Thailand faces mounting risks as US-Iran tensions disrupt oil flows. Banks brace for stress, rising debt levels, and slower growth. Despite surprisingly strong exports in Quarter one of 2026, global turmoil and Middle East conflict threaten to drag Thailand’s economy into deeper uncertainty and risk.
Thai Prime Minister Anutin Charnvirakul and Finance Minister Ekniti Nitithanprapas are presiding over an economy where consumer confidence has fallen, foreign tourism is struggling, yet exports have remained surprisingly resilient in the opening quarter of 2026. However, a report last week from S&P Global raises concerns about the country’s financial system and the risks posed by sustained global uncertainty. It echoes a warning from the International Monetary Fund that global growth may slow to below 2% in 2026. Meanwhile, all eyes are on efforts in Washington, D.C., to either strike a deal with the Iranian regime or continue its military mission alongside Israel.
A ratings agency that retained a stable outlook for Thailand in November 2025 has issued a fresh warning. However, the agency now highlights rising economic and geopolitical risks facing the country. This position contrasts with Fitch Ratings and Moody’s, which had taken a different stance.
Specifically, the agency said Thailand is particularly vulnerable to an economic downturn. Moreover, it warned that uncertainty linked to Middle East hostilities is intensifying. As a result, external risks are now central to Thailand’s economic outlook.
Despite this, Thailand’s exports, particularly to the United States, remained robust in the opening three months of the year. Certainly, this resilience is impressive and surprised many analysts.
US Iran tensions escalate with Hormuz blockade raising risks for Thailand’s outlook and market stability
Meanwhile, tensions between the United States and Iran remain unresolved. Both sides are reportedly preparing for a second round of talks this week. However, earlier negotiations broke down on Saturday without agreement. At the same time, the United States has blockaded the Strait of Hormuz.
Consequently, this move reflects concern over Iran’s military intentions. It also signals perceived risks to Israel and Europe. The Strait of Hormuz is a critical global energy route. Therefore, any disruption has immediate consequences for oil markets and supply chains.
In turn, the blockade has intensified global uncertainty. As a result, the geopolitical environment remains volatile. Furthermore, energy supply risks are now more pronounced. This volatility is feeding directly into economic forecasts and financial market behaviour.
In recent weeks, Thailand’s banks have increased provisions. This reflects growing concern over borrower stress. Moreover, financial institutions expect conditions to deteriorate further if instability persists.
Slowing tourism despite resilient exports strains Thai economy as leveraged households and firms face risk
At present, foreign tourism is slowing. In addition, export performance is weakening. These trends are reducing overall economic momentum. Consequently, income flows for businesses and households are under pressure.
This is particularly evident among highly leveraged borrowers. As a result, repayment risks are rising across multiple sectors. Overborrowed households are especially exposed. Moreover, slower income growth limits their financial flexibility and increases default risks.
Similarly, small businesses face tightening conditions. These firms depend heavily on consistent cash flow. However, even minor disruptions can affect their operations quickly. At the same time, global geopolitical tensions are rising.
Reports suggest possible support from China to Iran. Meanwhile, former President Donald Trump has raised the prospect of penalties against China. These developments have added further uncertainty to global markets. As a result, investor sentiment has weakened.
Thailand’s energy dependence on Middle East imports exposes economy to supply shocks and rising inflation
Energy dependence remains a structural vulnerability. China sources much of its crude oil from the Middle East. Likewise, Thailand follows a similar pattern. In particular, Thailand depends on the region for 51% of its imports.
Therefore, supply disruptions have a direct and immediate economic impact. Price volatility also feeds into domestic inflation and production costs. Against this backdrop, policy pressure is increasing on economic managers.
Deputy Prime Minister and Finance Minister Ekniti Nitithanprapas is leading the response. However, his team faces simultaneous external and domestic challenges. Meanwhile, new analysis from S&P Global highlights rising corporate stress across Thailand.
The agency published its stress test report on April 6. It examined how Thai banks would respond to a sharp rise in non-performing loans. It also assessed corporate sector resilience over the next 12 to 24 months.
Rising corporate debt and weak earnings increase risk of negative cash flow among Thai firms through 2027
According to the report, credit stress among Thai corporates will increase. This is driven by weaker earnings and persistently high leverage. As a result, corporate balance sheets are under growing strain.
Specifically, S&P estimates that 5% of Thai corporates could report negative cash flow in 2026 and 2027. This compares with 4% in 2024. Under stress scenarios, the figure could rise to 8%. Negative cash flow indicates that operating income cannot cover expenses. Therefore, firms must rely more heavily on borrowing.
Large corporates with high leverage are particularly exposed. These firms account for about 6 trillion baht in debt. This includes loans equal to 17% of total bank lending. In addition, corporate bonds represent 60% of the bond market. These figures are based on central bank data as of September 2025. Consequently, systemic exposure remains significant within the financial system.
Earnings pressure is expected to intensify across sectors. Export performance remains surprisingly strong, with a boost in tech exports, especially to the United States. Overall, in the first quarter, exports are up 9.9% year on year.
Weak domestic demand and rising costs widen gaps between strong and weak firms across the economy
Meanwhile, domestic consumption is slowing. At the same time, competition from Chinese imports is increasing. This further compresses profit margins. As a result, profitability is declining for many firms. Policy measures may provide limited relief. However, access to credit remains uneven. Financial resilience varies widely across companies.
