Pessimists sound smart, optimists make money

The week’s news, before the guest arrives

The episode opens with Muzamil walking through the news of the week before introducing his guest, and the choice of items is itself a thesis about what matters. The Balochistan government has set a price cap of two hundred and eighty rupees on Iranian petrol — institutionalising what used to be smuggled fuel. The State Bank has eased forex restrictions for IT exporters, who can now keep half of their earnings, or five thousand dollars, in their forex accounts and remit it abroad without friction. Markets across the country will close at 8 PM to conserve fuel. Public transport in Islamabad has been made free for a month. And Pakistan is still hunting for the four-point-eight billion dollars it needs to repay the UAE and roll over its Eurobonds.

Muzamil also flags an analysis by Ali Khizar on diesel pricing. Imported diesel is trading at three hundred and twenty-two dollars a barrel; imported crude at one hundred and sixty-five. But seventy-five percent of Pakistan’s diesel is refined locally — which, on the government’s current pricing formula, hands refineries a profit of roughly two hundred and seventy-five rupees per litre. It is a quiet, important point, and it sets the table for the guest.

Abdul Rehman Najam, CEO and founder of ARN Financial Advisors, joins to answer one question: where is the economy today, and where is it going?

The Armageddon that has already happened

Abdul Rehman Najam’s opening argument is counterintuitive, and he lays it out as a three-part framework. First, the relevance of the conflict. Second, how the oil economy actually responds to demand destruction. Third, the discipline of cross-checking against past examples.

He starts with a tweet he remembers from the first week of the war. “There was a tweet by I think the Iranian government or maybe IRGC and they said that the world will see two hundred dollar oil and that will be Armageddon.” That, he argues, was the worst-case scenario being formally telegraphed. And in his reading, it has already arrived — just not where most people are looking.

“People who are not that familiar with the oil markets, they might say that oil has only been to a hundred and twenty dollars. So what are you saying?” The answer is that crude is the input, not the output. Roughly thirty to thirty-five percent of crude is consumed as diesel, and diesel is the inelastic, inflation-driving product. Last week, when Pakistan repriced diesel at five hundred and twenty rupees, international diesel had already touched two hundred and sixty dollars a barrel. In the Russia–Ukraine episode, the diesel premium over crude maxed out at seventy to eighty dollars. Pakistan, fortunately, has the Strait of Hormuz still open, so freight is at the floor.

“When I say we have already seen two hundred dollar crude oil,” he tells Muzamil, “it is because people have bought diesel at two hundred and fifty dollars.” The Armageddon, in product-market terms, has been printed.

Three wars, twenty-five days, and a six-month ceiling

The second leg of the framework is historical, and Abdul Rehman Najam is precise about which episodes count. There are only three instances in the last forty years where crude doubled within two months because of a war: the 1990 Iraq–Kuwait war, the 2003 US–Iraq invasion, and the 2022 Russia–Ukraine war. He has studied all three.

In every case, crude stayed at the elevated price for a maximum of six months, even though the wars themselves lasted years. The reason is not diplomatic but mechanical. “Beyond a hundred and twenty dollars crude oil, the demand destruction which happens, that is an automatic stabiliser in the oil market.” Above one hundred and fifty dollars, he adds, the major institutional models — IMF, World Bank, the global banks — show the world economy ceasing to function. Even the geopolitical beneficiaries become losers at that price.

The Pakistan-specific finding is sharper still. In all three episodes, the Pakistan Stock Exchange index made its low within twenty-five days of the trigger event. The wars carried on; the worst case got priced in inside a month. If you bought the index at that twenty-five-day mark, the average return across the three episodes was thirty to forty percent over one year, around one hundred percent over two years, and roughly one hundred and fifty percent over three.

The qualifier is what Abdul Rehman Najam calls the one government decision that breaks the pattern.

The one mistake the government must not make

There is exactly one historical case, he says, where investing into that twenty-five-day low produced a flat year. It is the case where the government held the oil price down with a prolonged subsidy. “The only instance in these three scenarios where an oil subsidy was given for a prolonged period of time,” he says, “the global oil shock was turned into a macroeconomic instability event.” The subsidy bled the reserves; the reserves forced a devaluation; the devaluation closed the trade.

