The Pulse

The rupee has remained remarkably stable at ~278.5 despite the energy shock, anchored by IMF program discipline and SBP's hawkish signal. But the real story is the inflation spike: April CPI vaulted to 10.9% from 7.3% — the highest since July 2024. Transport costs surged 29.9% YoY, housing & utilities 16.8%, and food jumped to 7.6%. The SBP's surprise rate hike — the first since June 2023 — signals that policymakers expect inflation to stay above target through most of FY27. For FMCG procurement and working capital planning, the blended cost of short-term borrowing just jumped roughly 100bps overnight.

Oil markets delivered one of the most volatile weeks since the Hormuz crisis began. Brent swung from $116/bbl on Monday to $100/bbl by Thursday before settling near $101 on Friday — a $16 intra-week range driven entirely by diplomatic signaling. The early-week spike followed UAE reports of an Iranian drone attack at the Fujairah oil zone and a South Korean cargo ship being struck in the strait. The collapse came after Trump signaled a possible peace deal with Iran and US-Iran forces exchanged strikes without major escalation — markets read this as theatrics, not escalation.

Dubai Platts is the benchmark that matters most for Pakistan. It prices medium-sour crude loading from the Middle East Gulf — the grade PSO actually imports. At $97.58, it has pulled back sharply from the March average of $126.70, but remains nearly 50% above pre-crisis levels. Saudi Aramco sets its official selling prices (OSPs) to Asia as a premium or discount to the Platts Dubai/DME Oman average, so this number directly determines Pakistan's crude procurement cost with a 1-2 month lag. The Brent-Dubai spread (currently ~$3.50) has narrowed from its March peak as sour crude scarcity has pushed Dubai closer to Brent — historically unusual and a direct reflection of Hormuz disruption concentrating in the grades Pakistan buys.

The Brent-WTI spread has widened to ~$6/bbl from a pre-crisis $3, reflecting the disproportionate impact on Brent (globally benchmarked, exposed to Middle East flows) versus WTI (US domestic, cushioned by SPR releases and above-average inventories at Cushing). This spread is a key signal: it tells you the global market is pricing Middle East risk at a premium that US producers aren't experiencing.

The EIA's April Short-Term Energy Outlook projects Brent peaking at $115/bbl in Q2 2026 before easing to $88/bbl by Q4, assuming the conflict doesn't persist past the current quarter and Hormuz traffic gradually resumes. Their next STEO update drops on May 12 (Tuesday) — this will be the first to incorporate the April ceasefire breakdown and renewed clashes. Expect upward revisions to Q3/Q4 forecasts.

OPEC+ announced a nominal 206,000 bpd quota increase for May and 188,000 bpd for June, but these are largely theoretical — Gulf producers have been forced to cut production amid the shipping disruptions anyway. The IEA estimates the conflict is removing ~14 million bpd from global supply, and warns that production recovery will be gradual even after a peace deal. Brazil has stepped in as a swing supplier, with its share of China's crude imports jumping from 10% in January to 18% in April.

US crude inventories fell 2.3 million barrels to 457 million (1% above the 5-year average). Backwardation in the futures curve signals near-term tightness. Traders are pricing a 55% probability of WTI hitting $105 in May and 50%+ chance of $127 by year-end (Polymarket data). The EIA data release on May 12 and OPEC's monthly outlook will be key swing factors.

Friday's fuel price revision — the 4th hike since the Hormuz crisis began — pushed both petrol and diesel past Rs 414/L. At the pump, consumers are paying over Rs 415. The Government is now revising prices weekly (Fridays) rather than fortnightly. Since February, petrol has risen from ~Rs 267 to Rs 415 — a 55% increase in under 3 months. Consumers are now paying over Rs 150/L in taxes alone on petrol, including a Rs 103.50 petroleum levy. PM Shehbaz noted the weekly oil import bill has ballooned from $300M to $800M. The government has barred private OMCs from diesel imports, consolidating procurement under PSO.

Pakistan also issued an emergency LNG tender this week for two cargoes (May 12-14 and May 24-26 delivery at Port Qasim) as Qatari term LNG supply remains trapped behind Hormuz. Spot Asian LNG prices have surged. The power sector is under acute stress.

The KSE-100 closed at 172,894 on Thursday, up 0.69% on the day and up ~65% over the past 12 months — a remarkable run driven by monetary easing through 2024-25, private sector credit growth (+Rs 790B through February), and strong banking sector earnings. However, the index is down -1.7% YTD, and sits well off its January all-time high of 191,032. The March Hormuz sell-off took the index to 146,843 before a sharp recovery. The Oil & Gas Tracking Index (OGTI) rose 5.1% this week — energy stocks are the obvious beneficiaries of $100+ oil. Banking sector (BKTI) gained 4.8% as the rate hike widens net interest margins. The Alfalah Consumer Index (ACI) jumped 6.2%, suggesting the market sees consumer staples as inflation beneficiaries with pricing power.