Therefore, performance gaps are widening. Stronger firms with lower leverage can absorb shocks more effectively. In contrast, weaker firms face tightening liquidity and higher borrowing costs. Smaller borrowers are particularly vulnerable.
They often operate with limited financial buffers. Consequently, rising interest costs increase financial strain. Liquidity constraints can emerge quickly under stress conditions.
Several sectors show elevated exposure to these risks. These include real estate, engineering, and construction. Retail and restaurant sectors are also affected. Export-oriented industries face similar pressures. These include automobiles and capital goods. Moreover, many of these sectors already carry high debt levels. They are sensitive to consumption trends and tourism flows. Therefore, any slowdown directly affects revenues and cash flow.
Prolonged Iran conflict and supply disruptions threaten margin growth and stability across the Thai economy
Downside risks remain elevated across the economy. In particular, prolonged geopolitical disruption is a key concern. The Iran conflict is central to this risk outlook. This conflict could affect transportation and logistics networks.
It may also disrupt industrial and petrochemical sectors. Agriculture could face indirect impacts through supply chains. Supply chain disruptions are a major risk factor. These disruptions increase costs and delay production cycles.
As a result, margins are compressed across industries. Inflationary pressure adds another layer of strain. Rising prices reduce consumer purchasing power. Consequently, demand weakens further. At the same time, businesses face higher input costs. This dual pressure reduces profitability and limits expansion. Thailand’s banking sector is also under pressure from these developments.
Asset quality remains a concern amid uneven recovery. Moreover, banks have high exposure to vulnerable borrowers. These include households and small and medium-sized enterprises. Therefore, the sector is sensitive to shifts in economic conditions. Geopolitical risks could weaken repayment capacity further. Higher energy costs reduce disposable income and business margins. Consequently, loan performance may deteriorate.
Thai banks remain resilient under stress despite rising non-performing loans and pressure on capital buffers
S&P assessed bank resilience under a severe stress scenario. It modelled a rise in non-performing loans to 10%, from a current average of around 3%. Under this scenario, most banks remain above minimum capital requirements. Existing capital buffers provide support. Earnings generation also contributes to resilience. However, capital ratios could decline by up to 300 basis points.
This reflects higher credit costs and non-accrual impacts. Some institutions could face greater pressure. Unrated banks may see capital erosion exceeding 400 basis points. Therefore, risk distribution is uneven across the sector. One bank could breach regulatory requirements under this scenario. Another bank reports no stage 3 loans at present. In this case, the stress assumption may overstate potential losses.
Both institutions are foreign-owned. Therefore, parental support is expected to mitigate risks. As a result, systemic implications are not anticipated. S&P assumes banks will draw on existing provisions. It expects non-performing loan coverage to remain around 70%. Stage 1 coverage is projected at roughly 2%. These buffers support stability under stress conditions, although pressure persists.
IMF warns global growth may fall below two per cent as conflict drives energy prices and inflation higher
Meanwhile, global risks are intensifying further. The International Monetary Fund has issued a warning on the broader outlook. It said the global economy faces recession risk if the conflict continues. The IMF released its World Economic Outlook on April 14, 2026. It assessed the impact of the conflict involving the United States, Israel, and Iran.
According to the IMF, global growth could fall below 2% in 2026. This level is close to recession conditions. Such an outcome is rare and historically significant. It has occurred only four times since 1980. Most recently, it happened during the COVID-19 pandemic. Therefore, the current risk level is elevated.
Energy prices have surged sharply in recent weeks. This followed the outbreak of conflict and supply disruptions. The blockade of the Strait of Hormuz intensified the increase. Peace negotiations between the United States and Iran remain inconclusive. Consequently, uncertainty persists across global markets. IMF Chief Economist Pierre-Olivier Gourinchas outlined key risks linked to the conflict.
Rising oil prices inflation and conflict risks threaten global growth outlook despite a potential recovery scenario
He said prolonged conflict would drive inflation higher and increase unemployment. In addition, food insecurity could rise in some countries. Even a short conflict could disrupt oil supply significantly. This disruption could resemble the 1970s oil crisis. Therefore, the potential economic impact is substantial.
Under extreme scenarios, oil prices could average $110 per barrel this year. They could rise further to $125 by 2027. As a result, global inflation could reach 6% next year. Central banks may respond by raising interest rates. This would tighten financial conditions globally. Consequently, economic activity would slow further across multiple regions.
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However, a more moderate scenario is also outlined. If tensions ease, energy production could normalise by mid-year. In that case, global growth could reach 3.1% in 2026. This is below the earlier forecast of 3.3%. Country-level impacts will vary significantly. Key factors include energy dependence and supply routes.
Reliance on the Strait of Hormuz remains critical. Access to alternative energy sources also influences resilience. Therefore, vulnerability differs across economies. For Thailand, these risks are pronounced and immediate. The country relies heavily on Middle East energy imports.
As a result, external shocks translate quickly into domestic pressures. This amplifies existing economic vulnerabilities. Overall, economic slowdown, financial stress, and geopolitical instability are converging. Thai authorities and financial institutions are adjusting to these tightening conditions.
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Further reading:
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