The escalation of the US-Iran conflict: How do prediction markets price war risks ahead of oil prices?

Mar 4, 2026 17:05:18

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Abstract

This article analyzes how the escalation of the U.S.-Iran conflict serves as a starting point to understand how a geopolitical event can rapidly transform into a global risk variable within the contemporary financial system. Since the event occurred over the weekend when traditional financial markets were closed, the on-chain markets continued to operate. Crypto assets and on-chain commodity contracts experienced significant volatility first, completing the initial round of risk expression; prediction markets then directly quantified the probabilities of war and political changes, achieving real-time pricing of the event's trajectory. After the traditional markets opened on Monday, energy, the dollar, U.S. Treasury bonds, and risk assets confirmed the systemic impact, with risk premiums being transmitted layer by layer along the macroeconomic chain. The article points out that in a 24/7 digital market environment, risks are no longer priced only when the opening bell rings. Geopolitics is being financially quantified in real-time, with markets not merely reacting passively to events but actively participating in the pricing of risks as events unfold.

1. Escalation of Conflict: How Geopolitical Events Become Global Risk Variables

Recently, tensions between the U.S. and Iran escalated sharply. Multiple media outlets reported that Iran's Supreme Leader Ayatollah Ali Khamenei was killed in an airstrike, leading to a rapid deterioration of the regional situation. The combination of military actions and hardline statements quickly transformed the situation from regional friction into a focal point of global attention.

Subsequently, the Iranian Islamic Revolutionary Guard Corps announced restrictions on ships passing through the Strait of Hormuz. As one of the world's most important energy transportation corridors, this key hub, which has long carried about one-fifth of the world's crude oil and liquefied natural gas, faced serious limitations, prompting several shipping companies to suspend passage or choose to reroute.

The impact of the conflict is no longer confined to the military level. The Middle East is a core region for global energy supply, and disruptions in the Strait of Hormuz will directly raise energy risk premiums, quickly transmitting through oil prices, inflation expectations, and capital flows to global markets.

Thus, this conflict has become a globally significant risk variable. Its influence extends beyond regional security patterns to include the balance of energy supply and demand, the liquidity environment of the dollar, and the valuation system of risk assets.

When war escalates to a systemic risk, where is the risk first traded? Under the structure where traditional markets operate part-time while on-chain markets run around the clock, the sequence of price discovery is changing.

2. Weekend Time Window: On-Chain Markets Complete the First Round of Price Discovery

Notably, this escalation of conflict occurred over the weekend. When the news broke, most traditional financial markets around the world were already closed: spot gold ceased quoting, crude oil futures stopped trading, and stock markets were closed. Risks had emerged, but the traditional system could not price them immediately. However, the on-chain markets continued to operate, and risk sentiment shifted to a pricing venue that was still open.

Crypto Assets Experience Significant Volatility First

After the conflict news emerged, Bitcoin's price briefly approached $63,000, then rebounded to around $66,000, completing a noticeable fluctuation in a short time. This volatility was not merely a simple reaction of safe-haven buying or panic selling, but rather a concentrated market bet on risk expectations in the absence of traditional anchors like gold and oil. When other assets could not be traded, the crypto market became one of the outlets for risk expression.

On-Chain Commodity Contracts: Instant Formation of Risk Premiums

During the weekend, multiple media outlets reported significant increases in perpetual contracts linked to crude oil, gold, and silver on the Hyperliquid platform: the crude oil perpetual contract rose about 5% to approximately $70.6 per barrel; the gold perpetual contract increased about 1.3% to around $5,323 per ounce; the silver perpetual contract climbed about 2% to around $94.9 per ounce. Trading volumes also surged. The 24-hour trading volume for silver contracts exceeded $227 million, while gold contracts reached about $173 million, indicating real capital participation. These prices were genuinely formed in the 24/7 on-chain market, reflecting market participants' immediate judgments on supply risks and geopolitical premiums during the closure of traditional markets.

Monday Opening: Traditional Markets "Catch Up"

When traditional markets reopened, prices quickly adjusted towards the direction indicated by the weekend's on-chain activity. International oil prices opened higher on Monday, with Brent crude rising to $82.37 per barrel and WTI crude jumping above $75; spot gold broke through $5,300 per ounce; major global stock index futures generally weakened, putting pressure on risk assets. The price movements displayed a clear temporal sequence: risks emerged over the weekend; the on-chain market experienced initial volatility; and on Monday, traditional markets completed larger-scale confirmations and dispersions.

During the time window when traditional markets were closed, the on-chain market bore the first wave of risk expression. This structural time lag is changing the pricing rhythm of global risk events.

3. Prediction Markets: War Quantified in Real-Time for the First Time

Polymarket: Explosive Pricing of Conflict Nodes

In this event, the trading volume of contracts related to the escalation of conflict on the on-chain prediction platform Polymarket significantly increased.

The series of contracts regarding "Will the U.S. or Israel strike Iran by a certain date?" (U.S./Israel strike Iran by…?) saw a cumulative trading volume exceeding $500 million, with approximately $90 million traded on the day of the airstrike, making it one of the largest geopolitical markets in the platform's history.

After the confirmation of the leader's death, contracts related to "Will Khamenei lose his position as Supreme Leader of Iran by March 31?" (Khamenei will lose position by March 31?) quickly settled, with a trading volume of about $57 million. The implied probability of contracts like "Will the Iranian regime collapse by June 30?" (Iran regime collapse by June 30?) surged close to 50%, indicating that the market had begun pricing deeper institutional risks. These data suggest that betting is not a scattered activity but rather forms concentrated and high-intensity capital participation.

