Tensions on the border between Thailand and Cambodia: Military de-escalation amid economic uncertainty

Recent clashes on the border between Thailand and Cambodia, including a deadly shooting on May 28 that killed a Cambodian soldier, have exacerbated tensions between the two countries. After reinforcing their troops in late May and early June, the two countries agreed to return to their previously established military positions along the disputed border.

The border dispute, which stems from cartographic ambiguities dating back to 1907, remains unresolved despite intermittent violence since 2008. Thailand's defense minister has expressed optimism that the next meeting of the Joint Border Committee, scheduled for June 14, will pave the way for a peaceful settlement. However, Cambodia continues to seek intervention by the International Court of Justice, an initiative that Thailand rejects, preferring bilateral negotiations.

Cambodia has maintained a firm stance by refusing to withdraw its troops and continuing its military fortifications in the disputed areas, complicating efforts to de-escalate the situation.

Economic risks

Border tensions pose significant economic risks, particularly for cross-border trade, tourism, and infrastructure development:

Trade disruptions: Thailand and Cambodia share $6.2 billion in annual bilateral trade, with critical supply chains crossing border checkpoints.

Thailand's recent reduction of opening hours at 10 of 17 official border crossings in response to security concerns has already impacted the movement of goods and people. Prolonged restrictions could disrupt Cambodia's agricultural exports and Thailand's manufactured exports, affecting regional logistics companies and port operations.

Impact on tourism: Both countries are heavily dependent on tourism, which accounts for 18% and 12% of Thailand's and Cambodia's GDP, respectively. Border tensions and military presence in key provinces such as Ubon Ratchathani and Preah Vihear risk deterring tourists, jeopardizing the sector's fragile recovery from the pandemic.

Infrastructure delays: Major cross-border infrastructure projects, including roads and energy networks designed to improve connectivity, are being delayed due to militarization and political uncertainty. Investors in construction and engineering companies could see their revenues postponed, while capital could be redirected to projects related to defense and border security.

Unresolved border disputes between countries such as Cambodia and Thailand can significantly influence foreign investment trends in both countries.

Studies show that ongoing territorial disputes create uncertainty and risk for investors, which can deter new foreign direct investment (FDI) flows and complicate existing investments.

However, the relationship between FDI and border disputes is nuanced. While unresolved disputes increase the risk of armed conflict and political instability, which generally discourages investment, existing bilateral FDI flows can also act as a stabilizing factor by increasing the opportunity cost of conflict for both states. Companies with significant investments in disputed areas often pressure their governments to seek peaceful solutions to protect their assets, thereby reducing the risk of escalation.

In the case of Cambodia and Thailand, persistent border tensions could:

• Increase perceived political risk, prompting foreign investors to delay or reduce their investments for fear of disruptions related to military clashes or sudden border closures.

• Raise the operating costs of companies engaged in cross-border trade, logistics, and infrastructure projects, which would hurt the profitability and attractiveness of investments.

• Encourage multinationals to push for diplomatic solutions, as protracted conflicts threaten their capital and market access.

• Potentially redirect investment flows to sectors or regions less exposed to border instability, thereby limiting economic diversification and growth opportunities in border provinces.

Ultimately, unresolved border conflicts tend to dampen new foreign investment flows, while existing investments may provide an incentive for peaceful conflict management. The economic interdependence between Cambodia and Thailand means that prolonged tensions could deter foreign investors wary of instability, thereby slowing economic development and regional integration efforts.

Overall economic stability: Cambodia's reluctance to close its borders, given its dependence on Thai goods, fuel, and internet connectivity, underscores the interdependence of their economies.

However, escalating military actions and potential border closures could cause a domestic economic backlash and regional instability.

While recent diplomatic and military initiatives suggest a temporary de-escalation, the long-standing border dispute continues to threaten economic stability and growth in both countries. The outcome of the June 14 Joint Border Committee meeting will be critical in determining whether the region can avoid further economic disruption and move toward a lasting settlement.