According to IMS Research, the renewed escalation in US-Iran hostilities marks a reversal from the constructive progress emerging from last week’s dialogue in Geneva, wherein both sides signalled towards a possible agreement. Early Saturday, the US acknowledged attacks on key Iranian targets, which were followed by waves of retaliatory attacks by Iran on US installations in the GCC region (UAE, Qatar, Kuwait, Bahrain, Jordan and Saudi Arabia). While the duration of the conflict is uncertain, geopolitical risks are likely to be repriced by markets across all asset classes, with higher energy, commodity, and freight costs, especially amid rising concerns about a potential disruption in the Strait of Hormuz.
§ The Strait of Hormuz – a narrow maritime corridor which links the Persian Gulf with the Gulf of Oman – is a critical route for the global energy trade, facilitating nearly one-fifth of global oil, petroleum and LNG trade, alongside nearly one-fourth of global seaborne trade. A partial disruption of the strait can materially lift oil prices and shipping freight. Beyond hydrocarbons, the strait is a key route for 25-30% of global seaborne minerals and c. 15% of chemicals/fertiliser trade, among others, indicating worrisome implications on global growth and inflation. During the June 2025 US-Iran escalation (between June 13-24), Brent crude surged more than 10% DoD on June 13, then peaked later in the period at north of US$77/bbl, before retracing as tensions eased. A similar situation played out early today when markets opened, with Brent crossing US$81/bbl (before retracing). If hostilities persist, oil could rise above US$80/bbl as well.
§ Notably, the KSE100 has historically reacted negatively to such events, due to Pakistan’s heavy reliance on imported crude oil and other commodities, raising concerns about a potential deterioration in macroeconomic indicators. The KSE100 corrected c. 7% between the period before rebounding alongside de-escalation (market halted at the start of the day today). Therefore, a comparable risk-off episode cannot be ruled out, in our view, particularly if oil prices persistently remain elevated (negative for both inflation and the external account).
§ Implications for Pakistan
§ In the event of a prolonged oil price shock, the near-term macro implications for Pakistan would primarily be inflationary in absence of a swift de-escalation. We estimate that for every US$5/bbl move in oil prices above our base case of US$65/US$60/bbl raises our next 12M CPI estimates by an average 40bps. Additionally, given Pakistan’s structural reliance on energy imports, primarily crude-related imports (c. 18% of overall import bill FY26td), higher oil prices would also weigh on the country’s external account, with our FY26f/27f estimates (as % of GDP) increasing by 20bps each for every US$5/bbl increase. That said, geopolitical oil spikes tend to be temporary, with prices retracing rapidly as tensions ease, limiting the impact on our macro estimates.
Despite immediate macro risks, we remain constructive on Pakistan equities. The recent market correction has opened up upside in valuations, while the earnings outlook and broader macro backdrop remain largely intact. Unless oil prices sustain higher for longer, we see the current market valuations as an attractive entry point.
