By Nathalie El-Bazzal and Jamel Saadaoui · 14 June 2026
Main point. The March 2025 arrest of Ekrem İmamoğlu is best classified as a domestic political shock with international financial-market transmission. It is not a geopolitical event, and it is not a geoeconomic event. The fact that the lira, Turkish assets and Tether-lira markets reacted strongly is economically important, but market reaction is an outcome, not a classification criterion.
Vincient Arnold’s recent note, “Stablecoins, FX Arbitrage, and Geopolitical Shocks”, is an interesting contribution to the study of stablecoins, exchange-rate stress and market segmentation. The associated Yale thesis studies the March 19, 2025 arrest of a major Turkish opposition figure and finds that the event was associated with a large abnormal depreciation of the lira against Tether, as well as a temporary widening of the deviation between fiat-dollar and synthetic-dollar prices in Turkish lira markets. The empirical point is valuable: stablecoin markets can reveal high-frequency dollar demand under stress, especially in countries where households and firms already use dollar substitutes intensively.
However, the event label is more problematic. Arnold describes the arrest as an exogenous “geopolitical risk-off event”. This is a useful opportunity to clarify a broader conceptual issue. Many researchers, market participants and journalists now use “geopolitical” as a generic label for politically driven uncertainty that moves asset prices. That usage is understandable in financial commentary, but it is too broad for empirical classification. A domestic political shock does not become geopolitical simply because international investors care about it. It also does not become geoeconomic simply because it affects currencies, bonds, equities or stablecoin markets.
The event
On March 19, 2025, Turkish police arrested Istanbul mayor Ekrem İmamoğlu, a prominent opposition leader and rival of President Recep Tayyip Erdoğan, as part of investigations involving alleged corruption and terrorism links. The Associated Press described the arrest as a major escalation in the crackdown on opposition and dissenting voices in Türkiye; it also reported road closures, a ban on demonstrations in Istanbul, protests, and market pressure on the lira and Istanbul Stock Exchange. Reuters reported that the Turkish lira fell sharply, touching a record low before recovering part of the decline, while stocks and bonds also sold off. Human Rights Watch described the detention as politically motivated and linked it to broader pressures on opposition-led municipalities.
These facts make the episode politically significant. They also make it financially significant. But they do not make it geopolitical or geoeconomic.
Why it is not a geopolitical event
A strict definition of geopolitics should involve strategic relations among political units over territory, sovereignty, security, military power, alliance commitments, borders, coercive diplomacy or the international distribution of power. Under this definition, geopolitics is not simply “politics with large consequences”. It is politics structured by spatial power, interstate rivalry and security relations.
The İmamoğlu arrest does not directly involve those mechanisms. The central actors are domestic: Turkish police, prosecutors, the mayor of Istanbul, the opposition Republican People’s Party, the Turkish presidency, courts, protesters and voters. The immediate arena is the domestic political and legal system. The core issue is internal political competition and the use, or alleged use, of legal institutions against a leading opposition figure.
There is no direct territorial dispute. There is no interstate military confrontation. There is no alliance rupture. There is no foreign state coercing Türkiye. There is no sovereignty dispute comparable to Taiwan, Crimea, the South China Sea or border conflict. There may be international reactions, and foreign investors may update their assessment of Turkish political risk, but international attention is not sufficient to transform a domestic political event into a geopolitical one.
A political event in an internationally important country is not automatically a geopolitical event. The classification should depend on the mechanism, not on the country’s strategic relevance or the size of the market reaction.
Why it is not a geoeconomic event
The geoeconomic label is even less appropriate. Geoeconomics refers to the strategic use of economic instruments to pursue political, diplomatic or security objectives. Typical examples include sanctions, export controls, tariffs used for coercive bargaining, asset freezes, investment restrictions, payment-system exclusion, strategic use of energy supply, technology restrictions, debt leverage, and controls over critical infrastructure or supply chains.
In the Turkish case, the instrument is not economic. It is a domestic legal and political action: the arrest of an opposition politician. The depreciation of the lira and the reaction of stablecoin markets are consequences of the event. They are not the instruments through which power is exercised. There is no foreign government using tariffs, sanctions, export controls, financial exclusion or another economic tool to weaken the Turkish government. There is also no Turkish economic instrument aimed at coercing an external strategic actor.
This distinction is essential. A shock can have economic effects without being geoeconomic. A political arrest can affect the exchange rate; an election can affect sovereign spreads; a court decision can affect equity valuations; a protest wave can increase dollar demand. These are financial transmission channels of political risk. They are not, by themselves, geoeconomic statecraft.
