The 700-Million-Barrel Oil Shock

Based on the projection from the Kepler Institute, by the final week of April 2026, the cumulative deficit in oil supply resulting from the closure of the Strait of Hormuz will hit 700 million barrels.

The closure of the Strait of Hormuz has presented the world with one of the most critical oil supply disruptions in modern history and has driven prices sharply upward. Unlike past shocks triggered by wars or embargoes, this blockage strikes at the very jugular of global energy logistics.

According to a fresh assessment by the Kepler Institute, an ongoing halt to oil tanker transit through the Strait of Hormuz until the end of April 2026 could push the global energy market into an extraordinary crisis, bringing the total oil supply deficit caused by this closure to approximately 700 million barrels. This drop in supply has triggered one of the largest oil shocks of the current era. By April 12, around 300 million barrels of oil had been removed from the supply chain due to the stoppage of traffic through this vital chokepoint — a corridor that carries roughly 20% of the world's daily oil demand.

In the wake of this disruption, Brent crude oil prices have surpassed US$100 per barrel, and the cost of refined products such as jet fuel has risen above US$200 per barrel — a scenario that has set off the phenomenon of demand destruction, leading airlines to cancel numerous flight routes, consumer countries to impose fuel rationing and mandatory remote work, and the International Energy Agency to revise downward its 2026 oil demand growth forecast.

Meanwhile, Saudi Arabia, by leveraging the full capacity of its East-West pipeline, and the United Arab Emirates, via the Fujairah export route, are attempting to offset part of the supply shortfall.

Conversely, Iraq has been largely incapacitated, with its exports collapsing from 4 million to less than 900,000 barrels per day. Without immediate diplomatic intervention, smaller Persian Gulf states may soon follow Iraq into paralysis.

Kepler cautions that even if the crisis is resolved immediately, the process of market recovery will not be swift, and the volume of lost oil could reach one billion barrels before the supply chain is fully restored. 

Two potential paths lie ahead for the market. In the favorable scenario, limited demand contraction and a gradual easing of the crisis over the next several weeks are anticipated. However, in the unfavorable scenario, continued disruption into the third quarter of the year could push oil prices toward US$190 per barrel and cause demand destruction on the order of several million barrels per day — an outcome that would be even more severe than the oil crisis of the 1970s. 

 

PSX benchmark index down 4.5%WoW

Pakistan Stock Exchange (PSX) remained in the grip of bears during the ended on April 30, 206. The benchmark index shed 7,677 points, down 4.5%WoW to close at 162,994 points, with average daily trading volume declining to 1.2 billion shares, down 30%WoW.

The most dominant factor contributing to this decline was the collapse of the Iran-US talks, where the US President cancelled a planned trip of his envoys to Pakistan. Consequently, oil prices remained elevated through the week, with the June’26 Brent contract hitting a high of US$126/ bbl.

Adding to this was decision by State Bank of Pakistan (SBP) to raise the policy rate by 100bps to 11.5% on Monday, the first rate hike in over two and half years.

The prolonged Middle East conflict was termed to be the primary driver for raising the policy rate, attributing inflation to remain above the target range in the next few quarters.

However, a positive development was the confirmation of the IMF Executive Board meeting scheduled for May 08, 2026 to consider approval of the US$1.2 billion tranche under the EFF and RSF programs.

Foreign exchange reserves held by SBP as of April 24, 2026 were reported at US$15.8 billion.

Other major news flow during the week included: 1) Pakistan clears US$3.45 billion loan to UAE, 2) Pakistan plans launch of Panda Bonds, 3) IMF okays 60% cut in gas levy, 4) No let-up in Pakistan’s efforts for US-Iran peace, and 5) Pakistan's weekly oil import bill rises to US$800 million amid US-Iran conflict.

Top performing sectors were: Textile Weaving, Tobacco, and Auto Assemblers, while laggards included: Vanaspati, Property, and Woolen.

Major selling was recorded by Mutual funds, and Brokers amounting to US$28.6 million and US$3.1 million respectively.

Major buyers were Individuals, and Companies with net buy of US$27.4 million and US$1.4 million respectively.

Top performing scrips were: HCAR, MEHT, INDU, PAKT, and MTL, while laggards included: YOUW, NBP, SSOM, GADT, and SSGC.

