The world's biggest risks

Systemic risks: Russia vs Middle East

Middle East tension, a systemic risk?

The unfolding Russia-Ukraine crisis isn't a systemic risk, one analyst told CNBC, warning that political tensions across the Middle East and Africa (MENA) deserve greater attention.

"The Middle East and Africa, no question about it, is a greater systemic risk. Flare-ups in Nigeria, Syria, Iraq, potentially Libya, Saudi Arabia, and Kuwait are far more significant than Russia and Ukraine," said Viktor Shvets, head of Asia strategy research at Macquarie.

It's not just the rapidly-expanding militants of the Islamic State (IS) in northern Iraq and Syria that are spooking the MENA region. Libya also faces its own jihadists after Islamist group Dawn of Libya took power in Tripoli last month. Meanwhile, Nigeria's Boko Haram recently seized the town of Baram in the northeast it attempts to create an Islamic state.

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News versus risks

"What is important [for investors] is to decide what is news and what is systemic. The way I look at Russia-Ukraine, it is news," said Shvets, noting the key to assessing systemic risks is whether players are rational or not.

"The Russia-Ukraine [crisis] is not systemic. Russia as a government might not necessarily agree with everybody but it is rational," he said, highlighting the fact that Russia has been a nation for 1,000 years. On the other hand, the Middle East is facing a vacuum of power, he stated, describing the region as a tribal society that lacks defined, state-based leadership.

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A Kurdish Peshmerga fighter in Yangije, Iraq on September 11, 2014.
JM LOPEZ | AFP | Getty Images

Poor governance has been widely cited as the key reason for much of the region's political turbulence and economic upheaval in recent years, including the 2011 pro-democracy movements known as the Arab Spring.

Meanwhile, Putin's leadership during the six-month long Eastern European offensive has soared. In the most recent opinion poll conducted in August, his approval rating stood at 84 percent.

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"Whenever you have a vacuum of power, when there's a circumstance where there is nobody who acts rationally, that's where you have systemic risks, particularly if you have resources such as oil and gas. That's why the Middle East & Africa is systemic and Russia-Ukraine is not," he said.

Majority opinion

Just because something is organized doesn't mean it isn't systemic, said Vishnu Varathan, senior economist at Mizuho Bank, responding to Shvet's logic. A systemic risk is one that pervades through the entire system, Varathan said.

Sentiment among the majority of experts is split as to which crisis is more concerning.

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"Both are systemic risks. Tensions in the Middle East could risk sparking a second round of the 'Arab Spring' while the economic impact of sanctions on Russia is just beginning to be felt in Europe. We're going to see even more economic pressure with tit-for-tat sanctions and a potential escalation of military conflict," said Varathan.

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Meanwhile, retired U.S. Army General Wesley Clark told CNBC last week that Vladimir Putin's actions in eastern Ukraine and what that means for NATO and the future of the West are a much bigger problem than militant Islamists, which he views as "a particular, localized threat."

Other risks

As for other geopolitical and economic concerns weighing on markets, Macquarie's Shvets doesn't see much cause for concern.

Regarding growth concerns in the world's second-largest economy, he said "until China starts collapsing and having a credit crisis, it will become systemic. But right now, it's not".

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He dismissed China's offensive in the South and East China Seas, calling its shaky relations with Vietnam, Philippines and Japan just "news."

And as for the prospect of an independent Scotland: "That's far from being systemic for anybody; it's not relevant to anybody except for a few select people," he said.