Prediction markets reveal odds on Iran’s nuclear future, regime change - Eric Crampton

Satellite image by Maxar Technologies shows the Fordo underground nuclear facility in Iran after US strikes. Photo / Maxar Technologies

THREE KEY FACTS:

• For 12 days, Israel and Iran exchanged strikes and attacks after Israel hit nuclear and missile sites in Iran on June 13.
• The United States hit two nuclear facilities in Iran with bunker-buster bombs over the weekend, while a guided missile from a submarine struck a third.
• A ceasefire between the countries came into effect on Tuesday afternoon.

Not great odds. Late-night “situation monitoring” on Twitter when Israel and America are bombing Iranian nuclear weapons facilities is not ideal for a good night’s sleep.

Possible outcomes seemed to range from a happy and peaceful shift to a more liberal Iranian government, through to serious regional or broader war with a nuclear-armed Iran.

For those of us who are not expert, it is hard to know what to believe. Many scenarios are possible. But how likely are they?

Prediction markets can help.

Readers who have been around for a while may remember iPredict. Established in 2008, the online stock market allowed trading on political events. If you thought that an election was likely to result in a National-led government, you could buy a contract paying out at $1 if that event happened. If you thought Labour was likely to win, you could take the opposite position.

The prices in these markets are reasonably accurate gauges of future events. If a contract paying out at $1 if an event happens is trading at $0.50, the event winds up happening about 50% of the time.

Prices on prediction market contracts are best understood as probabilities – or at least as good estimates of those probabilities.

And it’s easy to see why. If anyone thinks that the market price is wrong, they can expect to earn money by pushing the price closer to their view. The farther these prices are from reality, the greater the incentive for someone who knows better to provide the needed correction.

Prices move as situations change and as those prepared to bet on their beliefs update their assessments.

iPredict is, sadly, long-gone – killed by New Zealand’s bureaucracy. Innovation in prediction markets shifted to friendlier regulatory climates.

Polymarket offers prediction contracts to traders outside the United States. Traders inside the US can trade with Kalshi. And both offer contracts on events in the Mideast.

In early June, traders thought there was about a 25% chance that Ayatollah Khamenei would no longer be Supreme Leader of Iran in 2025. Those odds jumped to 60% mid-June. They have since dipped back to just under 40%.

Regime change is not always for the better, even if the starting point is a government as bad as Iran’s theocracy. Traders put less than a 20% chance on actual regime change. So if Khamenei leaves office, it’s even-odds that his replacement does not bring regime change. America’s airstrikes were aimed at Iran’s nuclear weapons facilities. Did the combination of American and Israeli airstrikes reduce the chances of Iran having a nuclear weapon in 2025?

In short, no.

In early June, traders expected less than one chance in 10 that Iran would have the bomb this year. Odds spiked to just over 20% on Israel’s attacks, dropped to about 10% on America’s bombing of Iranian nuclear facilities, and have hovered in the low-teens since. Initial strong optimism that the Fordo nuclear facility had been destroyed has since been sharply tempered.

And where traders had, before mid-June, seen better than a 60% chance of a US-Iran nuclear deal happening in 2025, the chances of such a deal have dropped below 50%. All up, Iran’s odds of getting a nuclear weapon seem to have increased slightly, and the likelihood of a nuclear deal is lower than they were in late May.

What about other consequences?

After America’s B2 bombers hit the Fordo site, the odds on Iran closing the Strait of Hormuz sometime this year more than doubled; before mid-June, the odds generally hovered below 20%. Those odds have since returned to their earlier levels. New Zealand is far from the mid-East, but closing the Strait will matter for global oil prices – and for access to the United Arab Emirates, with whom New Zealand recently signed a free trade agreement.

Traders see about a 15% chance that American forces will be in Iran in 2025, and a 10% chance that the US invades. American Special Forces involvement could count as being “in Iran” but not as “invasion” for purposes of these contracts.

There is less than one chance in 10 that the US officially declares war on Iran this year, but less than a 20% chance of a US – Iran ceasefire before August.

On the plus side, while the odds of a nuclear weapon detonation in 2025 – including tests – spiked past 20% on June 19, they have since dropped back to the low teens. The odds of worse kinds of nuclear detonation remain low.

I do not like any of these odds. But they look better than they did during early situation-monitoring. And I’m not betting against them.

Dr Eric Crampton is Chief Economist with the New Zealand Initiative. This column should not be interpreted as financial advice. It is only pointing to the odds. All odds current as of 8am, June 25, 2025.