For FMCG companies: the ACI outperformance is a signal that equity markets are pricing in your ability to pass through costs. If you're not pricing aggressively enough, you're leaving margin on the table that the market already expects you to capture.

The economic picture is one of stabilization under siege. The World Bank downgraded Pakistan's FY26 growth to 3.0% from 3.4%, with the ADB at 3.5% — both citing the Middle East conflict as the primary risk. The current account has reversed from a +0.5% surplus in FY25 to a projected -1.2% deficit in FY26 as the energy import bill balloons. The critical buffer is remittances: $3.83B in March alone, with FY26 tracking toward $41B — record territory. However, as the ADB warned, a prolonged Middle East conflict could also hit remittances if Gulf economies weaken, removing the one cushion holding the external account together.

Palm oil is the one bright spot — CPO slipped ~1% WoW as Iran diplomacy hopes weakened the crude-biofuel linkage. But Malaysia's B15 biodiesel mandate kicks in June 1 (up from B10), which will tighten supply. India's 27% import drop provides short-term demand relief. For edible oil procurement, this is a narrow buying window. Packaging resins remain the pain point: HDPE/LLDPE are tracking crude closely, and Gulf-origin supply is constrained. Indonesia raised its May CPO reference price 6.06% to $1,050/MT with export duty set at $178/MT — signaling higher landed costs ahead.

April saw only 191 vessel crossings through Hormuz versus a normal ~3,000/month. Pakistan-flagged vessels have permission from Iran to transit, but insurance costs have made container shipping unworkable. At Karachi, 3,000 Iran-bound containers remain stranded. COSCO and OOCL have suspended services entirely following India-Pakistan trade bans. CMA CGM has imposed an $800/container emergency surcharge. Carriers are deploying feeder shuttles from Karachi to Colombo and Salalah, adding 7-14 days to transit times. Transpacific container rates are up ~40% since pre-war; Asia-North Europe rates up ~20%. Emergency surcharges of up to $3,000/FEU on Gulf-linked corridors.

PMD forecasts above-normal rainfall nationwide in May, concentrated in KPK, northern Punjab, GB, and Kashmir with warmer-than-usual temperatures. NDMA flagged elevated GLOF (glacial lake outburst flood) risk in Hunza, Nagar, Ghanche, Shigar, Swat and Dir following rapid temperature spikes. El Niño conditions are confirmed likely for the 2026 monsoon (June-September) — which historically means below-normal rainfall in Pakistan's agricultural belt, potentially stressing Kharif crop yields. Tomato prices jumped 57% in April, fresh vegetables 40%+, eggs 14.3%.

Two concurrent geopolitical shocks are reshaping Pakistan's supply chain topology. The India trade suspension has severed the Mundra Port transit route for European-bound Pakistani cargo. The US-Israel-Iran conflict, now in week 11, has closed the Hormuz corridor. On May 5, CMA CGM's San Antonio was struck by a cruise missile in the strait; Iran seized the tanker Ocean Koi on May 8 and established the "Persian Gulf Strait Authority" to regulate transit. India's suspension of the Indus Waters Treaty adds a longer-term agricultural risk dimension — water scarcity in Punjab and Sindh could compound El Niño effects on Kharif crops.

Pakistan is playing a pivotal diplomatic role: Tehran is expected to deliver its response to the US framework proposal through Islamabad this week. This is the single most important catalyst for supply chain normalization — and the biggest binary risk on the board.

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  Re-model distribution costs at Rs 430/L diesel Next fuel revision Friday 15 May. If Brent stays >$95, another Rs 10-15 hike is likely. Update route economics and renegotiate freight contracts proactively.
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  Secure 60-day CPO coverage now Palm oil is in a rare soft patch. Malaysia's B15 biodiesel mandate kicks in June 1. Current window may not last.
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  Watch EIA STEO release on Tuesday (May 12) First update to incorporate April ceasefire breakdown. Expect upward revisions to H2 oil price forecasts. Will set the tone for fuel pricing through May.
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  Review LC/working capital costs SBP rate hike means KIBOR-linked financing is ~100bps more expensive. Negotiate fixed-rate terms on new LCs. Extend supplier payment terms.
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  Audit packaging resin inventory — source from SE Asia HDPE/LLDPE Gulf supply is constrained. Assess coverage and explore Thai/Vietnamese alternatives. Build 90-day buffer.
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  Scenario-plan for Hormuz reopening AND prolonged closure Tehran's response expected this week. Don't pre-buy crude-linked inputs at peak — but don't run empty. Target 45-day coverage. If signal is positive, Brent drops to $85-90 fast.
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  Review pricing strategy — ACI signal says pass through costs The PSX consumer index (+6.2% WoW) suggests equity markets expect FMCG firms to exercise pricing power. If you're absorbing cost inflation, reassess.
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  Begin El Niño contingency for Kharif crops PMD confirmed El Niño likely Jun-Sep. Below-normal monsoon → rice and cotton stress. Forward contract with agri suppliers now.