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Modern Diplomacy is intended to be diplomacy with an updated map, circa 1994, taking place in Europe, the Middle East and North Africa. Any country with more than 30 million inhabitants was made a power. Those with more than 60 million inhabitants were given 4 home centers, while Russia (with 200 million plus) was given 5. Iran would have qualified as a 4 supply center power, but this would have made it necessary to extend the map into Asia, so it was not done.
Other than this, borders and neutral supply centers were distributed to even out the game. Monaco was made a neutral SC (it has lots of money) even though it's size does not warrant it, and Gibraltar was made a British starting SC, both to give Britain a port in the Mediterranean, and to give Spain more than one neighbour).
Notes on Geography