The selloff follows a sharp rise in global oil prices toward $100 a barrel, intensifying pressure on Thailand, which relies on the Middle East for nearly half of its oil and gas imports, according to Krungsri Research.

Data showed foreign investors were net sellers of $823 million in Thai equities in March, while bond outflows reached $705 million, marking the largest combined outflow since October 2024. The reversal came after a brief resurgence in inflows earlier this year, including $1.7 billion in equity purchases in February.

Investor optimism had been buoyed by the election of Prime Minister Anutin Charnvirakul, whose victory raised expectations of political stability and economic reform.

However, the outbreak of the Iran conflict at the end of February triggered a rapid reassessment of risk.Analysts say Thailand faces a more acute challenge than many regional peers due to its economic structure and policy constraints.

The economy had already been struggling, with growth of 2.4% last year and a prolonged period of deflation that prompted a rate cut by the central bank in February.“The risk remains that higher fuel costs hit consumption and disrupt exports and tourism,” said Daniel Tan, a portfolio manager at Grasshopper Asset Management, highlighting concerns about key growth drivers.

Thailand’s heavy reliance on natural gas, which accounts for more than half of its power generation, adds to its exposure. Rising liquefied natural gas imports are expected to further increase costs as energy markets tighten.

The Thai baht has weakened nearly 3% since the conflict began, though it has recovered some ground following a recent ceasefire. Analysts say the currency is acting as a key adjustment mechanism, helping absorb external shocks.

Market participants also point to limited policy flexibility. With public debt nearing the government’s self-imposed ceiling of 70% of gross domestic product, fiscal space is constrained, while monetary policy faces a trade-off between supporting growth and containing inflation.

“There’s a broad consensus among investors that Thailand is in a policy bind,” said Gary Tan of Allspring Global Investments, noting that the central bank has limited room to tighten or ease policy without adverse consequences.

Inflation, which had been contracting earlier this year, is now projected to rise as much as 3.5% depending on how the conflict evolves, marking a sharp shift in the economic outlook.

While a temporary ceasefire has supported a rebound in Thai equities and the baht, analysts caution that prolonged high energy prices could further weigh on growth, consumption and the external balance.

Jorgensen said the bloc is assessing “all possibilities” as it braces for sustained disruption, warning that energy prices are likely to remain elevated for an extended period. “This will be a long crisis energy prices will be higher for a very long time,” he said in the interview.

He added that for certain critical energy products, market conditions could deteriorate further in the coming weeks, underscoring concerns about supply constraints and volatility linked to the conflict.

The European Union has previously relied on coordinated measures such as strategic stock releases and demand reduction during periods of supply stress. Officials are now evaluating whether similar or more stringent interventions may be required if the crisis deepens.

The developments come as geopolitical tensions in the Middle East continue to disrupt global energy flows, raising risks for import-dependent economies and adding pressure to inflation across the region.