March 11, 2026 (MLN): Pakistan’s equity market may be navigating one of its most geopolitically sensitive phases in years, but a new strategy note argues that the sell-off triggered by Middle East tensions could be opening selective investment opportunities.

In a research report titled “Implications of Historical Oil Shocks on Pakistan’s Macroeconomic Position,” Intermarket Securities says the ongoing U.S.–Iran confrontation and potential disruption at the Strait of Hormuz could reshape Pakistan’s macroeconomic trajectory, pushing inflation higher, widening the import bill, and injecting volatility into equity markets.

Yet despite the macro risks, the brokerage believes current valuations on the Pakistan Stock Exchange (PSX) remain attractive, recommending investors reposition portfolios toward energy plays, particularly exploration & production (E&P) companies and oil marketing companies (OMCs).

The report argues that oil-driven macro shocks historically trigger two phases in Pakistan’s equity market:

1. Initial market correction as investors price in inflation, currency pressure and monetary tightening.

2. Subsequent recovery once oil prices stabilize and earnings visibility improves.

This pattern appears to be unfolding again.

The brokerage argues that PSX is now trading at a discount, creating selective entry points for investors able to withstand macro volatility.

Key Sectors and Stocks to Accumulate

The strategy note recommends positioning portfolios in energy sector beneficiaries of higher oil prices.

Preferred Sector Allocation

However, the brokerage warns that circular debt risks remain elevated for state-linked E&P firms if fiscal pressures intensify.

Macro Drivers Behind the Strategy

The strategy revolves around a single macro variable: oil prices.

Escalating tensions between the United States and Iran have disrupted global energy markets after strikes on energy infrastructure and reported disruptions at the Strait of Hormuz, a chokepoint handling nearly 20% of global oil supply.

Brent crude briefly surged to $115–$120 per barrel before easing toward $90–$100.

For Pakistan, which imports a large share of its energy needs, sustained oil prices above $90/bbl could have wide macro implications.

Fuel Price Pass-Through

The government has already raised domestic fuel prices sharply:

Higher fuel prices typically feed into transport costs, food inflation and electricity generation costs

Inflation and Import Sensitivity

The brokerage simulated several oil scenarios to estimate macro effects.

CPI Outlook Under Oil Shock Scenarios

Import Bill Impact

The report warns that persistent oil prices above $90/bbl could significantly widen Pakistan’s external account deficit.

Monetary Policy Outlook

Despite the near-term inflation risks, the brokerage believes the State Bank of Pakistan’s current policy rate remains adequate on a forward-looking basis.

However, this assumption hinges on oil prices stabilizing.

Monetary Risk Trigger

If crude remains above $90/bbl for a full year, the report says inflation pressures could intensify, and the central bank may need to tighten policy again

Historical Oil Shock Lessons for PSX

The brokerage examined past periods of oil-driven macro stress, including Iraq War (2003), Arab Spring (2010-2012), Russia-Ukraine conflict and the 2022 oil spike. 

PSX typically sells off initially but stabilizes once macro expectations adjust.

Historical Market Reaction

This pattern suggests short-term volatility but medium-term market recovery.

While the brokerage remains constructive on energy stocks, it flags several macro risks.

Key Downside Risks

1. Sustained Oil Spike

If oil rises beyond $120/bbl, inflation could surge sharply.

2. External Account Pressure

Higher oil imports could widen the current account deficit.

3. Currency Depreciation

Rising import costs may pressure the Pakistani rupee.

4. Circular Debt Expansion

Energy sector receivables could increase if fiscal constraints worsen.

5. Prolonged Middle East Conflict

Extended disruptions at Hormuz would amplify supply shocks.

Oil shocks hurt Pakistan’s macroeconomy, but they create winners inside the equity market.

With the KSE-100 trading below historical valuation averages, the strategy favors selective accumulation rather than broad market exposure.

PSX Valuation vs History

Oil Shock Impact Summary

If geopolitical tensions keep oil prices elevated, Pakistan’s macro environment may tighten, but energy stocks on the PSX could emerge as the primary beneficiaries, making them the brokerage’s preferred hedge against an oil-driven macro shock.

Copyright Mettis Link News