Geopolitical instability
What governments spend on defense, what the primes earn from it, how the news and the markets price risk, and where trade and shipping are under strain
Thesis
Is geopolitical risk actually reaching markets?
- News-based risk and market volatility price the shocks.
- Supply chains and trade policy transmit them.
- Defence spending and conflict counts show the real-world response.
Index
Seven indicators, standardized and equal-weighted, updated daily — 100 at the start of the common sample, higher means more instability
Geopolitical Instability Index
113.9
1 wk
↑ +1.0
1 mo
↑ +1.8
1 yr
↓ -0.9
Source: Liquiqui, from FRED / BEA / SEC / Caldara-Iacoviello / NY Fed
Where each constituent stands today, in standard deviations from its own average over the sample
- Geopolitical risk (GPR)Daily · Oct 13, 2026+1.8
- VIXDaily · Oct 15, 2026-0.2
- Supply chain pressureMonthly · Sep 1, 2026+0.8
- Trade policy uncertaintyMonthly · Sep 1, 2026+1.0
- US defense / GDPQuarterly · Apr 1, 2026-0.8
- Defense primes' salesQuarterly · Jun 30, 2026+0.8
- Conflict events (UCDP)Monthly · Aug 1, 2026+0.2
Notes
- What is happening
- The index stands at 112.7 on 12 October 2026 against a base of 100 in mid-2011, when the seven series begin to coexist. Its low is 89 in September 2018, its high 124 on 4 April 2025, in the middle of the tariff shock. Four spikes stand out: 119 in April 2020, 121 in March 2022 at the invasion of Ukraine, 124 in April 2025 and 121 in March 2026, the first month of the Iran war. Today risk in the press, trade uncertainty, logistics and the defense primes' sales are above their averages (+1.6, +1.0, +0.8 and +0.7 standard deviations) and conflict events barely so (+0.2), while the VIX and defense spending pull the other way (−0.5 and −0.8).
- Why it matters
- Geopolitical instability has no single thermometer: the press can panic while markets shrug, tariffs can rise in calm, and defense budgets react years late. This index combines seven measures at equal weight — risk in the press (GPR), fear in markets (VIX), logistics strain (GSCPI), trade uncertainty (TPU), conflict events (UCDP), and the defense economy (spending as a share of GDP, the primes' sales) — each standardised against its own history, to answer one question: is instability weighing more or less than usual on the economy and markets?
- What's driving it
- The press-based risk index, lifted by the Houthi offensive on the Red Sea coast, and trade policy uncertainty, up again in September, run furthest above their averages; the VIX and defence spending sit below.
- What to watch
- The current regime is chronic instability that markets have stopped pricing: GPR high, VIX low. That is the configuration before every spike. The index crossed 110 — the threshold crossed at each shock since 2020 — in late September and holds between 112 and 113 in October, with the VIX still at 15: the press, not the market, is carrying it; a VIX catching up with the GPR would hold it there. Defense spending moves only years late — the constituent to watch for the decade, not the quarter.
Signals
Each indicator scored by how far it has moved — and the arrow points the way the pressure is heading
| Criterion | Current Reading | Trend | Comment |
|---|---|---|---|
Military expenditurein the index What share of GDP goes to defense, and how does the United States compare with the rest of the world? | Low | → | 3.7% of GDP in the second quarter of 2026, against 3.9% at the end of 2019, 5.5% in 2010 and 6.8% in 1990: a post-Cold War floor despite the tensions. The world is at 2.5% (SIPRI, 2024), China at a declared 1.7%, Russia at 7.1% — nearly double its 2019 level. |
Defense in the budgettable only How much of federal spending does defense absorb? | Low | → | 15.3% of federal current expenditures in the second quarter of 2026, against 18% in 2019, 22% in 2010 and 32% in 1990. The share falls because pensions, health and interest grow faster — see the Aging Population page. Kept out of the index as redundant with the GDP share. |
Geopolitical risk (GPR)in the index How much is the press writing about geopolitical threats and acts? | Moderate | ↑ | 30-day mean of 167 on 12 October 2026, against 153 on 21 September, 127 at the end of August, 73 at the end of 2019, 336 in March 2022 at the invasion of Ukraine and 327 at the end of March 2026, in the first month of the Iran war. The index does not return to its pre-2020 level: the state of tension has become permanent, even between shocks. |
