A sharp reversal on Friday wiped out gains from the previous two sessions, as the Pakistan Stock Exchange (PSX) tumbled 2,320.78 points amid escalating geopolitical risks. Rising oil prices and renewed uncertainty in the Middle East prompted investors to lock in profits, snapping a brief recovery rally. Main Developments The benchmark KSE-100 index closed at 175,802.79 points, down 1.3 percent, according to Topline Securities Ltd. The day's losses were driven by profit-taking on heavyweights including Engro Holdings, Systems Ltd, United Bank, Oil and Gas Development Company, Pakistan Petroleum, Hub Power, Meezan Bank, Habib Bank, and Lucky Cement, which collectively shaved 1,105 points off the index. Trading opened higher on selective buying, but selling pressure intensified in the afternoon as investors booked gains ahead of the weekend, noted Ali Najib, Deputy Head of Trading at Arif Habib Ltd. Market activity declined, with traded volume falling 15.73 percent to 621 million shares and traded value dipping 13.65 percent to Rs29.8 billion. Cnergyico PK was the most active stock, with 86.4 million shares changing hands. Read also: 3 Key Shifts as Pakistan Hikes Fuel Prices and Switches to Daily Pricing Background The sell-off followed a period of heightened uncertainty in the Middle East, where reports indicated that the US and Iran had intensified attacks beyond military targets, raising fears of a broader conflict. The Strait of Hormuz, a critical chokepoint for global oil shipments, emerged as a central concern for energy-importing nations like Pakistan. The surge in oil prices reignited inflationary worries, compounding existing macroeconomic pressures. On the macro front, Pakistan recorded a current account deficit (CAD) of $649 million in June, while FY26 ended with a marginal CAD of $139 million. Technology exports reached a record $4.6 billion, up 21 percent year-on-year, accounting for 46 percent of total services exports. The Real Effective Exchange Rate (REER) rose to 106.44 in June, its highest level since September 2018, while net FDI inflows stood at $14 million for the month. For FY26, net FDI declined 34 percent year-on-year to $1.64 billion. Why It Matters The sharp decline underscores the vulnerability of Pakistan's equity market to external shocks, particularly geopolitical events that threaten energy supplies. With the country heavily dependent on imports through the Strait of Hormuz, any disruption could fuel inflation and strain the balance of payments. The drop also highlights the fragile investor sentiment, which remains sensitive to both domestic economic data and global developments. What's Next Analysts expect market sentiment to remain cautious as investors closely monitor geopolitical developments. However, the ongoing corporate earnings season and attractive valuations may provide support for select stocks. The trajectory of oil prices and any diplomatic breakthroughs regarding the Strait of Hormuz will be key factors shaping near-term market direction.