The Franklin Political Risk and Opportunity Index (FRISKOP) is the first political risk index that combines quantitative measures of the probability of geopolitical events and an assessment of their potential economic impacts. FRISKOP conceptualizes political risk as the combination of the probability of a political event happening during a calendar half-year and its potential impact on the global economy. In contrast to the available risk indices FRISKOP fully quantifies both the likelihood of geopolitical events, its potential economic impact, and its combination. While the potential economic impact is measured once every six months, the probabilities of the events taking place are updated every month.

Political risks for the global economy until December 31, 2023

Event
Probability
Impact
Risk
Chinese sea blockade
Probability: 8%
Impact:
Very Negative
Risk:
Moderate Risk

China attempts to block Taiwan from accessing the sea or from conducting trade or other activities through the sea by using military or other means involving blockading ports, intercepting and inspecting ships, or using naval or air forces to patrol and enforce the blockade.

Russia detonates nuclear device
Probability: 5%
Impact:
Very Negative
Risk:
Moderate Risk

Amid successful counterattacks by Ukrainian forces in the east of the country, there are concerns that Russia could resort to using nuclear weapons. With "nuclear weapons" we refer to atomic bombs, hydrogen bombs, and other weapons that use fission or fusion reactions to generate an explosion. A radiological device (aka "dirty bomb") is not counted as a nuclear weapon.

Argentina to default
Probability: 18%
Impact:
Negative
Risk:
Moderate Risk

Argentina defaults when it is unable or unwilling to fulfill its financial commitments, notably its debt repayments.

Italian government instability
Probability: 13%
Impact:
Negative
Risk:
Moderate Risk

The Italian government is considered to be in crisis if at least one of the following three events have happened: New elections have been called At least one party of the current coalition has announced to leave the government Giorgia Meloni is no longer prime minister.

China attacks Taiwan
Probability: 4%
Impact:
Very Negative
Risk:
Low Risk

An action by the Chinese military result in the deaths of at least 25 Taiwanese military personnel and/or civilians.

Terrorist attack in the US
Probability: 4%
Impact:
Very Negative
Risk:
Low Risk

According to this scenario, a terrorist attack takes place on US territory. A terrorist attack is defined as the actual use of illegal force and violence by a non-state actor to attain a political, economic, religious, or social goal through fear, coercion, or intimidation. The incident must be intentional, entail some levele of violence or immediate threat of violence including violence against people, and the perpetrators must be sub-national actors.

Pakistan to default
Probability: 4%
Impact:
Negative
Risk:
Low Risk

Pakistan defaults when it is unable or unwilling to fulfill its financial commitments, notably its debt repayments.

Ecuador to default
Probability: 3%
Impact:
Negative
Risk:
Low Risk

Ecuador defaults when it is unable or unwilling to fulfill its financial commitments, notably its debt repayments.

TikTok ban in the US
Probability: 1%
Impact:
Negative
Risk:
Low Risk

In December 2022, the US Senate introduced a bill that would impose a ban on "all transactions from any social media company in, or under the influence of, China, Russia, and several other foreign countries of concern". A TikTok ban has taken place if the US government has taken action with the effect that a typical American cannot download the TikTok mobile app or use the app if it was previously downloaded.

Javier Milei elected president of Argentina
Probability: 68%
Impact:
Minor
Risk:
Minimal

Javier Milei is a presidential candidate for the upcoming elections in Argentina. He is a far-right economist who has pledged to dollarize the economy and shut the central bank.

Ceasefire between Russia and Ukraine
Probability: 8%
Impact:
Positive
Risk:
Minimal

According to this scenario a ceasefire is announced that is acknowledged by both Russia and Ukraine and includes the whole of Ukraine. "Ukraine" includes the boundaries generally recognized by the international community, including Donbas and Crimea. The Ukrainian government as recognized by the European Union is party to the announced ceasefire.

Putin replaced by anti-war government
Probability: 2%
Impact:
Positive
Risk:
Minimal

Vladimir Putin replaced by anti-war government Vladimir Putin ceases to be president of Russia and is replaced by another leader or group of leaders that are in favor of halting the war in Ukraine.

PiS not longer in government
Probability: 33%
Impact:
Positive
Risk:
Opportunity

Poland will hold parliamentary elections in fall 2023. It is unclear whether the current government party PiS (Law and Justice) will win enough seats to continue governing alone or in coalition. According to this scenario PiS is not able to form a new government by December 31.

Last update: September 22, 2023.

The Table above provides a list of thirteen geopolitical events, the estimated probability according to which they will take place by December 31, their expected impact on the global economy, and our risk rating based on the latter two pieces of information. The Index does not only cover negative risks, but also a few potential events that could have a positive impact on the global economy and consequently represent opportunities.

Methodology

FRISKOP bases its selection of events and the probability attached to it from A Prediction Market with Integrated Algorithms (PREMIA). Prediction markets are virtual stock markets, which use the information contained in market values to make forecasts. The potential effect of the global economy is measured with an original expert survey. Experts engage in rating of paired comparisons of the political events on their impact on the global economy if they happen. The information on the probability of the events and their potential impact are then combined by a formal rule. The methodological report including the list of experts can be found here.

Credits and contacts

FRISKOP is an initiative by Oliver Strijbis, Bernd Bucher, Juliette Schwak, and Elisa Volpi, Professors of Political Science or Political Economy at Franklin University Switzerland (FUS).

For more information on FRISKOP please contact Oliver Strijbis.