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Geopolitical tensions abound, even since the end of the Cold War, as globalization has shifted the power balance between old and new hegemons like the US, the EU and China. Contrary to the belief that globalization would promote peace, we argue that multilateral dependencies can increase the likelihood of conflict by making countries more vulnerable as financial integration entwines economic and political destinies. We propose a 3-player model of sovereign debt holdings to show how multilateral financial integration might exacerbate political conflict when political negotiation is possible, and multilateral organisations are absent. We find evidence that political relations between the US, EU, and China are unlikely to be strained by tensions on sovereign bond markets, as there are limited interdependencies, but find sovereign risk moves with geopolitical risk in line with the model's predictions.
