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.

Managing Director Kristalina Georgieva said the war had caused the most severe disruption to global energy supply on record, with millions of barrels of oil production shut down due to Iran’s effective closure of the Strait of Hormuz.

“Instead, all roads now lead to higher prices and slower growth,” Georgieva told Reuters, adding that the IMF would cut its growth forecasts and raise inflation projections in its upcoming World Economic Outlook.

The conflict is expected to dominate discussions at next week’s IMF and World Bank spring meetings in Washington, where policymakers will assess the economic fallout from the crisis.

The Fund had previously anticipated a modest upgrade to global growth projections before the escalation.Georgieva said global oil supply had fallen by about 13%, with knock-on effects extending beyond energy markets into supply chains for commodities such as fertilizers and helium.

Brent crude prices have risen to around $110 per barrel, reflecting tightening supply conditions.She warned that even a swift resolution would leave a lasting economic impact, while a prolonged conflict would deepen inflationary pressures and further dampen growth prospects.

The effects are expected to be uneven, with energy-importing countries facing the greatest strain. Many low-income economies lack the fiscal capacity to cushion rising costs, increasing risks of economic instability and social unrest.

Georgieva said some countries had already sought financial assistance from the IMF, which could expand existing lending programs to address urgent needs. She cautioned against broad energy subsidies, arguing they could exacerbate inflation.Energy exporters have also been affected.

Damage to production infrastructure has slowed output recovery in some countries, including Qatar, where restoration of natural gas capacity could take several years.The IMF is coordinating with other global institutions, including the International Energy Agency and the World Bank, to assess the broader implications of the conflict.

Georgieva also highlighted risks to food security, noting that disruptions to fertilizer supplies could trigger wider shortages if the conflict continues.

The World Food Programme has warned that millions could face acute hunger if conditions worsen.