The alternative — passing the price through — is politically ugly but mechanically clean. He returns to 1990: “Petrol used to be around nine rupees per litre and it was increased to twenty-three because crude oil also increased from around fifteen to thirty-five dollars.” The pass-through is what activates demand destruction inside Pakistan, contains the import bill, protects reserves, and lets the market do the rest. Inflation in that episode climbed from around seven percent to fourteen or fifteen percent — almost exactly the band that economists are projecting for the current shock if international prices hold for three months. The State Bank, notably, did not chase that inflation with rates. Policy stayed at eleven percent.

Muzamil’s pushback: what if this time is different?

Muzamil takes the other side of the argument carefully. The Russia–Ukraine episode never actually took Russian supply off the market — sanctioned barrels found their way to India and elsewhere. The 1990s did not feature live infrastructure destruction. This conflict does. Iran has struck what Muzamil describes as one of the largest petrochemical plants in Saudi Arabia, with knock-on implications for plastics. A plant of that size, he notes, can take four to five years to come back online. “A lot of people expect, oh, there’s a conflict, there might be a pause, but let’s get to a ceasefire and everything will be back to normal — which in my opinion is not happening.”

His question is direct: if twenty to thirty percent of global oil supply is off the market for a foreseeable horizon, are we not in a new normal where oil sits at one hundred and forty or one hundred and fifty, and the rest of the economy simply adjusts around it?

Abdul Rehman Najam concedes the inputs but not the conclusion. Around twenty percent of global supply passes through the Strait of Hormuz, but Saudi already routes around five million barrels through the Red Sea. Selective opening — for China, for Japan, for European countries Iran wishes to signal to — reduces the effective shock from twenty percent to closer to ten. Ten percent, he notes, is exactly the 1990 supply shock when global demand was fifty-five million barrels and the entire Middle East production base was perceived to be at risk. Pakistan absorbed it. “If you have mad men doing mad things which nobody can predict, then just sit in your mind” — but the base case for an investor must assume the world economy continues to function.

Reserves, not headlines: the devaluation question

The conversation turns to the rupee. Muzamil lays out the bear case crisply: an oil shock on one side, a forex shock on the other, the UAE loan being called, the possibility of Saudi following. The IMF has signalled that Pakistan may need to raise rates and stop intervening in the currency market — two soft commitments that, taken at face value, read like the prelude to a devaluation.

Abdul Rehman Najam reframes the question. “I don’t remember in the last thirty years any devaluation where our dollar reserves were below two months import cover.” Even after the UAE repayment and the Eurobond, Pakistan stays at roughly two-and-a-half months of cover. He notes that the UAE dirham, which was trading at seventy-seven on interbank and eighty on hawala a few months ago, is now flat at seventy-seven on both — a sign that informal channels are converting back into formal ones as people leave conflict zones. The same pattern, he reminds Muzamil, played out in COVID: everyone expected remittances to collapse, and they appreciated.

His operational answer is to stop watching the war and start watching the weekly print. “Reserves numbers are printed every week. When you have something which is coming to you every week, it’s much better to stay in touch and see the level reserves are following.” He puts a number on the threshold. Above ten billion dollars in reserves, the probability of a major devaluation in the next six months is around twenty-five percent. Below ten billion, it crosses fifty. The IMF language about rates and the open market, he adds, is templated. “Both of these statements are typical. They are in every review.”

Refineries, diesel margins and a wartime cap

The diesel question that Muzamil teed up in the news segment now gets a clean answer. Pakistan is not, in fact, subsidising diesel — the government has zeroed out the petroleum development levy on it. What is determining demand is the pump price, and at five hundred and twenty rupees per litre, volume is contracting regardless of how the tax is structured.

The good news, Abdul Rehman Najam argues, is a current-account positive that the discourse has missed. Pakistan imports crude at roughly one hundred and fifty dollars and refines it locally. Petrol, which used to trade fifteen dollars above crude, is currently being priced thirty dollars below where it should be — a negative-margin product. Diesel, refined locally, is being priced against the international diesel rate. The net effect is that the thing Pakistan imports has not got as expensive as feared, while the thing Pakistan makes has become unusually profitable.

The investing implication is plain — refineries are direct beneficiaries — but Abdul Rehman Najam goes further on the policy side. Rather than taxing windfall margins (which would push the marginal refinery into negative blended economics across petrol, diesel and furnace oil, potentially forcing a shutdown and a return to two-hundred-and-fifty-dollar diesel imports), he advocates a wartime margin cap of sixty to seventy dollars per barrel for two to three months. “Use your wartime economics hat,” he says. It protects consumers, keeps the refineries online, and avoids the IPP-style structural problem.

