The summer of 2025 will not be remembered for balance sheets or budget speeches. It will be remembered as the summer when war returned to South Asia and the Middle East — and markets, already brittle, were forced to absorb geopolitical earthquakes in quick succession.
The first shock came in May, when clashes between Pakistan and India spiraled into open conflict along their contested border. The hostilities, though brief, left lasting economic scars. Trade routes were suspended, cross-border investment froze, and the rupee fell nearly 9 percent in the weeks that followed. For ordinary Pakistanis, the war translated instantly into panic buying of fuel and essentials, tighter import controls, and a spike in food prices. Investors, confronted with the prospect of prolon…
Just as the subcontinent staggered from that conflict, June brought another rupture. Israel and Iran, long engaged in shadow confrontation, erupted into open hostilities. With missile strikes hitting ports and drone attacks unsettling Gulf shipping, the global oil market convulsed. Brent crude vaulted past $115 a barrel, a level unseen in nearly a decade. For Pakistan, reliant on imported energy and already battered by war finance, the surge was crippling. Inflation, which had eased to single digits earl…
By July, the picture was grim but not apocalyptic. The Karachi Stock Exchange had clawed back part of its losses, helped by state-backed institutions injecting liquidity and by local investors betting on a rebound. Inflation stabilised around 12 percent — high, but below the panic forecasts of 15–18 percent. The rupee, too, found a floor after Gulf allies extended emergency credit lines and Pakistan tightened import restrictions. The macroeconomy was bleeding, but not collapsing.
August brought a measure of relief. Inflation eased into the lower double digits, and the KSE-100 rebounded to around 150,000, recovering most of July’s losses. Investors took comfort in calmer oil prices and the sense that markets, though bruised, were not broken. The foundations remained fragile — debt costs were still heavy, foreign inflows scarce, and policy space narrow — but the rebound showed that Pakistan’s capital markets could still adapt and absorb shocks. After a summer defined by conflict …
The twin wars underscored three truths for Pakistan’s economy. First, that its structural fragilities — debt, energy dependence, a shallow export base — magnify every external shock. Second, that in a region where geopolitics can combust with little warning, market stability is never more than provisional. And third, that local investors, unlike foreign funds, often treat crisis as opportunity, producing sudden rebounds that flatter indices but conceal systemic strain.
For South Asia, May and June 2025 were months of rupture; July and August were months of adaptation. The wars did not topple Pakistan’s markets, but they stripped them of illusion. Stability now meant endurance, not growth; survival, not prosperity. Come September, let’s see how the floods reflect in the capital markets.
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