Source: https://polymarket.com/event/khamenei-out-as-supreme-leader-of-iran-by-march-31

Opinion: Multi-Dimensional Pricing of Conflict Paths and Institutional Risks

On Opinion, contracts related to the U.S.-Iran conflict also exhibited high activity. One type of market precisely defines military triggers. For example, "Will the U.S. strike Iran by …?" stipulates that a "Yes" is only determined if the U.S. military actually hits Iranian territory or official consulates with drones, missiles, or airstrikes; intercepted weapons or other forms of military action are not counted. The trading volume of this contract has exceeded $12.6 million, reflecting the market's high attention to specific military trigger conditions.

Source: https://app.opinion.trade/search?q=Iran

Another type of market shifts focus to institutional risks. "Will Khamenei lose power as Supreme Leader of Iran by …?" prices whether Ali Khamenei will lose power within a specific time window. The rules include resignation, detention, loss of position, or inability to perform duties as criteria for judgment, with credible media consensus serving as the settlement basis, and the trading volume is about $12.9 million. Additionally, markets like "Will the Iranian regime fall by …?" and "Will the ceasefire between Israel and Iran be broken by …?" express probabilities regarding regime stability and ceasefire continuity, respectively.

Although the number of related contracts and overall trading volume on Opinion is still lower than Polymarket, it presents a clearer structure of risk layering: military actions, ceasefire status, leadership retention, and regime direction are decomposed into multiple independent variables, priced in parallel. Thus, war is no longer just a binary question of "whether it will happen," but a risk path that can be segmented, quantified, and continuously revised. Prediction markets thus become real-time measuring tools for sovereign risk and institutional stability.

Probability Curves as "Risk Thermometers"

Unlike oil or gold, prediction markets do not express risk indirectly through assets but directly price the probability of "whether an event will occur." When the probability of conflict escalation rises, odds surge; when the situation eases, probabilities fall. The odds curve itself becomes an immediate gauge of risk sentiment. Some analyses indicate that in the hours before the widespread dissemination of airstrike news, a small number of new wallets concentrated on buying related contracts and profited after the event was confirmed. This phenomenon has sparked discussions about whether information entered the market early, highlighting the time sensitivity of prediction markets.

Traditional markets typically reflect outcomes through rising oil prices or falling stock markets; prediction markets directly trade "whether it will escalate" or "whether it will spread." The former impacts pricing, while the latter influences pricing paths. When traditional markets have yet to open, risks have already been quantified and bet on in the on-chain space.

4. Traditional Asset Opening Confirmation: How Risk Premiums Are Transmitted?

When the on-chain market experiences initial volatility, true cross-asset linkage occurs after traditional markets reopen.

Energy: The First Stop for Risk Premiums

Energy remains the first stop for risk premiums. The Strait of Hormuz accounts for about 20% of global crude oil transportation; as long as the market fears supply disruptions, oil prices will preemptively incorporate risk premiums. The escalation of conflict drives oil prices upward, subsequently raising inflation expectations and affecting interest rate policies and corporate cost structures.

Dollar and U.S. Treasuries: A Tug-of-War Between Safety and Inflation

In times of rising uncertainty, funds typically flow into the most liquid assets, benefiting the dollar and U.S. Treasuries in the short term. The dollar strengthens, and U.S. Treasury yields temporarily decline, reflecting increased demand for safe havens. However, if the conflict persists and inflation expectations rise, U.S. Treasury yields may face a tug-of-war between safe-haven buying and inflationary pressures.

Risk Assets and Bitcoin's Positioning

Gold fulfills traditional safe-haven functions, crude oil reflects risk premiums, and U.S. Treasuries provide a liquidity safety net. Bitcoin's performance, however, is more akin to a high-beta risk asset. In the early stages of the conflict, it did not rise unilaterally but experienced significant fluctuations, indicating its high sensitivity to liquidity and risk appetite. Therefore, in the initial phase of extreme uncertainty, Bitcoin resembled a high-beta risk asset rather than a pure safe-haven tool.

Overall, the on-chain market first expresses risks, prediction markets quantify risks, and traditional assets complete systemic confirmations after opening. Risk premiums are transmitted layer by layer along energy, interest rates, and asset valuations, ultimately forming a coordinated response in global markets.

5. Structural Changes: Is the Risk Pricing Mechanism Migrating?

The significance of this event may lie not only in the conflict itself but in how risks are being priced.

Geopolitics is Being Financialized in Real-Time

In the past, geopolitics was often confined to news and diplomatic levels; today, it is being financialized in real-time. Whether war escalates, sanctions are implemented, or election outcomes evolve can all be bet on, hedged, and quantified in the market. Risks are no longer merely interpreted after the fact but are traded as they occur.

On-Chain Markets as 24/7 Risk Buffers

On-chain markets are beginning to assume a new function. Traditional markets have weekend closures and holiday breaks. When significant events occur during these gaps, prices cannot immediately reflect sentiment. However, the on-chain market operates 24/7, becoming the buffer for the first wave of emotional release. Prices and probabilities fluctuate there first, and when traditional markets open, larger-scale confirmations and dispersions occur.

Marginal Migration of Price Discovery Rights

This difference in time structure is bringing about a deeper change: the marginal migration of price discovery rights. If on-chain contracts fluctuate first, and if the odds curves in prediction markets shift before oil prices and stock indices, will institutional investors begin to monitor this data? Will macro models incorporate on-chain volatility as a reference variable? Will media and traders regard prediction market probabilities as risk warning signals?

These questions remain unresolved, but the direction is becoming clear. The "first expression" of risk is shifting from the opening bell of traditional exchanges to the always-on digital markets. When war can be traded in real-time, the market is no longer just passively responding to the outcomes of events but is actively participating in the pricing process of risks themselves.