Oil shock sparks strategic buying window in Pakistan equities

March 16, 2026 (MLN): The current surge in global oil prices, Pakistan’s energy-linked sectors are expected to outperform in the near term.

Exploration & Production (E&P) companies are likely to benefit from higher realized oil prices, while Oil Marketing Companies (OMCs) and refineries may see improved margins due to stronger product crack spreads for diesel and petrol.

JS Global have highlighted top investment picks including OGDC, PPL, PSO, POL, AKBL, UBL, LUCK, and FFC.

Conversely, interest-rate sensitive and cyclical sectors such as cement, autos, and construction-related industries could experience headwinds if the State Bank of Pakistan (SBP) raises the policy rate to anchor inflation.

Demand growth in these sectors typically slows during periods of rising borrowing costs, prompting investors to adopt a defensive stance until greater policy clarity emerges.

Pakistan, as a net importer of energy, remains highly vulnerable to fluctuations in international oil prices. A $10 per barrel rise in crude oil for a quarter could add approximately $400 million to the import bill and contribute 0.5–0.6% points to domestic inflation, while the second-round impact could further elevate prices.

With a sustained $20–30/bbl spike, as recently observed, the import bill could increase by $0.8–1.2bn in a quarter, intensifying external sector pressures.

Crude import pricing in Pakistan is largely linked to the Dubai Crude benchmark rather than Brent. Refined product prices are calculated using Platts benchmarks, with current international product prices at around $122/bbl for petrol (MS) and $165/bbl for diesel.

Escalating geopolitical tensions in the Middle East have disrupted energy markets. Attacks across Iran, Israel, and several Gulf states have raised concerns about key supply routes, while temporary halts in Qatar’s LNG production have unsettled global markets.

In response, Pakistan has taken strategic steps to mitigate supply disruptions. Saudi Arabia has committed to supply petrol through the Port of Yanbu on the Red Sea, bypassing the Strait of Hormuz, a major geopolitical chokepoint.

Although this increases logistical costs, it enhances Pakistan’s supply security and reduces the immediate risk of oil shortages.

 State-owned companies, including OGDCL, aim to raise natural gas output by 5% and crude oil production by 14% to offset shipping disruptions.

To counter rising fuel costs, the government increased petrol and diesel prices by Rs55/ltr and shifted from fortnightly to weekly price revisions.

The Sensitive Price Index for the week ending March 11, 2026, rose by 1.89%, driven primarily by higher prices of petrol, diesel, and LPG.

Despite elevated global prices, the Prime Minister announced that petrol prices would remain unchanged for the week, providing temporary relief to consumers.

The SBP maintained the policy rate at 10.5% during its recent MPC meeting, citing relatively strong macro fundamentals, including external and fiscal buffers, compared with early 2022.

The real interest rate currently stands at approximately 3.5%. Lower budgetary borrowing and liquidity released via the recent CRR reduction have created space for private sector lending, supporting domestic growth.

Real GDP growth is expected to remain within the projected range of 3.75–4.75% for FY26, with petrol prices anticipated to normalize from May 2026.

The upcoming Monetary Policy Statement, scheduled for April 27, 2026, is expected to be a key market event. Analysts anticipate a possible 50–100bps rate hike to anchor inflation expectations and maintain exchange rate stability, as also suggested by the IMF’s ongoing EFF review.

Historically, the KSE-100 Index has reacted sharply to geopolitical shocks but has also demonstrated rapid recovery once uncertainty subsides.

For instance, following the 9/11 attacks in 2001, the index declined by 1% immediately, but rebounded 9% in the following month as global uncertainty began to ease.

Later that year, during the Afghanistan War, the KSE-100 fell 3.4% initially but recovered 12% within a few weeks as regional clarity improved.

During the Russia–Ukraine war in 2022, Brent crude prices rose by 32%, leading to an initial 5% decline in the KSE-100; however, the index rebounded 9% after oil prices normalized.

Similarly, India Pakistan tensions in 2025 saw the index drop 9% following airstrikes, but it recovered 13% after a ceasefire was announced.

More recently, amid the US/Israel–Iran conflict in 2026, Brent crude surged 48% from US$72/bbl to US$107/bbl, while the KSE-100 declined approximately 8%, equivalent to around 14,000 points.

These historical patterns indicate that market returns in Pakistan often materialize when sentiment is at its most negative rather than after full resolution of uncertainty, highlighting potential opportunities for patient and long-term investors.

Energy-linked sectors are likely to outperform in the near term. Exploration & Production (E&P) companies, OMCs, and refineries could see higher earnings due to elevated oil prices.

In contrast, cyclical and interest-rate sensitive sectors, including cement, autos, and construction, may experience headwinds from potential monetary tightening.

Investors are advised to adopt a defensive approach in these segments while maintaining exposure to fundamentally strong energy-linked stocks.

Near-term market volatility is expected to persist. However, the broader outlook remains constructive for medium- to long-term investors.

Historical trends indicate that disciplined accumulation during pessimistic market phases typically yields better returns than attempting to time market bottoms.

Increased retail participation and leverage have made the market more sensitive to corrections, emphasizing the importance of fundamentals-focused investment strategies.

A prolonged geopolitical conflict could sharply spike commodity prices, disrupt supply for energy products and industrial inputs, and impact foreign inflows and remittances, placing further pressure on the currency.

Pakistan’s active involvement or retaliatory risks could exacerbate downside pressures on the macroeconomic outlook.

Despite these risks, Pakistan’s domestic macroeconomic framework remains supported by external financing arrangements, ongoing reforms, and strategic energy supply measures, providing resilience amid external shocks.

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