Defense primes' salesin the index Are budgets turning into orders and revenue? | Moderate | ↑ | $64.9 billion in the second quarter of 2026 for the five primes, up 10.8% on a year earlier, after $81.6 billion in the fourth quarter of 2025. Their quarterly revenue has nearly doubled since 2011, but most of the growth came after 2023: up 15% year on year in the third quarter of 2024, and today's 10.8% is the fastest pace since. |
Defense-sector volatilitytable only Does the sector move more than the market, a sign investors treat it as risk exposure rather than a haven? | Low/Moderate | → | 30-day realized volatility of 15% for the ITA ETF against 10% for the S&P 500 on 12 October 2026: one and a half times the market, against a ratio near one in normal times. The sector reached 106% in April 2020, 44% in April 2025 and 31% in May 2026. Kept out of the index: sector volatility mostly follows the market's. |
VIX and downside protectionin the index Are the options markets paying to hedge? | Low | → | VIX at 15.4 on 12 October 2026, a calm reading, after 52 in April 2025, 31 in March 2026 at the start of the Iran war and 83 in March 2020. But the SKEW has climbed to 154 on 9 October, from 142 in late September: the market does not expect volatility, yet pays ever more for insurance against a crash — a VIX near 15 with a SKEW above 150, the configuration that preceded the shocks of 2018, 2020 and 2025. The VIX is in the index, the SKEW not — same market, same information. |
Conflict eventsin the index Is organised violence around the world rising? | High | ↓ | 25,770 events recorded by the UCDP in 2025, after a record 30,066 in 2024 and 13,911 in 2019: the level has nearly doubled in six years. The 2026 candidate data runs at 1,660 events a month through August, below 2025's 2,148, but it undercounts by 10 to 20% before consolidation. |
Shipping and logistics stressin the index Is the movement of goods being disrupted? | Low/Moderate | ↑ | The New York Fed's supply chain pressure index at +1.28 standard deviations in September 2026, above +1 for the fifth month out of six since the Strait of Hormuz was closed, after a peak of 4.4 in December 2021 and a trough of −1.6 in May 2023. The BDRY dry bulk freight ETF has gone from $6 at the end of 2024 to $14 — freight rates stay high. |
Trade restrictionsin the index Are tariffs and trade uncertainty weighing on trade? | High | ↓ | Effective tariff rate of 8.2% of goods imports in the second quarter of 2026 (revised accounts), against 2.6% at the end of 2024 and 1.6% in 2017, after a peak of 11.3% in the fourth quarter of 2025 and the Supreme Court's February 2026 ruling voiding the IEEPA tariffs. The trade policy uncertainty index climbed back to 261 in September 2026, from 210 in August, against 1,151 in April 2025: the uncertainty is returning, and the tariffs mostly stayed. |
Raw data
Military Expenditure (% of GDP)
US defense spending, % of GDP (BEA, quarterly)
3.65%
1 yr
↑ +0.01%
Source: BEA, via FRED
SIPRI military expenditure, % of GDP
Source: SIPRI, via the World Bank
Notes
- What is happening
- 3.7% of GDP for the United States in the second quarter of 2026, stable since 2022 and close to the floor of 3.5% in the third quarter of 2022, far from the 5.5% of 2010 and the 6.8% of 1990. For 2024, the latest year the World Bank republishes, SIPRI measures 3.4% for the United States, 2.5% for the world — rising since 2022 — 1.7% for China on its official figures, and 7.1% for Russia, against 3.9% in 2019. Its April 2026 release puts 2025 at 2.5% for the world, the highest since 2009, 1.7% for China and about 7.5% for Russia, with US spending down 7.5% in real terms.
- Why it matters
- Military expenditure as a share of GDP is the slowest and heaviest measure of instability: it rises only once legislatures have accepted the threat, and stays high long after. The BEA's quarterly series gives the US tempo; SIPRI's annual figures, republished by the World Bank, allow the comparison with the world, China and Russia on one definition.
- What's driving it
- The Iran war, Ukraine, the Pacific build-up and NATO's new targets raise budgets, but GDP grows as fast, so the share barely moves.
- What to watch
- NATO's European allies committed to 3.5% of GDP in core defense spending at the 2025 summit; the US defense authorization for fiscal 2027, $1.15 trillion or a 24% real increase, passed the House in July and is stalled in the Senate. Each extra point of GDP is $300 billion a year, financed by debt — the link to the Fiscal Dominance page. A move above 4% in the quarterly series would be the first sign that the decade is changing regime.
