MUFG Research discusses the worst case scenarios for the Iran conflict and its implications for the USD.

"In a severe scenario, the conflict drags on and attacks on energy production infrastructure increase in scale which extends the timeline of supply disruption. Brent crude oil could then trade in a higher range of USD 120-160p/bl that results in increased risks of global recession," MUFG notes.

Equity markets fall more sharply and the ToT and yield dynamic impacting FX fades and there is a stronger initial flight to the US dollar. The DXY in this scenario could extend higher up to the 105-level,"MUFG adds.