the first 24, 48, and 72 hours.
7. Assessing geopolitical risk in isolation. Geopolitical risk interacts with every other risk category. A trade war affects financial risk (currency), operational risk (supply chain), compliance risk (sanctions), and strategic risk (market access) simultaneously. Assess the interactions, not just the individual risks.
8. Updating scenarios only after events occur. By the time a geopolitical event makes headlines, the risk has already materialised. Effective geopolitical risk management requires forward-looking scenario updates at least monthly, using early warning indicators and catalyst tracking rather than reactive event analysis.

Geopolitical Risk Assessment Readiness Checklist

Score each item Yes, Partial, or No to gauge your organisation’s preparedness.

1. Geopolitical exposure map completed covering revenue, operations, supply chain, workforce, capital, and regulatory dimensions
2. Geopolitical risk categories identified and mapped to your enterprise risk taxonomy
3. Scenario library developed with near-term, medium-term, and long-term geopolitical scenarios
4. Financial impact quantified through stress testing for top 5 geopolitical scenarios
5. Sanctions and export control compliance programme in place with regular screening
6. Supply chain mapped to Tier 2+ with single-source dependencies identified
7. Alternative logistics routes and supplier pre-qualified for critical inputs.
8. Political risk insurance and financial hedging reviewed against geopolitical exposure
9. Business continuity plans include geopolitical-specific response playbooks
10. KRI dashboard with defined green/amber/red thresholds for geopolitical indicators
11. Monitoring system operates across strategic (monthly), operational (weekly), and crisis (real-time) layers
12. Board receives geopolitical risk reporting as a standing agenda item
13. Cross-functional geopolitical risk working group established (risk, legal, compliance, procurement, operations)
14. Geopolitical risk integrated into strategic planning and investment decision processes
15. Lessons learned process captures insights from geopolitical events and near-misses

Scoring guide: 12+ Yes = strong geopolitical risk capability. 8–11 = material gaps to close. Below 8 = begin with exposure mapping and scenario development.

Frequently Asked Questions

What is geopolitical risk assessment?

Geopolitical risk assessment is the systematic process of identifying, analysing, monitoring, and mitigating risks arising from political events, government actions, interstate conflicts, regulatory shifts, and macroeconomic policies that could affect business operations, supply chains, market access, or financial performance. It integrates with enterprise risk management to ensure geopolitical threats receive structured governance and response.

What are examples of geopolitical risk?

Common examples include trade wars and tariff escalations (such as the 2025 US tariff increases), sanctions programmes (OFAC designations against Iran, Russia), armed conflicts disrupting trade routes (Red Sea/Houthi shipping crisis), regulatory divergence between jurisdictions (EU AI Act vs US approach), supply chain chokepoint disruptions (Suez Canal, Panama Canal), critical mineral export restrictions, technology export controls (semiconductor restrictions on China), and sovereign risk events (expropriation, currency controls, political instability).

How do you analyse geopolitical risk?

Follow a five-step process: map your geopolitical exposure across all business dimensions, identify and prioritise scenarios with probability and impact estimates, quantify financial impact through stress testing and Monte Carlo simulation, design mitigation strategies (avoid, reduce, transfer, accept), and monitor continuously with KRIs and escalation triggers. Combine quantitative tools like the Caldara-Iacoviello GPR Index with qualitative intelligence from specialist providers.

What is the difference between geopolitical risk and country risk?

Country risk evaluates the overall investment climate of a specific jurisdiction based on political, economic, and financial factors. Geopolitical risk is broader: it covers cross-border dynamics, systemic threats, and cascading effects that can disrupt operations across multiple countries simultaneously. The Red Sea shipping crisis is a clear example: a regional conflict in Yemen disrupted global trade for companies with no direct exposure to the Middle East. Geopolitical risk assessment incorporates country risk but adds scenario analysis, cross-border transmission channels, and systemic cascade effects.

What is the Caldara-Iacoviello Geopolitical Risk Index?

The GPR Index, developed by Federal Reserve economists Dario Caldara and Matteo Iacoviello, measures adverse geopolitical events and associated risks based on newspaper article analysis covering geopolitical tensions since 1900. It produces two sub-indexes: geopolitical threats (risk of future events) and geopolitical acts (events that have occurred). The index is freely available, regularly updated, and provides a replicable, auditable measure of global geopolitical risk levels.

How do sanctions affect business operations?

Sanctions restrict transactions with specific countries, entities, or individuals. They can block payments, prohibit trade in certain goods, freeze assets, and restrict travel. Non-compliance carries severe penalties including fines, loss of banking access, and criminal prosecution. In 2026, OFAC is intensifying enforcement on professional service providers (gatekeepers) who fail to properly screen for sanctions exposure. Organisations need robust sanctions screening programmes, ongoing monitoring, and clear escalation procedures.

Sources

• Caldara & Iacoviello — Geopolitical Risk (GPR) Index
• BlackRock Investment Institute — Geopolitical Risk Dashboard
• World Economic Forum — How to Enhance Geopolitical Risk Assessment (Feb 2025)
• US Chamber of Commerce Foundation — High Stakes: A Framework for Geopolitical Risk Management (Nov 2025)
• ECB Banking Supervision — Addressing the Impact of Geopolitical Risk
• Tax Foundation — Trump Tariffs: The Economic Impact of the Trump Trade War
• Holland & Knight — OFAC Sanctions: Top 5 Trends for 2026
• UNCTAD — Unprecedented Shipping Disruptions Raise Risk to Global Trade
• PRS Group — International Country Risk Guide (ICRG)
• Paul Hastings — Geopolitical Predictions General Counsel Need to Know for 2026

Chris Ekai

Chris Ekai is a Risk Management expert with over 10 years of experience in the field. He has a Master’s(MSc) degree in Risk Management from University of Portsmouth and is a CPA and Finance professional. He currently works as a Content Manager at Risk Publishing, writing about Enterprise Risk Management, Business Continuity Management and Project Management.