Foreign investors flee Thailand as war-driven energy shock deepens

Reuters has reported that foreign investors are selling Thai assets as the energy shock triggered by the US-Israeli war with Iran threatens to derail hopes of an economic recovery under Prime Minister Anutin Charnvirakul and highlights the policy paralysis weighing on Bangkok.

The conflict has pushed global oil prices to near US$100 a barrel, sharpening concern over Asia’s dependence on Middle Eastern energy supplies. Thailand is seen as one of the most vulnerable countries, with the Middle East supplying nearly half of its oil and gas imports, according to Krungsri Research.

With public debt nearing the government’s self-imposed ceiling of 70% of GDP, and the economy already in deflation before the war began, Thailand’s challenge is considered more severe than that faced by most of its regional peers. 

Reuters said the shock came just as Southeast Asia’s second-largest economy had started to show signs of recovery, with investors returning to Thai markets for the first time in years. 

LSEG data showed that foreign investors bought US$1.7 billion worth of Thai equities in February. Anutin’s resounding victory that month had raised hopes of political stability and long-awaited economic reform in a country that had endured years of turmoil and uncertainty. 

However, when the Iran war broke out at the end of February, foreign investors moved quickly to pull money out. Net foreign selling in Thai equities reached US$823 million in March, while bond outflows totalled US$705 million, the biggest combined outflow since October 2024. 

A two-week ceasefire this month helped revive hopes of a resolution and sparked a sharp rebound in Thai stocks and the baht. Even so, investors remain wary of the country’s vulnerability should oil prices stay elevated. 

Part of Reuters’ report cited Daniel Tan, a portfolio manager at Grasshopper Asset Management, as saying the risk remained that markets might be underestimating the long-term impact of the energy shock. 

Higher fuel costs, he warned, could hit consumption and disrupt exports and tourism, two of the main drivers of the Thai economy.

Khoi Vu, ASEAN equity strategist at JPMorgan, said the bank remained cautious on Thai equities. While political stability had begun to brighten the outlook before the Middle East conflict, he said the energy shock was now acting as a near-term headwind.

He added that because the full impact of the energy shock had yet to materialise, markets had still not priced in a meaningful hit to growth.

Against the backdrop of a fragile ceasefire, analysts and investors warned that Thailand could face another difficult year. 

Unlike many countries in the region, Thailand’s vulnerability goes beyond fuel prices alone, as more than half of its annual electricity generation comes from gas, while liquefied natural gas imports are taking up an increasingly larger share of power production.

Thailand’s deeper problem is a lack of economic momentum. The economy grew by just 2.4% last year, lagging behind regional peers, while inflation fell for 12 consecutive months, prompting the central bank to cut interest rates in February before the war began.

Gary Tan, a portfolio manager at Allspring Global Investments, said there was broad consensus among investors that Thailand was stuck in a policy bind. The central bank has limited room to raise rates without derailing the recovery, but little urgency or space to ease policy, leaving conditions restrictive by default. 

According to estimates by the state planning agency cited by Reuters, every 1-baht rise in fuel prices cuts economic growth by 2 basis points, underlining why the government is reluctant to increase subsidies.

The baht has emerged as a key pressure valve, weakening by about 2.8% since the war began, although it has regained some ground since the ceasefire was announced last week. Analysts said the currency’s strong performance in 2025, when it appreciated 9%, should provide some buffer and allow more room for weakness.

Still, Thailand is walking a fine line. The government has ruled out fuel subsidies for now, but is absorbing higher costs to keep electricity tariffs largely unchanged ahead of the summer. 

Fiscal concerns are adding to the pressure, with public debt at 66% of GDP, close to the 70% ceiling. Investors worry the government may eventually have to raise that ceiling, although officials have said there are no such plans at present.