The equity market came under selling pressure on Monday as worsening Middle East tensions, rising global crude prices and pre-budget uncertainty weighed on investor sentiment.
"PSX slide over 1% owing to Iran escalation and worsening Middle East tensions," said Ahsan Mehanti, Managing Director and CEO of Arif Habib Commodities.
"Pre-budget uncertainty and investor expectations for a surge in global crude oil prices impact the external account, and a possible interest rate hike played a catalyst role in the selling pressure at PSX," he added.
The Pakistan Stock Exchange's (PSX) benchmark KSE-100 Index settled at 168,953.70 points, down 1,525.24 points, or 0.89%, from the previous close of 170,478.94.
During the session, the index touched an intraday high of 169,254.13, down 1,224.81 points, or 0.72%, and a low of 168,432.45, reflecting a fall of 2,046.49 points, or 1.2%, from the previous close.
Brent oil prices jumped more than $3 a barrel on Monday, initially spooked by Israel's launch of renewed strikes on Lebanon a day earlier, before gaining further steam after sounds of explosions were heard in Iran.
Local media reported sounds of blasts in Tehran, Tabriz and Isfahan early on Monday, eroding hopes for an imminent end to the wider war and a restart of crude flows through the Strait of Hormuz.
Brent crude futures rose $3.20, or 3.39%, to $96.24 a barrel, while US crude futures were up $2.87, or 3.17%, at $93.41 per barrel as of 0333 GMT.
The gains erased Friday's losses, when prices fell on hopes of de-escalation in the US-Iran conflict, which has pushed oil prices more than 50% higher since March.
Iran on Sunday fired a salvo of missiles at Israeli targets in retaliation, though US President Donald Trump insisted that an agreement to end the wider war remained within reach.
Trump also reportedly told Israeli Prime Minister Benjamin Netanyahu to refrain from further attacks.
"It's not going to have any impact on the deal," Trump told the Financial Times. "I call the shots. I call all the shots. He doesn't call the shots."
Asian stocks also plunged on Monday as investors rushed out of AI-linked shares amid concerns that the bull run had moved too far, too fast, while fresh hostilities in Iran pushed oil prices higher.
The sell-off followed last week's disappointing outlook from chipmaker Broadcom and a stronger-than-expected US jobs report on Friday, which led traders to price in the possibility of a rate hike this year.
South Korea's chip-heavy KOSPI, the world's best-performing market this year, led regional losses with a 5% slide, leaving the benchmark down 13% from last week's record high.
Japan's Nikkei fell almost 4%, with market favourites across the computer-chip production supply chain among the worst hit, while Taiwan's benchmark sank 3.9%.
Nasdaq futures attempted a recovery following Friday's sharp sell-off, while European futures fell 1%. The Nasdaq had dropped 4.2% on Friday.
In the previous session, the KSE-100 Index closed lower, shedding 696.57 points, or 0.41%, to settle at 170,478.94 against the previous close of 171,175.51.
The index touched an intraday high of 172,102.91 and a low of 170,254.65 during Friday's session.
