The US and Israel launched air strikes on Iran earlier this morning, with the apparent aim of overthrowing the regime that has ruled since 1979. In an early-morning address, US president Donald Trump said “The United States military is undertaking a massive and ongoing operation to prevent this very wicked, radical dictatorship from threatening America and our core national security interests,” telling Iranians: “When we are finished, take over your government. It will be yours to take.”

Verifiable news has been limited, but the initial barrage appears to have targeted Iranian leadership, not wider military or economic infrastructure. Explosions have reportedly been heard near Iran’s Kharg Island oil export terminal, though it remains unclear whether any energy infrastructure has been damaged. Iranian forces have launched retaliatory missile strikes against regional targets, scoring at least one direct hit on US installations in Bahrain, but appear to have telegraphed their moves and have not attempted to choke the Strait of Hormuz, through which roughly a fifth of the world’s traded oil passes each day.

Currency traders, who have anticipated the move for months and have grown somewhat inured to geopolitical shocks, are likely to follow the same playbook used in previous Middle East conflicts, albeit in muted fashion. If the conflict is limited to American and Israeli strikes followed by calibrated Iranian retaliation, the dollar should gain modestly against a broad basket of currencies at tomorrow’s open, buoyed by its stubborn status as the world’s haven of last resort. The Japanese yen and Swiss franc, other refuges in turbulent times, might also strengthen. The currencies that suffer most could be those of oil-importing economies—the Indian rupee, Turkish lira and South African rand look most vulnerable—while the euro, exposed to higher energy costs yet also acting as a safe haven, might face more subtle selling pressure.

However, an existential threat to the Islamic regime that prompts wide-scale retaliation against regional energy infrastructure or the closure of the Strait of Hormuz would be another matter entirely. Oil prices, already up more than 20 per cent from last year’s low, could climb significantly further still, damaging importers and rekindling inflationary pressures central banks have only recently begun to tame. An initial flight to safety might give way to deeply unpredictable shifts in economic and policy expectations.

Bottom line: A prolonged US-Israel campaign to topple Iran’s leadership poses a more profound threat to global economic stability than the more limited scenario priced in by investors in recent months. Foreign exchange markets could suffer rolling bouts of volatility in the coming days as risk premia fluctuate and policy trajectories are repriced.