PRS GEOPOLITICS: Insights and Happenings for May 2025

Being involved in various aspects of geopolitical risk over the past several decades – and heading PRS over the past 15 years – I say with very little hesitation that the period we are in now is one of the among the riskiest that I have witnessed.  To be sure, the level of information we receive daily adds to the perception these are tense times – this cannot be underestimated – but perception is often reality, so it is something that those involved with PRS have understand, quantify, and manage. 

The summer has begun, and I was fortunate enough to spend some time in Europe and will be travelling to Montreal again to further the progress of our AI team and to conduct some meetings with clients both in person and via video conference.  In most client meetings the conversation inevitably steers towards how our ICRG ratings and forecasts (https://www.prsgroup.com/explore-our-products/icrg/ ) and our CREF regime scenarios (https://www.prsgroup.com/explore-our-products/cref/) will help them anticipate potentially injurious events and put into place effective risk mitigation techniques.

With this direction in mind – and especially for new clients – I usually begin by talking a little about the genesis of PRS (essentially a tripartite exercise between several professors, the CIA, and the US State Department), and then take the client through a series of signposts along the firm’s history, from studies that aligned our risk metrics with returns in emerging market equities, to the ways in which the data are both predictive and illuminates the connection between political risk and various economic phenomena (monetary policy, bond spreads, etc.)  The approach instills the discussion with a layer of credibility, allowing for more relaxed and informative talks to proceed.

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When President Trump began his second term in office there was considerable enthusiasm for what the future may hold.  The sense I got from many non-US clients that this was a president that would “get things done,” from ending the wars in Ukraine and Gaza, to improving some of the ills that were affecting the US economy (inflation in some sectors).  My guess is that the non-Americans were looking at the relative effectiveness of their own leaders by comparison and – which is still the case – the US as a force for positive change in the world.

Politics is a challenging vocation and there is a tendency in our public discourse to reduce the direction of world events to the actions of a select few.  This is folly.  Most of us know by looking at the plans for our own lives how events beyond our control often shape the outcomes. 

Global politics is no different. For example, the Trump Administration is realizing that ending the war in Ukraine is not terribly easy, as both Kyiv and Moscow continue to wage retaliatory attacks.  Despite efforts to install a cease fire – let alone the president’s claim early on that he would have the war “done in 24 hours…” – Mr Trump, seemingly frustrated by the lack of progress, has said that within the next couple of weeks “we’re gonna find out whether or not (Putin is) tapping us along or not…[and] if he is, we’ll respond a little bit differently.”

A similar measure of doubt applies to the war in Gaza.  Despite efforts to install a cease fire agreement – and President Trump’s desire to “wrap up” the war – it appears that internal Israeli politics may be more effective in shaping the future course of events. As an example, at the time of writing, Netanyahu’s ruling coalition faces the possibility of collapse and an early vote after his ultra-Orthodox partners threatened to bring down the government by voting against the budget if the government did not pass a new law formalizing exemptions for religious students.  Reports say Netanyahu thinks ultra-Orthodox lawmakers are bluffing.  Nonetheless, the prime minster has until June 11 to improve relations with his partners, otherwise a vote will occur on a bill to dissolve parliament (the Knesset).  The opposition is leading in the polls.

There’s obviously more about Israeli politics that could work to undermine the coalition, but the point remains that the president’s influence has been – up to this point – relatively limited.

Indeed, as a side note, the same can be said of Mr Trump’s domestic agenda, and the forces that have worked against the Administration realizing some of its policy goals: from the courts to the Federal Reserve, to more recent efforts by Elon Musk and a handful of GOP senators who are alarmed by the fiscal implications of the recent tax and policy bill.

To be sure, American administrations in the past have come up against similar checks on the exercise of power.  FDR didn’t have a great time dealing with the Supreme Court in relation to the New Deal, to the point where he threatened to “pack” the courts with his appointees. Bill Clinton had to become a tad more cooperative with the GOP in Congress to get things done in the 1990s.  And Barack Obama also has his time with issuing an array of executive orders after his party lost its majority in Congress following the 2014 mid-term elections.

These checks on power are some of the very positive things about the American model of government.  Despite the cynicism we see all around us, and despite some of its failings, the system is working as it should.

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New and existing clients should note that our popular Researchers’ Dataset (RDS) series – containing updates from 2024 – is now available!  The RDS series – derived from our ICRG data – continues to yield unique insights into a range of topics that explore the empirical connection between geopolitical risk and such subjects as asset behavior and prices, inflation and monetary policy, the economic costs of war, forms of internal conflict, and contract repudiation, to name a few. Contact us at cmckee@prsgroup.com to acquire about acquisition of the RDS updates or a multi-year series.

  The new layout of the new PRS site (www.prsgroup.com) is finished, so feel free to have a look when time permits. The site maintains the basic character of our existing one but adopts a more modern approach – given the emphasis on the importance of our geopolitical risk data – all the while respecting such periods of innovation and new thinking as the Renaissance and the French Enlightenment.  In the text, there is a nod to Voltaire, and ‘Gigi’ – our gargoyle mascot – maintains his predominant presence as he represents the power to ward off evil spirits and defend those he’s been entrusted to protect.

  PRS will be unveiling a unique newsletter in the coming weeks that will be both interactive and anticipatory.  Not only will it contain insights into the trends the data have been yielding, but also news about recent publications, some future podcasts, and specials on various data bundles.  We’re responding to many client requests for more frequent updates to the data as the world becomes increasingly volatile given developments in the US.  The newsletter will be titled ‘Au Courant.’

PRS is closing in on the 8 million data point mark in relation to our curated geopolitical risk series!  No other risk firm can offer such depth; nor can they claim the mantle of being consistently used in leading academic scholarship and appearing in the top journals, which, according to JSTOR, now occupies just over 1,000 published articles and book chapters.

May was a solid month for new and returning clients, ranging from some top universities to the world’s largest news organization and DC multilaterals.  The latter two are especially close to PRS as we provide proprietary research and ratings along with the opportunity four data to be profiled in the various Working Paper series.  Thanks to the use of our data by the academic world, PRS/ICRG has its own R&D capacity.  We are very grateful for all the work that has been done over the years using our data!

Our ICRG political risk scoring changes were significant in May, with some 90 countries of the universe of 140 being adjusted!  We noticed certain highlights, including Saudi Arabia’s increasingly improving risk score, more general stability in Europe, popular support for military juntas in Africa, and the most of the world’s major currencies stabilizing against the USD.

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As always, ICRG and related PRS data continue to be the gold standard of all geopolitical risk data among the scholarly and research communities. For example, with the debate in the US about some of the new policy goals on immigration, some politicians have expressed concern that immigrants from countries with low levels of political trust transfer those attitudes to their destination countries. 

Using our ICRG data as well as large-scale survey data covering 38 countries and exploiting origin-country variation across different cohorts and survey rounds, this new study by Barry Eichengreen, et al. found that, to the contrary, immigrants more exposed to institutional corruption before migrating exhibit higher levels of political trust in their new country. (https://lnkd.in/es9EUtEv)

Similarly, via our ICRG data, a new piece published in Journal of Economic Integration asked what compels sudden stops in capital flows to emerging markets?  While the work isolates global factors (including contagion) and short-term capital flows as meaningful, it was the quality of a country’s institutions that appeared to be more significant. (https://lnkd.in/eQXh62kh)

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