Karachi: Volatility in global commodity and equity markets, spurred by the escalating US-Iran conflict, has led to significant declines in Pakistan's macroeconomic indicators. The KSE-100 Index experienced an 11.5% month-on-month drop in March 2026, marking its steepest monthly decline in six years.
According to JS Global, the surge in oil prices, with Brent crude reaching $118 per barrel by the end of March, has exacerbated economic pressures in Pakistan. The country's reliance on oil imports has made it particularly vulnerable, mirroring declines in other Asian markets such as Korea, Indonesia, and India. The geopolitical situation has also led to a 38% decrease in trading volumes compared to the average daily turnover of the previous year.
Throughout March, oil prices remained volatile, influenced by significant supply disruptions and geopolitical tensions, including threats of war escalation and attacks on Gulf oil facilities. Despite efforts by the International Energy Agency to stabilize the situation, market instability persisted. However, diplomatic initiatives, such as the recent Pak-China peace and trade efforts, provided a glimmer of hope.
Domestically, the Pakistani government raised petrol and diesel prices to partially offset increased refinery costs, though subsequent price stability was maintained. The government's strategy to absorb further cost increases through subsidies is under strain, with potential future hikes looming unless prices stabilize. Efforts to ensure an adequate petroleum supply include recent imports, enhanced local production, and consumption-reducing austerity measures.
The State Bank of Pakistan maintained its policy rate, citing a favorable inflation outlook and GDP growth projections. However, rising yields suggest potential interest rate hikes in the upcoming monetary policy committee meeting. On a positive note, Pakistan's agreement on an IMF staff-level review paves the way for financial assistance, providing some economic relief.
Market analysts remain cautiously optimistic, advising investors to consider long-term opportunities, especially in the energy sector and defensive stocks. While a resolution to the geopolitical crisis could lead to market recovery, prolonged tensions pose significant risks to economic stability and growth prospects.