Geopolitical Risk Index
GPR, 30-day mean
178
1 wk
↑ +8
1 mo
↑ +39
1 yr
↑ +40
Source: Caldara and Iacoviello
Monthly index since 1900
Source: Caldara and Iacoviello
Notes
- What is happening
- 30-day mean of 167 on 12 October 2026, up from 153 on 21 September and 127 at the end of August, after a daily peak of 226 on 16 September. The series stood at 73 at the end of 2019; it jumped to 336 in March 2022 at the invasion of Ukraine, then to 221 in November 2023 with Gaza, 222 in June 2025 with the twelve-day Israel-Iran war, and 327 on 31 March 2026, a month into the Iran war, staying above 200 from 11 March to the end of May. The record is 682 in October 2001; on the monthly index, March 2026 at 330 is the tensest month since Iraq in March 2003 (359), the record being 513 in October 2001.
- Why it matters
- Caldara and Iacoviello's geopolitical risk index counts, each day, the share of articles in ten major newspapers dealing with geopolitical threats or acts — wars, terrorism, tensions between states. It is the reference measure in academic research and at the Fed, available daily since 1985 and monthly since 1900, and the only one that captures instability before markets or budgets react to it.
- What's driving it
- The Iran war and the contested Strait of Hormuz since February, the Houthi advance on the Red Sea coast and strikes on Saudi oil in September, Ukraine and Gaza keep geopolitics in the headlines.
- What to watch
- The post-2022 floor is the level that defines the regime: the 30-day mean has not fallen below 84 since the invasion of Ukraine, nor below 115 in 2026, against lows near 55 in 2020-2021. A 30-day mean sustained above 200, reached five times since 2022 — for eleven weeks in the spring of 2026, a few weeks each time before — signals a major conflict rather than a crisis; the climb since late August, from 127 to 167, is the one to watch: at this pace, the 200 line is one shock away.
Defense Primes' Quarterly Sales
Five primes, combined revenue
64.9 B$
1 yr
↑ +6.4 B$
Combined revenue, year on year
10.8%
1 yr
↑ +6.8%
Source: SEC EDGAR (XBRL)
Change on the same quarter a year earlier
Source: SEC EDGAR (XBRL)
Notes
- What is happening
- $64.9 billion in the second quarter of 2026, up 10.8% on a year earlier, after a record fourth quarter of 2025 at $81.6 billion — the fourth quarter is always the strongest, on the rhythm of deliveries. The total was $35 billion a quarter in 2011 and $43.5 billion at the end of 2019; growth has run between 2 and 15% a year since 2024, and the latest 10.8% is the fastest pace since the third quarter of 2024 (15%).
- Why it matters
- The sales of five large US defense primes — Lockheed Martin, RTX, Northrop Grumman, L3Harris, Huntington Ingalls — are instability converted into orders: voted budgets become deliveries with a lag of one to two years. Boeing is excluded, its revenue being mostly commercial; so is General Dynamics, whose figures reach the SEC's XBRL data a quarter late and held the whole series back. The figures come from SEC filings, bucketed to calendar quarters.
- What's driving it
- Record order backlogs from Ukraine replenishment and allied rearmament, delivered over several years.
- What to watch
- The five carry order backlogs above two years of revenue, a record: most of the sales growth is already written. What matters is the pace — year-on-year growth falling back below 3% would say budgets are no longer following the rhetoric; above 10%, as in the second quarter of 2026, that a war economy is taking hold.
Political Violence and Conflict Events
Events per year
25,770
1 yr
↓ -4,296
Events per month
1,750
1 mo
↓ -32
1 yr
—
Source: UCDP
Source: UCDP candidate data
Notes
- What is happening
- 25,770 events in 2025 on the UCDP's 26.1 annual release, after a record 30,066 in 2024, 27,422 in 2023 and 21,013 in 2022; 13,911 in 2019, 9,139 in 2010, 2,659 in 1989. The previous peak, 25,962 in 2014, was Ukraine and Syria; 2024's adds up Ukraine, Gaza, Sudan and Myanmar. The 2026 candidate data gives 1,660 events a month from January to August — 1,750 in August, 1,782 in July — against 2,148 a month in 2025: a slowing pace, to be read with care, since candidate releases count 10 to 20% fewer events than the consolidated release that follows.