The correct label: domestic political shock with international financial transmission
The best classification is therefore:
Primary event type: Domestic political shock
Instrument: Domestic legal-political coercion
Transmission channel: FX, sovereign-risk and stablecoin markets
Empirical outcome: Lira depreciation, asset-price stress and fiat-stablecoin parity deviation
Not: Geopolitics
Not: GeoeconomicsThis label preserves what is valuable in Arnold’s empirical design while avoiding conceptual overextension. The event is useful for studying how politically driven uncertainty affects dollar demand and stablecoin-market segmentation. It may be a clean high-frequency shock for financial research. But the clean shock is political, not geopolitical. The fact that Tether-lira markets reacted does not change the nature of the underlying event.
A simple classification table
| Event component | Recommended label | Reason |
|---|---|---|
| Arrest of Ekrem İmamoğlu | Domestic politics | The event concerns internal political competition, legal institutions and opposition activity. |
| Road closures, protest bans and demonstrations | Domestic politics | The relevant mechanism is domestic political control and contestation. |
| Lira depreciation and Turkish asset-price stress | Financial transmission of political risk | Markets price political uncertainty, but the market reaction is an outcome. |
| Tether-lira abnormal depreciation and parity deviation | Crypto-financial transmission of political risk | Stablecoin markets reveal dollar demand and possible market segmentation under stress. |
| Foreign sanctions, asset freezes or payment restrictions imposed on Türkiye in response to the arrest | Geoeconomics | This would involve economic instruments used strategically to pressure a state or political authority. |
| Military confrontation, alliance crisis, territorial dispute or coercive interstate diplomacy linked to the event | Geopolitics | This would involve security, sovereignty, interstate power or coercive diplomacy. |
Why this matters for empirical research
The distinction is not semantic. It matters for measurement, identification and interpretation. If an event is labeled geopolitical because asset prices move, and then used to estimate the effect of geopolitical events on asset prices, the classification risks becoming circular. The market reaction should be the dependent variable, not the reason the event is assigned to a geopolitical category.
The same issue arises with broad geopolitical-risk indexes. Some indexes or market commentaries treat severe political instability, institutional breakdown, terrorism, war, sanctions and interstate tension as part of one large “geopolitical risk” family. That may be useful for a risk dashboard. It is less useful when the researcher wants to know which mechanism is operating. A coup, a border war, a tariff threat and an opposition arrest may all move exchange rates, but they do not belong to the same conceptual class.
A more robust approach is to separate four dimensions:
- Origin: Where does the event begin? Domestic politics, interstate security, economic policy, technology policy, energy, finance?
- Actor: Who acts on whom? Domestic state against domestic opponent, foreign state against foreign state, private market participants, international organization?
- Instrument: What tool is used? Legal repression, military force, diplomatic threat, sanction, tariff, capital restriction, export control?
- Transmission: Through which channel does the event affect outcomes? FX markets, trade, sovereign spreads, commodity prices, supply chains, expectations?
Under this framework, the İmamoğlu arrest is straightforward. Its origin is domestic politics. The actor is the domestic state apparatus acting against a domestic political rival. The instrument is legal-political coercion. The transmission channel is financial, including FX and crypto-financial markets. The event is therefore a political shock with international financial transmission.
What would make the event geopolitical or geoeconomic?
The classification could change if additional mechanisms entered the episode. If the arrest triggered a major NATO crisis, a military-security rupture, an interstate confrontation, or a sovereignty dispute, then a secondary geopolitical dimension could be coded. If another state imposed sanctions, asset freezes or payment restrictions on Turkish officials in response to the arrest, then a geoeconomic dimension could be coded. If Türkiye used trade, finance, energy or technology instruments to pressure another state in connection with the event, that would also justify a geoeconomic label.
But absent those mechanisms, the baseline classification should remain domestic politics. Foreign commentary, investor attention and exchange-rate movements are not enough.
A compact rule for event classification
Rule. Do not classify an event by the magnitude of its market reaction. Classify it by its origin, actor, instrument and mechanism. A domestic political shock that moves currencies is still a political shock. It becomes geopolitical only when interstate security, sovereignty, territory or coercive diplomacy is central. It becomes geoeconomic only when economic instruments are deliberately used as tools of strategic influence or coercion.
Conclusion
The Turkish stablecoin episode is valuable precisely because it shows how political risk travels through modern financial infrastructure. It tells us something about dollar demand, stablecoin usage, arbitrage limits and the segmentation between fiat-dollar and synthetic-dollar markets. But it should not be classified as geopolitics or geoeconomics.
The correct lesson is narrower and, in many ways, more interesting: domestic political shocks can have rapid international financial transmission, and stablecoin markets may help us observe that transmission at high frequency. That is an important empirical insight. It does not require stretching the concept of geopolitics, and it should not be confused with geoeconomic statecraft.