The graph above charts the chances of war with Iran as judged over the past few months by the wisdom of the crowd. More specifically, it reflects betting on the Intrade.com proposition "USA and/or Israel to execute an overt air strike against Iran before midnight ET 31 Dec 2012."
As you can see, the collective wisdom of people who are willing to put their money on the line is that the chances of Iran getting bombed by the end of the year is hovering around 40 percent. And that number has dropped sharply in recent weeks.
This roughly reflects my own view. Certainly the last week, in particular, has reduced the chances of war happening this year, for reasons I'll enumerate below. But, as I'll also argue below, the price paid for a reduced chance of war in 2012 is an increased chance of war in 2013.
As for why chances of an airstrike during 2012 have dropped:
1) A few weeks ago, Iran offered to return to the bargaining table, increasing the chances of a negotiated solution.
2) Within the last week, we learned that President Obama had rebuffed Bibi Netanyahu's request that the negotiations not start unless Iran first suspended its enrichment of uranium. With that obstacle cleared, the P5+1 (the permanent members of the UN Security Council plus Germany) has accepted the Iranian offer, and negotiations are expected to start in April.
3) Obama also did something that increased the chances of the negotiations succeeding. He had long held that Iran shouldn't be allowed to develop a nuclear weapon. Netanyahu had long held that Iran shouldn't be allowed to have even a nuclear weapons "capability"--that it shouldn't be left with the technical wherewithal to produce a bomb should it decide to do that.
Netanyahu's position, if adopted by Obama, could have impeded a deal with Iran. A ban on an Iranian nuclear "capability," if interpreted broadly, would mean that Iran shouldn't be allowed to enrich its own uranium for peaceful purposes, since even a modest enrichment infrastructure reduces the amount of time it would take to produce a weapon (if only reducing it to, say, two years). And pretty much nobody thinks Iran would agree to a deal that meant giving up its entire enrichment program; the hope had been to keep the enrichment modest and place it under intrusive monitoring that could detect any moves toward a weapons program.
Happily, Obama stood firm against Netanyahu. He signaled this in an interview late last week with The Atlantic's Jeffrey Goldberg, when he repeated that what was unacceptable was Iran's developing a nuclear weapon. He maintained that position through Netanyahu's visit to Washington this week.
4) Standing firm against Netanyahu on this issue not only increased the chances that negotiations will succeed; it decreased the pressure Obama will feel to conduct or support air strikes during 2012 in the event that negotiations fail. Depending on how loosely you define "nuclear weapons capability," Iran could have it well before the end of the year--in fact, if you define it loosely enough, Iran has it now. So if "capability" was the "red line" that Iran can't cross, Netanyahu could argue that Obama is obliged to start bombing any moment now. But there's pretty much no chance that Iran will have a nuclear weapon by the end of the year. So Obama can get through the November election and beyond without bombing Iran and without anyone claiming that he's reneged on his promise to keep Iran from going nuclear.
OK, enough good news. Now for the argument that the chances of war during 2013 have risen, an argument outlined by former Israeli negotiator Daniel Levy of the New America Foundation.
Though Obama basically stood firm against Netanyahu, he did give the Israeli prime minister a consolation prize. Even as Obama refused to move the red line from "nuclear weapon" to "nuclear weapons capability," he added an extra coat of paint to the red line, stating more emphatically than ever that he wouldn't let Iran cross it.
Particularly significant was his declaration during the Goldberg interview that "I don't bluff." This vow made it into a New York Times headline, and you can rest assured that hawks will recite it via all known media should Iran get close to developing a nuclear weapon on Obama's watch. And that could happen as early as 2013 should negotiations fail in 2012 (though a weapon developed in 2013 almost certainly wouldn't be deliverable via missile in 2013). So Obama has managed to reduce the pressure for military action in 2012, but the price he's paid may be increased pressure down the road.
According to Levy, this price may have been Netanyahu's goal all along. After arguing that all the talk of an impending Israeli strike has basically been a bluff, Levy writes: "Perhaps this has been the Israeli intention all along: to checkmate the United States by locking it into a logic of confrontation down the road. Israel's position has, after all, been relatively clear in preferring a 'stars and stripes' rather than a 'blue and white' label on the military taming of Iran."
I'll close with a couple of late-breaking reasons to hope that neither label will be required. (1) Today Iranian Supreme Leader Khameini welcomed Obama's diplomatic overtures. (2) Yesterday some senators tried to pressure Obama into insisting on the "sustained suspension" of uranium enrichment, and they could muster only 12 supporters out of 100 senators. This may be a secondary effect of all the talk about an impending Israeli strike; it has made American politicians seriously contemplate the consequences of war with Iran, and doing that can make a negotiated solution look pretty attractive.
[Update: Those of you who like thinking about war probabilistically are in luck! Though I won't be providing regular reassessments of the chances of war with Iran, The Atlantic has assembled a whole team of experts who will be doing exactly that as part of our new Iran War Clock project. The dream team currently puts the chances of war at 48 percent, but that's not really at odds with Intrade's estimate of around 40 percent, because the period covered by Intrade extends only until the end of the year, whereas the Iran War Clock will always estimate the chances of war in the subsequent 12 months. And a 48 percent chance of war before early March of 2013 is consistent with a 40 percent chance of war before the end of 2012.]