Israel launched missiles that destroyed key nuclear facilities and military personnel in Iran on Friday. Iran retaliated with missile strikes on Israeli cities on Saturday, and both countries resumed fire against each other on Sunday.
Projections shifted significantly over the weekend on prediction markets based on key events around the conflict. From June 11 to June 14, the probability of U.S. military action against Iran by July spiked from 12% to a high of 42%. The percentage settled around 30% by Monday morning. U.S. military action by August had a projected likelihood of 44% at time of writing.
Purpose of war-related prediction markets
According to crypto prediction market Polymarket’s resolution terms, “a ‘military action’ will be considered to be any use of force executed by the US military on Iranian soil, airspace, or maritime territory…that is officially acknowledged by the US government or a consensus of credible reporting…Cyber attacks, sanctions, or diplomatic actions will not count towards the resolution of this market.”
Each of its war markets also includes a statement of why Polymarket is offering real-money markets on the Israel-Iran conflict. The statement extolls the wisdom of the crowds as a way to create a more accurate snapshot of the likelihood of specific events related to the situation as it evolves.
“…we realized that prediction markets could give them [those affected by events the markets are about] the answers they needed in ways TV news and Twitter could not.”
Iran expected to wage war before declaring it
Polymarket gives Iran a 4% chance of declaring war on Israel by Friday, June 20. The deadline for the market’s resolution is short, so it’s not representative of the overall probability that Iran will officially declare war on Israel as the conflict between them escalates.
Israel launched missiles at Iran’s nuclear sites and killed three of Iran’s top generals on Friday. Though this was the beginning of the current armed exchanges, it wasn’t the beginning of the conflict between the two countries. Iran has funded many of the groups attacking Israel, including Hamas, which attacked and kidnapped civilians in southern Israel on Oct. 7, 2023. Iran also funds the Houthis in Yemen and Hezbollah in Lebanon.
Israel’s attack on Iran is the culmination of a larger conflict that has been fought indirectly and without direct acknowledgment from Iran for much longer than a week ago.
New U.S. nuclear deal with Iran a coin toss
Commercial prediction market Kalshi projects around a 50% probability of the United States reaching a new nuclear deal with Iran in 2025, as of midday June 16. The likelihood was around 40% earlier in the day.
Kalshi’s resolution terms consider a deal to mean both that Iran’s nuclear program faces “verifiable” restrictions and that the United States lifts, suspends, or modifies “at least one US economic sanction on Iran in exchange for Iran’s nuclear commitments.”
The Obama administration secured a deal with Iran that would lift sanctions in exchange for independent verification that Iran was not enriching uranium for military use. Trump pulled out of this agreement in his first term and called it a “bad deal.” He has since reversed course, seeking a new nuclear agreement with Iran.
After Friday’s strikes, Trump urged Iran to take advantage of their “second chance” to secure a nuclear deal and stop the bombing. Negotiations seem no closer in news reporting or prediction market price movements at time of writing.
While prediction markets aren’t a magical crystal ball of what is to come, they do present an alternative information source that reflects real-time sentiment and aggregated information from a wide range of sources, which can prove useful for better understanding complex conflicts as they evolve.
