22.12.23 Review

Dark Times: Is the world heading towards global conflict or just a new Cold War?

In 2023, the number of active armed conflicts reached its highest level since the end of World War II. Many of them are far from resolution, and their protracted nature creates conditions for the emergence of new hotbeds of armed violence. The backdrop for these conflicts is the growing tensions between the global players — Russia, China and the United States — and talk of the decline of what is known as the Pax Americana. Does this intensification of conflicts mean that the world is heading towards World War III? A geopolitical risk index created by American economists indicates that the current level of conflict intensity is elevated but not unprecedented. Recent years in terms of the index dynamics more closely resemble the 1970s or early 1980s than the 1930s, when a systematic increase in conflict over a decade ended in a world war. This could be considered good news, but it is worth noting that World War I, unlike the Second, started seemingly out of nowhere, after a period of geopolitical calm. Nevertheless, the index suggests that the world is entering a new Cold War rather than a hot one.

Russia's full-scale war in Ukraine, conflict in the Middle East, and civil wars in several African countries and Myanmar are unfolding simultaneously. According to the calculations of the Uppsala Conflict Data Program (UCDP) at Uppsala University, in 2023, the number of active armed conflicts reached its highest level since the end of World War II. As Re:Russia recently wrote, according to the International Institute for Strategic Studies, between May 2022 and June 2023, the number of conflicts increased by 14% compared to the previous year. The general backdrop for this conflict-ridden atmosphere is the rising tensions between the US and China and the threat of confrontation over Taiwan. The index of the impact of military losses on the economy, calculated by Bloomberg Intelligence, has surged to levels not seen in the past 40 years. High-ranking officials from the United States, the European Union, other G20 countries, and NATO have confirmed to Bloomberg that emerging conflicts are becoming triggers for new ones, pointing to potential hotspots of tension in 2024, especially in the Balkans and the Caucasus. In Europe, according to Bloomberg, France is discussing how to react if Azerbaijan invades Armenia.

But how exceptional does this intensification of conflicts appear compared to other periods in history? Does it indicate the likelihood of approaching global conflict, World War III? Or has it already begun in latent forms? Cullen Hendricks, an expert at the Peterson Institute for International Economics (PIIE), partially answers these questions: to assess the comparative level of threat, he turned to the Geopolitical Risk Index (GPR), developed by Federal Reserve System researchers Dario Caldara and Matteo Iacoviello. They define geopolitical risks as 'as the threat, realisation, and escalation of adverse events associated with wars, terrorism, and any tensions among states and political factors that affect the peaceful course of international relations.’ The index is based on the analysis of publications of the world's leading media and covers the period from the beginning of the 20th century. Archives of the Chicago Tribune, The New York Times, and The Washington Post cover the period until 1985, after which the list of publications expands. The higher the value of the index, the more articles are published about events creating risks. The increase in risks foreshadows a reduction in investments, a decline in stock markets, and an increase in unemployment. The practical application of the index lies in predicting these events.

Geopolitical Risk Index, 1900-2023

The historical dynamics of the GPR index show that the escalation of tension does not necessarily lead to a major war. Moreover, the current period does not appear to be the most dangerous in recent decades. Comparing the average and peak values of the index over the entire period of observation, Hendricks found that, apart from the two world wars, the most dangerous periods were the late 1940s and early 1950s (key events being the final stage of the Chinese Civil War and the Korean War) and the first few years after the 9/11 attacks in New York. Conversely, the safest periods were 1900-1913, the interwar period (1920-1933) and the 1990s, more precisely, the time from the collapse of the Soviet Union (December 1991) to the 9/11 terrorist attacks in 2001. 

However, it is striking that the outbreak of World War II was clearly preceded by a period of gradually increasing tension in international relations. The Japanese invasion and occupation of Manchuria, Hitler's rise to power in Germany, the Spanish Civil War and the intervention of the USSR, Germany and Italy, the Second Sino-Japanese War, the radicalisation of Nazism and the Kristallnacht pogrom, and finally the occupation of the Sudetenland — all retrospectively look like preparation for World War II. In contrast, World War I began suddenly and seemingly out of nowhere after a period of 'calm'. However, it is worth noting that until 1985, the index is based on data from the American press, which may have downplayed the significance of events in Europe.

In a comparative retrospective of the rating, the current situation does not appear to be exceptionally alarming. Even the peak of the GPR index in the 2020s after Russia's invasion of Ukraine was within a standard deviation of the long-term average over the entire period of observation. In the preceding months, the index value was low. As a result, the most dangerous period in recent history is comparable to the beginning of the Fourth Arab-Israeli War in October 1973. 

Thus, Hendricks believes that while the current global situation is not without concern, it is far from being a worst-case scenario. However, we are still at the beginning of the decade and we are still witnessing an upward trend in tensions compared to the previous decade. If, as some believe (and this perspective is gaining popularity), the current rise in conflicts is a reflection and harbinger of the decline of the Pax Americana, then we should expect to see a further rise in tensions and a corresponding increase in the ten-year average of the index. Nonetheless, for now, despite the high number of conflicts in the 2020s, the GPR value does not indicate an imminent catastrophe (like the situation in the 1930s): in terms of index dynamics, the recent years more closely resemble the 1970s or 1980s. That is, the world is returning to the Cold War trends.