Karachi: Geopolitical tensions in the Middle East continue to ripple through global markets, resulting in a 4% decline in the KSE100 Index for September. The ongoing US-Iran conflict, coupled with disrupted oil flows and elevated coal prices, has kept markets on edge, while hopes for diplomatic resolution remain uncertain.
According to JS Global, the negotiations between the United States and Iran have stalled, with new hostilities breaking out in strategic regions like the Gulf and the Red Sea’s Bab el-Mandeb Strait. Although the United Nations General Assembly session offered a potential diplomatic breakthrough with participation from the US, Iran, and Gulf states, responses from the key parties have been hostile. Efforts by mediators, including Pakistan and Qatar, are ongoing to de-escalate tensions.
Energy markets face significant strain due to the unrest, impacting oil supply from key producers such as Saudi Arabia. This has kept Brent crude prices above $100 per barrel, a significant increase from December 2025 levels. Coal prices have also surged to $128 per ton, driven by increased demand and supply challenges in coal-importing markets.
In light of these developments, the central bank has opted to maintain its policy rate at 11.5%, citing a stable medium-term inflation outlook despite current inflationary pressures. Concerns persist over the impact of the Middle East crisis on commodity prices, with the Asian Development Bank projecting inflation to average 8.3% in the near term.
On a positive note, foreign exchange reserves have reached a record $21 billion, bolstered by a $3 billion Eurobond issuance. Further disbursements of $1.2 billion are anticipated, contingent on successful reviews. The government has also outlined its borrowing plan for the fiscal year, addressing external debt obligations and potential rollovers.
Amidst these uncertainties, investors are advised to adopt a cautious stance, focusing on dividend-yielding stocks. Despite comfortable external financial flows, inflation remains a concern, particularly in light of declining global oil inventories and rising inflationary pressures.