Thailand faces investor exodus amid Middle East energy shock

Foreign investors are pulling out of assets in Thailand as the energy shock triggered by the US-Israeli war on Iran threatens to derail hopes of an economic recovery under Prime Minister Anutin Charnvirakul and hits the Southeast Asian country harder than most neighbours.

The conflict has pushed global oil prices (for futures) close to $100 per barrel, underscoring Asia’s dependence on Gulf energy supplies. Thailand is particularly vulnerable, with nearly half of its oil and gas imports coming from the Middle East, yet an article by Reuters lays out why the country’s exposure goes beyond fuel imports.

More than half of Thailand’s electricity is generated from gas, while liquefied natural gas (LNG) imports account for an increasing share of power production. Combined with public debt nearing the government’s 70% ceiling and an economy already experiencing deflation before the war, the challenges facing Bangkok are more severe than for many of its regional peers.

The shock comes just as investor sentiment had begun to improve. Following February’s general election, which brought a decisive victory for Anutin, foreign inflows returned for the first time in years. Investors purchased $1.7 billion worth of Thai equities in February, raising hopes for political stability and long-delayed economic reforms.

That optimism quickly faded after the outbreak of the Iran conflict. Foreign investors recorded a net selloff of $823 million in equities in March, while bond outflows reached $705 million — the largest combined outflow since October 2024.

Although a two-week ceasefire has helped lift Thai stocks and the baht, analysts warn that risks remain if energy prices stay elevated.

"The risk remains (that) markets remain complacent about the long-term impact from energy shock and that higher fuel costs hit consumption and disrupt exports and tourism, two key drivers of the Thai economy," Daniel Tan, a portfolio manager at Grasshopper Asset Management, told Reuters.

Khoi Vu, an ASEAN equity strategist at JPMorgan, said the bank remains cautious on Thai equities, noting that the energy shock represents a near-term headwind despite earlier signs of improving political stability.

Thailand’s economy has struggled to gain momentum, expanding just 2.4% last year while inflation declined for 12 consecutive months, prompting a rate cut by the central bank in February before the war.

"There's a broad consensus among investors that Thailand is in a policy bind," said Gary Tan of Allspring Global Investments.

The local currency, the Thai baht has acted as a pressure valve, weakening about 2.8% since the conflict began, though it has recovered some ground following the ceasefire. Analysts note that its earlier 9% gain in 2025 could provide some buffer for further depreciation.

Still, policymakers face difficult trade-offs. The government has ruled out fuel subsidies for now but is absorbing higher costs to keep electricity tariffs stable ahead of the summer. Meanwhile, public debt stands at 66% of GDP, close to the 70% cap, raising concerns that fiscal limits could soon be tested.

"If the shock extends beyond April, it stops being just a headline issue and starts feeding into day-to-day operations," Nattanont Arunyakananda, investment ​manager of Thai equities at Aberdeen Investments, told the outlet.

By Nazrin Sadigova