Literally, a powder keg is a keg or barrel used to hold gunpowder. In figurative terms, a powder keg is an expression used to describe a potentially explosive social or political or other similar situation.
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The assassination of Archduke Franz Ferdinand was the "spark" required to light the powder keg which started WW1.
The Balkan Peninsula
Several nationalist uprising had broken out in the Balkans.
The assassination of Archduke Franz Ferdinand and his wife Sophie was the event that led Austria to declare war. This led to a chain reaction of war declarations that began World War I, much like the devastating effects of a powder keg. The tensions in the Balkan area were rather high, as there were two major conflicting powers (Austro-Hungary and Russia), were heavily involved in the conflict of the region. Austro-Hungary held power over Bosnia, which the Serbian nationalists claimed as part of their country. Russia sided with Serbia, promising to protect them in the event of war. Tensions rose, like a powder keg, just waiting for the spark that would ignite and bring about conflict.
The Balkan area was considered a "powder keg" at the time because of volatile feelings and situations between the different countries that exist there. With the assassination of Archduke Ferdinand, thus started World War I.