Geopolitical risk is frequently cited as a risk investors are, rightly, concerned about. However, geo-political and political risk are two different concepts which are often used interchangeably, despite their very different meaning. So let’s first look at political risk.
Political risk is a measure of the impact of political tensions on the domestic economy. For example, concerns that a UK general election which caused a change of government in the UK from Conservative to Labour might lead to the perception of increased political risk (or reduced, depending on your political leaning). Rating agencies take account of political risk when assigning credit ratings, so you would not, normally, expect to need to add a risk premium for a country with higher than average political risk.