- Why it matters
- The organised-violence events recorded by the Uppsala Conflict Data Program — state-based fighting, civil wars, violence against civilians — are instability in its raw state, before the press and the markets. The curated release is annual; the candidate data extends it month by month with about a month's lag.
- What's driving it
- Ukraine, Gaza, Sudan and Myanmar at once, plus the Iran war since February and Yemen's reignited civil war: five or six large wars overlapping, where the 2010s had one or two.
- What to watch
- Event counts doubled between 2019 and 2023 across successive UCDP releases, with Ukraine, Gaza, Sudan and Myanmar. The threshold to watch is the number of consecutive months above the 2023 average of 2,285 a month: none so far in 2026.
Defense-Sector Volatility
Defense ETF (ITA), 30-day realized volatility
14.8%
1 wk
↓ -0.3%
1 mo
↓ -2.8%
1 yr
↓ -1.7%
S&P 500 (SPY), 30-day realized volatility
10.1%
1 wk
↑ +0.3%
1 mo
↑ +2.1%
1 yr
↓ -1.0%
Source: Yahoo Finance
Notes
- What is happening
- 15% annualized for ITA against 10% for the S&P 500 on 12 October 2026, down from 18% and 10% on 21 September and 25% and 12% in early September: the sector still moves one and a half times as much as the market, when the two sat at the same level most of the time between 2012 and 2019. The peaks are 106% in April 2020, 44% in April 2025 and 31% in May 2026; in March 2022, at the invasion of Ukraine, ITA was only at 26%, the sector rising without jolts.
- Why it matters
- No listed volatility index exists for the defense sector, and option-implied volatilities are not freely available at usable quality. The 30-day realized volatility of the ITA ETF — the large aerospace and defense names — against the S&P 500's is the best substitute: it says whether the sector is treated as a haven, moving less than the market, or as direct exposure to geopolitical risk, moving more.
- What's driving it
- Budget headlines, ceasefire talks and export decisions move the sector day to day, independently of the market.
- What to watch
- An ITA to S&P 500 ratio sustained above 1.5, as now, says investors treat defense as a geopolitical bet rather than a defensive stock. A return of the ratio towards 1 would come with either a détente or — more likely — stress spreading to the whole market.
VIX and Downside Protection Demand
VIX
16.46
1 wk
↑ +1.05
1 mo
↓ -0.74
1 yr
↓ -4.18
CBOE SKEW
168.6
1 wk
↑ +14.3
1 mo
↑ +22.6
1 yr
↑ +21.4
Source: CBOE, via FRED
CBOE SKEW — tail-risk protection demand
Source: CBOE, via Yahoo Finance
Notes
- What is happening
- VIX at 15.4 on 12 October 2026 (14.8 at the 9 October close), in the bottom third of its history, after 52 in April 2025 at the tariff shock, 31 in March 2026 at the start of the Iran war and 83 in March 2020. SKEW at 154 on 9 October, up from 142 on 21 September, against 140 at the end of 2019 and a record of 183 in February 2025: markets expect no volatility but pay more for crash insurance than at any time since the spring — the configuration described below is in place. The VIX is the one in the index; the SKEW, drawn from the same options market, would have counted the same information twice.
- Why it matters
- The VIX is the price of expected 30-day volatility on the S&P 500: the market's fear, day by day. The CBOE SKEW measures something else — how much more investors pay for protection against a sharp fall than for upside. A low VIX with a high SKEW is the signature of a calm market that still buys insurance against catastrophe.
- What's driving it
- A calm index at record highs — 27 record closes in 2026 — with investors paying for crash protection rather than selling: low VIX, high SKEW.
- What to watch
- A VIX below 15 with a SKEW above 150 is the configuration that preceded the shocks of 2018, 2020 and 2025. The signal is not the VIX's level but its speed: a doubling within a week, as in April 2025, turns a geopolitical tension into a market event.
