Geopolitical Events — Trading Context

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When analyzing PM contracts about: wars, military conflicts, invasions, sanctions, diplomatic events, international crises, regime change.

Instructions

Inject silently. Use to inform analysis.

Structure of Geopolitical PM Contracts

Typical contract types:

"Will X invade Y by [date]?" — binary, usually low probability, fat tails

"Will ceasefire hold?" — high uncertainty, mean-reverting

"Will sanctions be imposed/lifted?" — institutional process, more predictable

"Will [leader] remain in power?" — regime stability

Escalation Ladder Framework

Military conflicts follow escalation ladders. Each rung is observable:

1. Diplomatic rhetoric (threats, recalls of ambassadors) — noise, don't trade on words

2. Economic measures (sanctions, trade restrictions) — observable, lagging indicator

3. Military posturing (troop movements, exercises near border) — OSINT observable

4. Proxy actions (cyber attacks, supporting insurgents) — harder to attribute

5. Direct limited strikes — clear escalation, PM prices jump

6. Full-scale military operations — rarely happens without steps 1-5 first

PM implication: Most geopolitical contracts price worst-case scenarios. The base rate for full escalation from step 1-2 to step 6 is LOW. Markets overreact to rhetoric and underreact to physical movements.

OSINT Sources (Open Source Intelligence)

| Source | What it tracks | Why it matters | |--------|---------------|----------------| | ADS-B Exchange / Flightradar24 | Aircraft positions | Diplomatic/military flights, tanker movements, unusual patterns | | MarineTraffic / VesselFinder | Ship AIS data | Naval deployments, sanctions evasion (dark shipping), blockades | | Sentinel-2 satellite (free) | Earth imagery | Military buildups, infrastructure changes, damage assessment | | IODA / OONI | Internet connectivity | Internet shutdowns correlate with political crises, coups | | LiveUAMap | Conflict mapping | Real-time geolocated event mapping | | Bellingcat tools | Verification | Cross-reference claims with physical evidence |

Sanctions Mechanics

Sanctions are NOT instantaneous. They follow a process:

1. Executive Order declaring national emergency re: target country/issue

2. OFAC (Office of Foreign Assets Control) designates specific entities/individuals

3. SDN List (Specially Designated Nationals) — being on this list = frozen assets, no US business

4. Secondary sanctions — threaten to sanction third parties who do business with the target

5. Enforcement — actual compliance by banks, shipping companies, etc.

For PM: "Will US impose sanctions on X?" needs to specify WHAT sanctions. There's a spectrum from symbolic (designating a few individuals) to crippling (full trade embargo + secondary sanctions). Contract resolution criteria matter.

Sanctions removal is slower than imposition. Requires executive action or Congressional legislation. Diplomatic agreements (like Iran nuclear deal) can lift sanctions but are politically fragile.

Regional Cheat Sheets

China-Taiwan:

"Invasion" threshold is very high. More likely scenarios: blockade, quarantine, gray zone operations

PLA exercises around Taiwan are REGULAR events, not escalation signals by themselves

Key tell: whether exercises include specific amphibious landing drills + logistics buildup

Base rate for actual invasion by 2027: very low (<5%)

Middle East (Iran/Israel):

Proxy warfare is the norm, not the exception. Direct state-on-state conflict is rare

Strait of Hormuz closure threat is perennial but actual closure is extremely unlikely (Iran depends on it too)

Watch oil flow data (tanker AIS) not rhetoric

Russia-Ukraine/NATO:

Frozen conflict dynamics — ceasefire ≠ peace

NATO Article 5 invocation probability is near-zero for non-member states

Energy supply weaponization is the primary escalation tool, not military

Korean Peninsula:

Missile tests are routine provocation, not escalation signals

True escalation indicators: evacuation of foreign nationals, forward-deployment of artillery

Trading Rules

1. Geopolitical "Will X happen?" contracts are almost always overpriced for catastrophic scenarios. The base rate for wars, invasions, and full escalation is very low.

2. The REVERSE is true for "Will ceasefire/deal happen by date?" — these are often underpriced because diplomacy is slow and unpredictable

3. Trust physical observables (OSINT) over rhetoric. Troop movements matter, speeches don't.

4. Sanctions contracts: read the resolution criteria carefully. "New sanctions" could mean one OFAC designation or a full embargo.

5. Time decay works AGAINST holders of "Will X happen by [date]?" for unlikely events. If nothing happens, the contract bleeds to zero.

6. Geopolitical PM contracts have VERY thin liquidity. Wide spreads eat your edge. Only trade when the spread is <10c or you have very high conviction.