Key Points
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Near‑term baht headwinds from geopolitics: The US–Iran conflict has triggered renewed energy price volatility, weighing on the baht, which has already underperformed regional peers. Thailand is especially exposed given its large net energy trade deficit (~6% of GDP) and reliance on Middle Eastern oil (~58% of fuel imports).
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Energy shock transmission remains a key risk: Thailand runs the largest net energy trade deficit in Asia. We estimate that every US$10/bbl rise in oil prices could worsen the trade balance by ~0.8% of GDP and add ~0.5pp to headline CPI. A sustained US$100/bbl oil scenario could deteriorate the trade balance by ~2.4% of GDP.
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Short‑term vulnerabilities are acknowledged but manageable: Limited oil inventories (~3 months) and reliance on Middle Eastern supply increase sensitivity to oil shocks, although the recent fuel export ban on 1 March and fuel diversification toward US and West African imports should help reduce risks.
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This is not a repeat of 2022: Unlike during the Russia–Ukraine shock, Thailand now enters this episode with a much stronger external position. Tourism has normalized and the current account has swung to a ~3% of GDP surplus in 2025 (vs. ~2.1% deficit in 2021), providing an important buffer against baht weakness.
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Inflation dynamics to remain contained: After 11 months of deflation, higher oil prices could help Thailand exit deflation rather than create destabilizing inflation. Even with oil at US$100/bbl, headline CPI would likely rise to ~1.7%yoy—comfortably within the BOT’s 1–3% target range.
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Monetary policy drag has largely faded: With the policy rate at 1.00%, just 50bp above the Covid trough, and the BOT emphasizing policy space preservation, we think the easing cycle has likely ended. Reduced downside policy risk removes a key domestic headwind for the baht.
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Growth and fiscal support provide partial offsets: Growth momentum has improved modestly, supported by fiscal disbursement, targeted stimulus, resilient gold prices, and a positive baht‑gold correlation, even as authorities curb speculative gold-related FX flows.
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Political risks are contained for now: The post‑election landscape has stabilized, with a coalition government likely to be formed soon, reducing near‑term political uncertainty.
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Bottom line for USDTHB: Risk is skewed toward near‑term baht weakness amid higher energy costs and geopolitical uncertainty. However, stronger external buffers, improving growth, diminished monetary easing risk, and potential Fed rate cuts argue against sustained baht underperformance. Once geopolitical risks fade, we see scope for USDTHB to stabilise and gradually retrace lower, alongside renewed foreign interest in Thai equities.