Shipping and Maritime Stress
Global supply chain pressure index
1.28
1 mo
↑ +0.09
1 yr
↑ +1.32
Source: Federal Reserve Bank of New York
BDRY dry bulk freight ETF (USD)
Source: Yahoo Finance
Notes
- What is happening
- GSCPI at +1.28 standard deviations in September 2026, after +1.19 in August (revised from 1.06), above +1 for the fifth month out of six since the Strait of Hormuz was closed in March — the first readings above +1 since January 2023 — after a peak of 1.85 in April, the record of 4.4 in December 2021 and the trough of −1.6 in May 2023. BDRY at $14 on 12 October 2026, down from $16 in late September, against $6 at the end of 2024 and $9 at the end of 2025 — dry bulk freight rates have more than doubled since the end of 2024, still far from the $41 of October 2021.
- Why it matters
- Shipping is the first physical casualty of instability: the Red Sea, the Strait of Hormuz, the Black Sea and Taiwan are routes before they are topics. No maritime stress index is freely published with history; the New York Fed's global supply chain pressure index, which combines freight costs and delivery times, is the best monthly proxy, and the BDRY dry bulk ETF, backed by freight futures, the daily one.
- What's driving it
- The contested Strait of Hormuz since March, the Houthi blockade at Bab el-Mandeb and the shutdown of Saudi Arabia's East-West pipeline on 11 September keep supply-chain pressure around +1 and oil near $100.
- What to watch
- A GSCPI above +1 has coincided with every burst of goods inflation since 2021, and it has been there or close to it since April; above +2, it is a global disruption. The combination to watch is BDRY rising while global demand stands still: that is the signature of a closed route, not of a boom.
Trade Policy Restrictions and Sanctions
Trade policy uncertainty, monthly
261
1 mo
↑ +51
1 yr
↓ -205
Effective tariff rate, % of goods imports
8.22%
1 yr
↓ -0.07%
Source: Caldara, Iacoviello, Molligo, Prestipino and Raffo
Effective US tariff rate
Source: BEA, via FRED
Notes
- What is happening
- Effective rate of 8.2% in the second quarter of 2026 (lowered from 8.8% by the annual revision of the accounts on 30 September), against 2.6% at the end of 2024 and 1.6% in 2017 — a level unseen since the 1940s — after a peak of 11.3% in the fourth quarter of 2025 and 10.2% in the first quarter of 2026; the pullback follows the Supreme Court's ruling of 20 February 2026 that IEEPA authorised no tariffs, and the refunds now being processed, more than a retreat. The monthly TPU has gone from 411 in January 2026 to 187 in June, 210 in August and 261 in September, against an all-time record of 1,151 in April 2025 and 266 at the 2019 peak of the first trade war: September is the tensest month since February, level with the 2019 peak.
- Why it matters
- Sanctions and trade restrictions have no public, current counter; two proxies measure them by their effects. The trade policy uncertainty index (TPU) by Caldara and co-authors at the Fed counts press articles on tariffs and trade policy, daily and monthly since 1960. The effective tariff rate — customs duties over goods imports, from the national accounts — measures what is actually paid at the border.
- What's driving it
- The 2025 tariff rounds on China, then on allies, the export controls on chips and their tools, and since February 2026 the unwinding of the IEEPA tariffs the Supreme Court struck down.
- What to watch
- The TPU reacts to announcements, the effective rate to measures: when the first rises without the second it is rhetoric; when the second rises alone, as through 2025, it is settled policy. Today the rate is falling on the refunds while the TPU climbs again — and the Census's monthly rate turned up in August, see the De-globalisation page: the next quarters say whether the tariffs are being rebuilt on other legal grounds. An effective rate sustained above 10% would return the United States to its pre-1945 tariff regime.
Methodology
1Sources
Geopolitical Risk index (Caldara-Iacoviello), VIX (Yahoo), NY Fed supply chain index, Trade Policy Uncertainty index, SIPRI via World Bank (defence / GDP), SEC filings (five defence primes), UCDP (conflict events).
2Normalisation
GPR as a 30-day mean, primes' sales as year-on-year growth, conflicts as events per month; monthly and quarterly inputs carried forward on the daily calendar.
3Z-scores
Each constituent minus its mean since mid-2011, divided by its standard deviation; capped at ±3.
4Weighting
Seven constituents, equal weights; the SKEW, sector volatility and the tariff rate are charted but left out to avoid double counting.
5Index
Average of the seven z-scores × 20 points, rebased to 100 on the first day all exist (June 2011). Updated daily.
6Interpretation
Higher means more instability. Market constituents move the index day to day; the defence and conflict constituents set its level.