When the United States and Iran announced a Pakistan-brokered two-week ceasefire on April 8, markets around the world exhaled majorly for the first time in a long while. For investors in Pakistan, the relief was historic. The KSE-100 Index surged 14,138 points on a single day, settling at 165,811 which was its highest single-day gain in absolute terms in PSX history. Global oil prices dropped by 12 to 16 percent within days. The Strait of Hormuz, one of the main points of contention in the entire war episode, choking roughly 20 percent of the world’s oil supply since Iran’s closure on February 28, was set to reopen. A cascade of risks that had been building since the US-Israeli strikes on Iran began, including inflation, currency pressure, and a widening current account deficit, suddenly looked avoidable. For a moment, it seemed as though a major crisis had been averted and markets were beginning to return to normal. However, it was later announced that peace talks in Islamabad had concluded without a deal.
What the Ceasefire Meant for Pakistan
To understand what is at stake now, it helps to understand what the ceasefire had briefly averted.
Pakistan imports roughly 80 percent of its oil needs. For every ten-dollar increase in the global price of crude oil, domestic inflation rises by approximately 0.5 to 0.6 percentage points, according to estimates cited by Pakistan Business Council’s former CEO. When Brent crude crossed $110 per barrel, there was a risk that Pakistan’s annual inflation could climb to between 11 and 13 percent, nearly double the State Bank of Pakistan’s target range of 5 to 7 percent.
The current account implications were equally concerning. Pakistan had recorded a current account surplus for the first time in 14 years in FY2025 which was a major milestone. Under a $100 per barrel oil scenario, the surplus could reverse into a hefty deficit, effectively erasing years of economic progress in months. To respond, the government imposed broad cost-saving measures in March, including a four-day workweek for government employees and fuel conservation directives along with an increase in POL prices.
Peace Talks in Islamabad
The ceasefire was tied to a condition: talks between the US and Iran, hosted in Islamabad with Pakistan as mediator, were meant to produce a longer-term agreement. After 21 hours of negotiations over the weekend of April 12 and 13, both sides couldn’t reach a decisive agreement.
The markets did not wait for analysis. The KSE-100 fell 6,600 points on April 13, closing at 160,591 and erasing much of the previous week’s gains in a single session. Oil prices surged over 7 percent, with Brent crude crossing back above $100 per barrel. Brokerage houses described the session as “broad-based panic selling.” The index dipped as low as 160,158 during intraday trading before recovering slightly.
The failed talks also came with a new escalation. President Donald Trump announced a naval blockade of Iranian ports, to be enforced beginning the morning of April 14. The US Central Command declared it would apply to all maritime traffic entering or exiting Iranian ports.
A Second Round Is Still Possible
All hope is still not lost. Despite the Islamabad talks ending without agreement, the diplomatic channel has not been sealed shut. For investors, experts, and anyone interested in the macroeconomic effects of war, it is important to understand the context of the meeting between Iranian and US representatives. The Islamabad talks were the first direct, face-to-face engagement between the US and Iran in over four decades. That alone is significant. Diplomatic processes of this nature rarely resolve in a single session, and the fact that both sides engaged at all suggests neither is fully closed to a negotiated outcome. The US President himself has repeatedly expressed a desire to bring an end to this conflict.
What to Watch
For retail investors watching the market in the coming days, the key variables are straightforward even if the outcome is not.
The ceasefire is now in its final hours, with the US President setting Wednesday evening as the hard deadline. A second round of talks is actively in motion with the US Vice President and officials heading to Islamabad. Whether Tehran shows up at the table remains the critical unknown. Any confirmation of renewed engagement would likely trigger a positive reaction across the KSE-100. A no-show from Tehran, or a return to hostilities once the ceasefire lapses, would have the opposite effect.
Oil prices are the underlying indicator to track closely. As long as Brent crude remains above $100, the macroeconomic risks to Pakistan remain elevated. A drop below $90 would signal de-escalation and provide the foundation for a sustainable market recovery.
The next few days will be important in providing an answer to that answer.