Assessing Geopolitical Risks: The Thailand-Cambodia Border Conflict's Impact on Regional Stability and Investment

The Thailand-Cambodia border conflict, which escalated dramatically in late 2025, has emerged as a critical case study in the interplay between geopolitical instability and regional economic dynamics. This conflict, rooted in historical territorial disputes and exacerbated by nationalist tensions, has not only disrupted bilateral relations but also cast a shadow over Southeast Asia's broader economic and investment landscape. As cross-border violence intensified in December 2025-despite a U.S.- and Malaysia-brokered ceasefire-the region faces a dual challenge: managing immediate humanitarian crises while recalibrating long-term investment strategies amid heightened geopolitical risk.

The Escalation and Its Immediate Consequences

The conflict's resurgence in late 2025 was marked by a breakdown of the October 2025 ceasefire, with both sides exchanging accusations of unprovoked attacks. By December 24, military officials from Thailand and Cambodia convened for three-day General Border Committee talks, aiming to restore peace. However, hostilities persisted, with aerial strikes and heavy weaponry reported in border regions, resulting in at least 86 deaths and over a million displaced people. Thailand's insistence on stringent ceasefire conditions-requiring Cambodia to initiate the agreement, ensure its verifiability, and cooperate in landmine clearance-reflects deep-seated mistrust stemming from past violations.

The humanitarian toll has been severe, with civilian infrastructure in both countries destroyed and local economies paralyzed. In Cambodia, 21 civilians were killed, and 500,000 displaced, while Thailand reported 65 deaths and 150,000 evacuees according to reports. These disruptions have not only strained public resources but also exposed vulnerabilities in regional governance, particularly ASEAN's inability to enforce a unified response.

Economic and Market Implications

The conflict has directly impacted cross-border trade and investment, with economic activities along the border grinding to a halt. Cambodia's economy, already fragile, faces a projected slowdown to 4.8% growth in 2025 and 4.0% in 2026, according to the IMF. Thailand, meanwhile, grapples with elevated public debt and a decelerating growth rate, with risks tilted to the downside due to geopolitical uncertainties.

Investor sentiment in Southeast Asian markets has been mixed. While the Thai stock market showed resilience-reaching a seven-month high in September 2025-due to political stability and fiscal stimulus, Indonesia's market deteriorated amid political volatility. The Thai baht's strength against the dollar, driven by capital inflows and gold trading, has further complicated export competitiveness. In contrast, Cambodia's economic outlook remains bleak, with market functionality collapsing in December 2025, as seven border markets closed and essential goods became scarce.

Geopolitical Risk and Regional Stability

The conflict has elevated Southeast Asia's geopolitical risk profile, with the Geopolitical Risk Index (GRI) reflecting heightened volatility. The U.S. and China, both strategic stakeholders in the region, have urged restraint, underscoring the conflict's potential to disrupt broader geopolitical interests, including infrastructure projects under the Belt and Road Initiative (BRI). The failure of ASEAN to address the crisis cohesively-echoing its struggles with the South China Sea disputes-has further eroded confidence in regional institutions.

Financial institutions have also flagged the conflict's implications. Capital Economics noted that while broader economic risks in Thailand remain modest compared to trade tensions with the U.S., the border instability could derail ongoing trade negotiations. Similarly, the Bank of Thailand has warned of the baht's overvaluation, attributing it partly to the conflict's indirect effects on capital flows.

Strategic Considerations for Investors

For investors, the Thailand-Cambodia conflict underscores the need to balance short-term volatility with long-term resilience. Key considerations include:
1. Diversification: Southeast Asian markets, while attractive for their growth potential, require careful diversification to mitigate exposure to conflict-affected economies like Cambodia.
2. Diplomatic Monitoring: The success of peace talks, such as the December 2025 General Border Committee meetings, will be critical in determining the conflict's trajectory. Investors should closely track diplomatic efforts and ceasefire adherence.
3. Infrastructure and Trade Corridors: The conflict's impact on regional infrastructure-particularly in the Mekong River system-highlights the importance of assessing supply chain vulnerabilities in investment decisions.

Conclusion

The Thailand-Cambodia border conflict of 2025 serves as a stark reminder of how historical grievances and nationalist fervor can destabilize even the most economically dynamic regions. While the immediate focus remains on humanitarian relief and diplomatic resolution, the long-term implications for Southeast Asian markets are profound. Investors must navigate this landscape with a dual lens: recognizing the region's growth potential while remaining vigilant to the risks posed by geopolitical fragility. As the world watches, the ability of regional actors-and international mediators-to restore stability will determine whether Southeast Asia can reclaim its trajectory as a hub of innovation and prosperity.