Second-order shocks: plastics, urea, and the gas-field that keeps giving

Muzamil pushes the conversation outward to the second-order commodity shocks — aluminium down thirty percent off the market, helium down thirty to forty percent, plastic feedstock up fifty to seventy percent. Pakistan is structurally exposed because most plastic resin is imported.

Abdul Rehman Najam confirms the channel but sizes it. Plastics, APIs for medicines, and eventually coal (as countries switch off LNG and furnace oil) are all relevant second-order shocks, but combined they amount to around five billion dollars of import exposure — meaningful, but an order of magnitude below the oil bill.

The compensating story is urea. Pakistan consumes around six-and-a-half million tonnes — among the highest absolute usage in the world for a population of two-hundred-and-fifty million — but produces it domestically off a captive gas field that has been running for seventy years. Global urea is around nine hundred dollars per tonne; Pakistani urea is around three hundred and fifty in dollar terms, a roughly fifty-three percent discount. The only pass-through to farmers comes from diesel-linked transport, which adds two to three hundred rupees per bag.

When Muzamil floats the idea of exporting urea to raise dollars, Abdul Rehman Najam pushes back firmly. “Right now if you’re exporting urea, you are actually exporting gas.” Gas power plants are already underutilised in favour of coal and furnace oil. The clean answer is to run the urea plants full out, serve domestic demand, and export only a genuine surplus — not repeat the sugar-scandal pattern of exporting and re-importing.

He also takes the harder agriculture question — that subsidised urea has wrecked Pakistani yields by encouraging nitrogen overuse — and offers a sequenced answer. The right time to raise urea prices to international parity is when international prices are at four hundred or five hundred dollars, not nine hundred, and the move has to be paired with targeted subsidies for small farmers and broader food-price deregulation. Done out of sequence, “after one year of a lot of bad results, you’ll have to reverse it.”

Two playbooks, depending on escalation

By the forty-five-minute mark, Muzamil moves Abdul Rehman Najam to the part of the conversation his audience came for: where is the money.

Abdul Rehman Najam splits the answer cleanly into two scenarios. If escalation continues for the next two to three months and oil stays expensive, and provided the government passes the price through, the index correction is capped at around twenty to twenty-five percent — already largely seen. Roughly half the index is composed of oil and gas exploration companies, banks and fertiliser companies. The exploration companies are net beneficiaries, though capped — gas prices are fixed at three to six dollars, windfall levies take fifty percent of upside, and tax takes half of what remains, so the earnings lift is bounded at twenty to twenty-five percent. Banks and fertilisers are unaffected. Refineries, as he has already argued, are the cleanest beneficiary.

If the de-escalation comes inside a month, the trade flips. The asymmetric upside sits in the names that have been sold off on import-restriction fears — cement, autos, mobile assemblers like Air Link. The way he frames the work is disciplined: model each company assuming Pakistan imports only half the cars it currently does, see what earnings survive, see what the market is giving you, and lock in the price.

He flags that ARN’s YouTube channel is publishing sector-level breakdowns the following week.

One advice, one quote

Muzamil closes by asking what Abdul Rehman Najam would tell the finance minister. The answer is one sentence: “Double down, triple down on public transport.” The arithmetic he offers is striking — thirty to thirty-five million motorbikes in Pakistan, even a hundred-rupee subsidy on ten litres a month is thirty-five billion rupees a month going into petrol. Built out properly, with EV buses and free rides for a transition period, public transport substitutes the imported fuel, restructures the labour market (workers stop demanding a commute premium for late hours), and quietly fixes the late-night retail-hours problem the government has been trying to legislate away.

The investor’s advice he leaves for last, and it is the line Muzamil pulled out as the cold open. “Pessimists sound smart but optimists make money.” You do not become a journalist or a forecaster in a month of watching a war. You decide a percentage of your savings you are willing to invest, you put it into good companies at the level of conviction you actually hold, and you stay in through the volatility. “One day it will be five thousand up, one day it will be five thousand down. You cannot sell when the market is down and then buy back when it’s up.”

Muzamil closes the conversation by inviting viewers to share how they are protecting their money — and reminding them, in his own register, that this is a serious time but not a singular one. The work is to stay calm, build the safety net, and let the math do what it has done in every comparable episode before this one.