Economists often use the phrase “This time is different” cautiously because financial history shows markets repeatedly follow similar patterns, and people tend to cling to the past more than they should. However, the Operation Epic Fury war that erupted on 28 February may be one of the rare occasions where this phrase truly applies.
Before the conflict erupted, the global economy appeared calm and on a clear path. The IMF had just revised the 2026 global GDP forecast upward to 3.3%, and INVX had raised Thailand's GDP forecast to 1.7% following increased domestic political stability under the Bhumjaithai government. Everything seemed to be progressing as expected—until the night of 28 February.
As of 19 March, the situation has escalated further: Israel attacked Iran's South Pars gas field, the country's most critical energy infrastructure. Iran retaliated by striking Qatar's Ras Laffan industrial zone—the world's largest LNG export hub—causing severe damage, and launched missiles and drones against the UAE, Saudi Arabia, and Kuwait. Brent crude surged to $112 per barrel, a rise exceeding 50% since the conflict began.
In past Middle Eastern conflicts, markets expected that with a weak economy, the Fed would cut rates to support growth, weakening the dollar and lowering bond yields. This war, however, is moving in the opposite direction (hence “This time is different”) because both sides target energy infrastructure directly, causing sustained high energy prices that deepen inflationary pressures. Consequently, the U.S. dollar has strengthened as a safe haven instead of weakening, and bond yields have risen amid inflation concerns rather than falling.
The March 18–19 Federal Open Market Committee (FOMC) meeting confirmed this outlook. The FOMC voted 11–1 to keep interest rates at 3.50–3.75%, as expected. More significant than the numbers was Powell's hawkish tone during his press conference, which was firmer than the official documents suggested.
Powell explicitly stated that the Fed will not “look through” inflation shocks from the Middle East conflict, contradicting the Bank for International Settlements (BIS) advice that central banks worldwide should consider supply shocks temporary if they are short-lived.
Although the Dot Plot median still indicates one rate cut in 2026, seven of the 19 FOMC members believe no cuts should occur. The distribution increasingly clusters around “no cuts.” Meanwhile, market signals from Overnight Index Swaps (OIS) suggest less than a 50% chance of any rate cuts this year, and the likelihood grows that the Fed may even raise rates if oil remains above $100 for an extended period due to heightened inflation risks.
Global strategist Michael Hartnett of Bank of America warns that the 2026 market pattern resembles mid-2007 to mid-2008 with concerning parallels. Two converging risks are present: soaring energy prices creating inflation risks amid economic stagnation (Stagflation), and pressures in the $1.8 trillion Private Credit market. The back leverage mechanism—where private credit funds borrow from banks using loan portfolios as collateral—could trigger a downward spiral similar to 2008's collateralized debt obligations (CDOs) if loan quality deteriorates due to rising energy costs impacting borrowers across sectors.
INVX observes that the Private Credit market, at 6% of GDP, remains much smaller than the 2008 securitization market at 68% of GDP, and Eurozone inflation at 1.9% is significantly below the 3.8% seen before the Lehman crisis. However, attention is warranted as JPMorgan has begun marking down loans tied to software companies disrupted by AI. If other banks follow suit amid rising energy costs, systemic risks could surface sooner than markets anticipate.
For Thailand, which imports nearly 5% of GDP in energy and relies on Middle Eastern oil for 57%, the impact extends beyond pump prices, seeping through multiple supply chain points simultaneously. TOA has halted new orders with only 20 days of raw material stock left. SCG has shut its Rayong olefins plant. Phuket hotel bookings have seen a 10% cancellation rate, and the oil fund subsidizing diesel consumes over 1.3 billion baht daily. INVX estimates this fund can sustain only another 40–68 days, depending on oil prices between $100 and $120.
INVX projects that if the conflict persists for two weeks to three months with Brent averaging $85, Thailand's GDP will grow only 1.4–1.5%. The Bank of Thailand is expected to keep interest rates at 1.00% throughout the year, and the baht may weaken to around 34 per dollar by year-end. However, if the conflict escalates regionally and Brent remains permanently above $100, GDP growth could shrink to 1.0%, and the Bank of Thailand might need to raise rates to 1.25% to curb inflation and support the baht, which could weaken to 36 per dollar, squeezing Thailand's economy from all sides.
In this risk-off environment, INVX recommends a “Selective Buy” strategy: low-risk investors should increase cash holdings (“Cash is King”), reduce exposure to vulnerable sectors such as petrochemicals, airlines, and tourism, and hedge with PTTEP, which benefits directly from sustained high oil prices.
For higher-risk investors viewing the crisis as opportunity, a “Buy on Panic” approach is advised, purchasing incrementally at support levels of 1,320–1,350, 1,275, and 1,100 points in two themes: High Dividend stocks like KTB, KTC, KBANK, TISCO, BAM offering over 5% dividend yield before XD dates from March to May; and Fast Rebound stocks such as GULF, BJC, HMPRO, SAWAD, MTC, TIDLOR, which have limited direct impact from the Iran crisis. Medium-term investors are advised to accumulate ADVANC, BDMS, BEM, BBL, and GULF, which have strong balance sheets and reasonable valuations.
Regardless of how quickly or slowly the war ends, one certainty is that the world will not return to its previous state. Geopolitical risks will be permanently priced into energy markets. Central banks worldwide will face stagflation without adequate tools, and the global economy will grow more slowly, exhibit greater volatility, and become harder to manage. For Thai investors, adjusting portfolios to this new reality is not optional but essential.
Wishing investors good luck.
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