The price of contracts betting on a direct U.S. Or Israeli military strike against Iran surged in late February, hours before the actual operation commenced, raising questions about whether financial markets are evolving into a modern signaling mechanism in international crises.
On February 28, the United States and Israel launched a series of strikes targeting Iranian military assets and leadership, resulting in the death of Supreme Leader Ayatollah Ali Khamenei, according to multiple reports. The operation, dubbed “Operation Epic Fury,” followed weeks of escalating tensions and military posturing, but unlike previous periods of heightened alert, the impending action was widely anticipated in financial markets specializing in geopolitical risk.
Prediction platforms like Polymarket saw significant trading volume in contracts related to a potential strike on Iranian nuclear facilities or direct U.S. Intervention. Thousands of dollars were wagered on the likelihood of military action, generating constantly updated probabilities that were closely monitored by analysts and journalists. The surge in trading activity, and the accuracy of the market’s prediction, has prompted discussion about the role of these platforms in modern conflict dynamics.
Whereas traditionally viewed as forecasting tools, these prediction markets are increasingly seen as potentially influencing the bargaining process itself. Analysts suggest states or state-aligned actors could manipulate market prices to create a false impression of intent, turning financial trades into strategic signals. Even without deliberate manipulation, the probabilities generated by these markets can shape expectations among journalists, investors, and governments, subtly influencing the escalation of a crisis.
“Prediction markets create a digital version of costly signaling,” explained Jonathan Walberg, a researcher at the University of Virginia, in a recent analysis. “Mobilizing a carrier strike group costs hundreds of millions of dollars. Moving a thinly traded geopolitical market might require only a few million, a trivial amount for a state actor.”
The ambiguity inherent in these markets – the inability to definitively identify the source of a large trade – is a key component of their potential power. A sudden, substantial purchase of contracts predicting an Israeli strike, for example, could be interpreted as a leak from within the Israeli government or a signal from a connected financier. This uncertainty, analysts say, can compel adversaries to grab defensive measures, even if the signal is deceptive.
U.S. Regulators have existing authority to intervene in these markets. According to Commodity Futures Trading Commission regulations, contracts involving war are prohibited if deemed contrary to the public interest. However, enforcement has been limited as these platforms grow in scale and political relevance. Recent legislative efforts, led by Senators Chris Murphy and Catherine Cortez Masto, aim to tighten oversight of event-based contracts tied to geopolitical crises, while Senator Jeff Merkley has proposed a ban for government officials.
Despite potential regulatory changes, the strategic signaling effects of these markets are likely to persist. Even if insider trading is eliminated, the markets themselves can reshape the logic of costly signaling, offering a low-cost, plausibly deniable method for states to communicate resolve or deception.
As of March 13, 2026, the conflict continues, with Iran retaliating against U.S. Military facilities and allied states in the Gulf. Israel has too increased airstrikes in Lebanon following rocket fire from Hezbollah. The U.S. Government has not commented on the role of prediction markets in the lead-up to Operation Epic Fury, and the Iranian government has yet to publicly address the issue.
