KSE-100 Index Plunges Nearly 4% Amid US-Iran Tensions and Soaring Oil Prices: What Investors Need to Know

Pakistan’s benchmark index records its highest-ever single-day point decline as geopolitical tremors ripple through emerging markets

There are days on the trading floor when the mood shifts before the opening bell even rings. Thursday was one of those days at the Pakistan Stock Exchange. By the time the dust settled, the KSE-100 index had shed 6,682.80 points—closing at 172,170.29, a drop of 3.74% that Topline Securities confirmed as the largest single-session point decline in the index’s history. For an exchange that had touched record highs in recent months, this was a sobering, if not entirely unexpected, reckoning.

The KSE-100 index drop didn’t arrive out of nowhere. It came bundled with a familiar set of anxieties: rising crude oil prices, escalating US-Iran tensions, and the kind of thin trading volumes that turn moderate sell-offs into market routs.

The Day’s Carnage: Breaking Down the Numbers

The session opened sharply lower and never recovered its footing. Minor rebounds flickered through the afternoon—brief moments where bargain hunters dipped their toes in—but no sustained bullish momentum materialized. Selling pressure intensified in the final hours, dragging the index to an intraday low of 171,647.33 before a modest late-session recovery brought the close to 172,170.29.

The trading statistics tell an equally telling story. All-share volume contracted to 542.98 million shares from the prior session’s 697.68 million, while total market value transacted fell to Rs27.36 billion from Rs50.00 billion—a near-halving of liquidity that amplified every directional move.

Top Index Decliners (Collectively eroding ~2,113 points):

Of the 483 companies that traded, a striking 384 closed in negative territory. Only 32 managed gains. The breadth of the decline wasn’t selective—it was market-wide capitulation.

Volume Leaders:

Geopolitical Storm Clouds: US-Iran Tensions and Oil’s Role

The proximate cause of Thursday’s PSX news was the same geopolitical friction unsettling markets from Tokyo to London: rising US-Iran tensions keeping crude oil prices stubbornly elevated. For Pakistan—a net oil importer that runs a structurally wide current account deficit when energy costs spike—this is a particularly uncomfortable combination.

“The market remains under pressure as rising oil prices and escalating US-Iran tensions dampened investor sentiment,” said Saad Hanif, Head of Research at Ismail Iqbal Securities, capturing the mood precisely. Both local and foreign investors turned cautious, unwilling to add risk when the geopolitical backdrop was this unstable.

The impact of US-Iran tensions on PSX runs through multiple transmission channels. Higher oil prices widen Pakistan’s import bill, pressure the rupee, and stoke inflationary expectations—all of which compress corporate earnings multiples and raise the discount rate that investors apply to future cash flows. Oil and gas exploration companies like OGDC and PPL, paradoxically, often suffer too: any signal that global energy demand may be disrupted introduces uncertainty into production-sharing agreements and long-term project economics.

Gold, meanwhile, reasserted its safe-haven credentials globally, drawing capital away from riskier emerging market equities—including Pakistan’s.

Local Factors Amplifying the Pain

Geopolitics provided the spark, but local conditions supplied the kindling.

Ramadan’s Trading Calendar: With Pakistan’s Ramadan observance beginning, the exchange shifted to shortened trading hours. Compressed sessions reduce the window for price discovery and recovery. When selling pressure hits in a truncated session, there simply isn’t enough time for buyers to absorb the supply—a dynamic that mechanically amplifies volatility. The Ramadan trading PSX effect is well-documented among local market participants: liquidity thins, decision-making slows, and swings widen.

Foreign and Institutional Selling: Topline Securities flagged persistent selling by foreign corporates, compounded by local insurance companies emerging as significant sellers—visible through LIPI (Local Institutional Price Impact) data. This dual selling pressure from two typically stabilizing categories of sophisticated investors was particularly disconcerting. When the institutions that usually act as shock absorbers turn sellers, retail investors face a particularly inhospitable environment.

The previous session had offered false comfort. On Wednesday, the KSE-100 closed at 178,853.10 points on the back of aggressive buying—a sharp recovery that, in retrospect, appears to have provided an exit opportunity for institutional sellers at better prices rather than a genuine directional reversal.

Global Context: When the World Zigs, Pakistan Zags

Thursday’s geopolitical uncertainty KSE-100 collapse occurred against a curious global backdrop: most Asian markets were actually rising. The MSCI Asia-Pacific ex-Japan index gained 0.5%. Japan’s Nikkei climbed 0.85%. South Korea’s Kospi surged 3% to a record high, buoyed by semiconductor optimism. Wall Street’s technology sector had provided overnight tailwinds, lifted by Meta’s AI chip development deal.

Hong Kong, China, and Taiwan markets were closed for Lunar New Year, removing some regional liquidity, but the broader Asian tone was constructive. The dollar firmed after Federal Reserve minutes signaled no urgency around rate cuts—which, while generally negative for emerging market currencies, was a manageable signal rather than a shock.

Pakistan’s sharp divergence from this regional trend underscores how idiosyncratic the country’s market risk profile remains. External validation from global tech rallies or improving Fed sentiment offers limited buffer when domestic fundamentals—a high oil import dependency, thin foreign exchange reserves, and elevated geopolitical sensitivity—create their own gravitational pull.

A Potential Stabilizer: The Airport Privatisation Signal

Amid the broader turbulence, one piece of structural news passed with relatively little fanfare but deserves investor attention. The Privatisation Commission Board confirmed the formation of a Negotiation Committee with the Asian Development Bank regarding a Financial Advisory Services Agreement for the privatisation of Islamabad International Airport.

Airport privatisation, if executed well, could serve multiple purposes: generating foreign currency inflows, reducing the government’s fiscal burden, and signaling institutional credibility to the investor community. The involvement of the ADB—a multilateral institution with deep regional expertise—adds technical credibility to the process. It won’t move markets tomorrow, but for investors looking for medium-term stabilizers, it’s a meaningful datapoint.

Outlook: Recovery Paths and the Risks That Remain

The highest single-day decline in KSE-100 points will invite comparisons to previous crashes, but context matters. Pakistan’s stock market has historically demonstrated strong recovery capacity after geopolitically-driven sell-offs, provided the underlying macroeconomic trajectory remains on track. The ongoing IMF programme, gradual foreign exchange reserve accumulation, and declining inflation had been constructive backdrops before Thursday’s interruption.

The immediate risk factors to monitor are straightforward. First, the trajectory of crude oil prices: any de-escalation in US-Iran tensions—tracked carefully by sources including Reuters and The Wall Street Journal—could rapidly reverse Thursday’s oil-driven pressure. Second, foreign investor sentiment: the persistence of foreign selling pressure on PSX will determine whether Thursday was a one-day shock or the opening chapter of a broader correction. Third, the rupee: a stable or strengthening currency removes one of the key amplifiers of imported inflation anxiety.

For investors with a longer horizon, dislocations of this magnitude occasionally create entry points in fundamentally sound names—particularly in sectors less exposed to oil price volatility. Banking stocks like UBL and MEBL, which featured prominently among Thursday’s decliners, may warrant a second look once the sentiment dust settles, given improving credit conditions in the broader Pakistani economy.

The caution warranted right now is not panic. Pakistan’s equity market has absorbed worse shocks. But investors should resist the temptation to call a bottom prematurely. When institutions—both foreign and domestic—are selling into rebounds, patience is not timidity. It’s strategy.