According to AKD Securities, a constructive resolution of US-Iran would remain the pivotal near-term catalyst for the market direction, with softening of oil prices to act as a trigger. Market continues to trade at attractive valuations.

Top picks of the brokerage house include: OGDC, PPL, UBL, MEBL, HBL, FFC, ENGROH, PSO, LUCK, FCCL, INDU, ILP and SYS.

PSX benchmark index down 1.9%WoW

Pakistan Stock Exchange (PSX) witnessed reversal of momentum during this past week, the benchmark index shed 3,267 points, down 1.9%WoW to close at 170,672, as investors tried to understand more complex geopolitical realities following last week's ceasefire driven rally.

The average daily trading volume rose to 1,665 million shares - up 31.7%WoW, with investor risk appetite witnessing pullbacks as US-Iran diplomatic talks encountered fresh hiccups. However, sentiment returned during second half of Friday’s session as Iran confirmed the arrival of its foreign minister to Pakistan over the weekend.

Furthermore, US president’s indefinite extension of the ceasefire on Tuesday, hours before its expiry kept hopes of resolution alive and prevented a material selloff as well.

Oil prices rose 3.2%WoW to US$104.8/ bbl, as Iran's seizure of two container vessels attempting to transit the Strait of Hormuz reignited supply disruption fears.

On the macroeconomic front, IMF’s executive board is expected to consider approval of the fourth tranche of the 37-month program during May’26.

Foreign exchange reserves held by State Bank of Pakistan (SBP) rose to US$15.1 billion.

Other major news flow during the week included: 1) Pakistan ups Eurobond issuance to US$750 millio, 2) IMF to vet auto policy before cabinet, 3) IMF urges removal of non-tariff curbs, 4) Pakistan seeks LNG spot cargoes after December, and 5) First Central Asian shipment reaches Pakistan via China.

Top active sectors were: Textile Weaving, Refinery, Synthetic & Rayon, while lagged included: Jute, Pharmaceuticals, and Cement.

Major selling was recorded by Insurance, and Other Organization aggregating to US$16.9 million. Individuals and Companies emerged net buyers with US$17.2 million.

Top performing scrips included: YOUW, ATRL, GADT, IBFL, and MUREB, while laggards included: PIOC, DGKC, ISL, CPHL, and MLCF.

AKD Securities believes that a constructive resolution would remain the pivotal near-term catalyst for the market direction, with any positive developments over the weekend becoming the trigger.

According to the brokerage house, despite the recent recovery, market continues to trade at attractive values.

Top picks of the brokerage house include: OGDC, PPL, UBL, MEBL, HBL, FFC, ENGROH, PSO, LUCK, FCCL, INDU, ILP and SYS.

 

What Next? Escalation not a solution

As the fragile truce nears its end, the diplomatic space between United States and Iran appears to be narrowing rather than expanding. Signals from both sides suggest that compromise remains elusive. If Tehran refuses to accept Washington’s terms—as appears likely—the question is no longer whether tensions will rise, but how far escalation might go.

Rhetoric from Donald Trump has reinforced a posture of maximum pressure, where the implicit belief is that overwhelming force can compel compliance. Yet history offers a more sobering lesson: coercion against resilient states rarely produces submission. Instead, it hardens positions and invites asymmetric responses.

Iran’s strategic doctrine is built precisely for such scenarios. Without matching conventional military strength, it retains the capacity to disrupt through missile reach, proxy networks, and its geographic proximity to critical energy corridors. Even a limited confrontation could unsettle the Gulf, placing key oil infrastructure at risk and sending shockwaves through global markets. In such a scenario, the very objective often attributed to US strategy—securing long-term influence over energy flows—would be undermined by instability and destruction.

The risks are not confined to the immediate theatre. Escalation in the Gulf increases the probability of miscalculation, where unintended actors or incidents widen the conflict. Not every escalation becomes global, but the absence of clear off-ramps makes containment far more difficult once hostilities resume.

This is the central contradiction - a strategy designed to enforce compliance may instead erode control. Military superiority does not automatically translate into political outcomes, particularly in conflicts where the adversary’s threshold for pain is structurally higher and its response options more diffuse.

For Washington, the more effective path lies not in testing the outer limits of force, but in recognizing the limits of coercion itself.

A calibrated approach—however politically inconvenient—offers a better chance of preserving stability than a conflict whose consequences would be both immediate and enduring.