Markets soar as ceasefire eases tensions: experts weigh in

Pakistan heaved a sigh of relief as prospects of peace emerged on the horizon, just as warmongers tightened their grip in the Middle East and dark, ominous clouds threatened to undo economic stabilisation gains and put the nation’s future at risk.

Business sentiment soared following the US announcement of an end of 12-day war, a reaction clearly reflected in Pakistan’s capital market. Trading has to be briefly halted to cool the market’s euphoria as the upper locks were triggered. The KSE-100 index surged by 6079 points, or 5.2 per cent, to close at 122,247 points, with broad-based gains across sectors.

Globally shares rallied and the dollar continued to weaken, while oil prices fell to near two-week lows on easing concerns about supply disruptions calmed markets, according to media reports.

Peace, however, remains fragile, as the terms of the ceasefire are still unclear. US President Donald Trump announced the truce on Tuesday, following Iran’s attack on its military sites. Both Iran and Israel have signalled their agreement to the ceasefire, but continue to trade accusations of violations.

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Events in the war zone unfolded rapidly, keeping the world on edge. On Sunday June 22, the US bombed three key nuclear sites in Iran. In retaliation, Iran launched missile attack on US military air bases in Qatar and Iraq on June 23. In response US President Trump announced a truce between the two arch- rivals.
The resumption of flight operations yesterday (June 24) in the Middle East, after being almost entirely suspended on June 23, indicates that adequate assurances have been provided and are known to governments across the region.

Moreover, Iran has not blocked the Strait of Hormuz, although it has not yet officially reversed its earlier decision in this regard. The narrow passageway handles about a fifth of global oil trade, and its closure would have severely disrupted supply chains while sharply increasing freight and insurance costs.
The Iran Israel war shook energy markets, pushing global oil prices up by about seven per cent within a week and raising fears that prices could surpass $100 per barrel within a month.

Pakistan, which faced Indian aggression just a month ago in May and still struggles with the lingering impact of two prolonged wars in Afghanistan, is wary of coping with the spillover affects of yet another destabilising conflict, this time in neighbouring Iran, with which it shares a 560-mile-long border.
Moreover, the conflict erupted just as Pakistan was finalising its budget, raising questions about the whole budget-making exercise. The financial team’s economic strategy and allocations were based on assumption that would have been invalidated had the war dragged on.

Analysts and business leaders consulted about the war and its possible consequences voiced deep concern. They urged the government to actively support peace efforts and to swiftly develop a contingency plan to deal with challenges that a prolonged conflict could pose.

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They unanimously agreed that a prolonged conflict involving Iran would derail Pakistan’s fragile recovery, plunging the country back into a deeper economic crisis, risking severe social and political unrest. While some urged the government to revisit the budget strategy, others cautioned against hasty adjustments. They emphasised that, rather than fixating on external factors beyond their control, legislators debating the budget should prioritise policies that drive capital formation and promote inclusivity.

Some advised the government to take into account the situation evolving in Balochistan. Additional stress is added in the restive province after the government’s decision to seal borders with post war. The measure, motivated by the security concerns, led to virtual halt in informal cross-border trade with Iran, an affordable source of essentials like toiletries, cigarettes, confectioneries, chocolates, snacks, powdered milk, woolens, plastic goods, and petroleum products. The economy of the under developed Balochistan, with weak industrial and agriculture sectors, relies significantly on border trade for employment and livelihood in border areas.

Khurram Schehzad, advisor to FM Aurangzeb Khan, noted that while regional tensions merit careful monitoring, their immediate economic impact on Pakistan should not be overstated.

He said the government is closely tracking developments and formulating its response through a dedicated committee of experts and industry stakeholders, adding that: “The situation remains manageable for now. Although temporary disruptions could affect localized informal trade, inflation and investor confidence are stable, and the budget framework is designed with prudent buffers to withstand external shocks”.

He emphasised that flexibility will be maintained, but there is no need to revise projections unless global conditions worsen significantly.

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Responding to queries, Dr Khaqan Najeeb, a public policy expert, shared a detailed note outlining both immediate and long-term challenges Pakistan must navigate amid regional geopolitical tensions and uncertainty. He stressed the importance of maintaining fiscal and monetary prudence, diversifying trade and energy sources, adopting calibrated border management to balance security with economic activity, and pursuing active diplomacy to support regional de-escalation. “Sustained focus on structural reforms remains critical to strengthening economic resilience”, he noted.

“If conflict persists, Balochistan could be particularly affected by a slowdown in informal trade with Iran, threatening local livelihoods”, he remarked. “An estimated $2.7bn in annual trade with Iran is at risk. Nationally, higher oil prices _ Pakistan spent $17 billion on oil imports last year _ and a potential 20pc increase in freight rates could fuel inflation and further strain external sector. A $5 per barrel increase in oil price alone could widen the trade deficit by approximately $900 million annually. Investor sentiment remains highly sensitive, as reflected in recent foreign portfolio investment outflows”.

“Pakistan has achieved greater macroeconomic stability, with inflation easing to 5pc and foreign exchange reserves recovering to $11.7 billion, projected to reach $13.9bn by the end of the current fiscal year in June, supported by ongoing engagement with the IMF”, he added. “The government can activate contingency plans, including daily monitoring of oil reserves, trade flows, as well as exploring alternative oil sources and enhancing storage capacity”.

He recommended a cautious “wait-and-see” approach at this stage. “Amid fiscal constraints, driven by rising defence spending and debt servicing, any budget adjustments should be undertaken judiciously, guided by developments on the ground, to maintain flexibility, safeguard economic stability and uphold investor confidence”.

Ehsan Malik, CEO, Pakistan Business Council, opposed delaying the budget in response to evolving market conditions linked to Middle East situation. “The government can always make course corrections through mini-budgets, if required”, he remarked.