Thailand at a Crossroads: Political Instability, Regional Tensions, and Business Implications

Executive Summary

PM Suspension and Transition: On July 1, Thailand’s Constitutional Court suspended Prime Minister Paetongtarn Shinawatra over a leaked phone call with Hun Sen, deepening political instability. Paetongtarn remains in the cabinet as Culture Minister, while Deputy PM Suriya Juangroongruangkit serves as acting PM until the cabinet swearing-in on July 3, after which Phumtham Wechayachai is expected to resume as acting Prime Minister.

Domestic Political Turbulence: The crisis highlights the cracking of Thailand’s “grand compromise” between Pheu Thai and conservative elites, leaving the government weakened amid coalition tensions. Despite its withdrawal from the coalition, Bhumjaithai has paused its planned no-confidence motion and is leveraging its position while awaiting the court’s ruling on Paetongtarn. Party leader Anutin Charnvirakul has signalled his willingness to assume the PM role to ensure continuity if parliament dissolves, while within Pheu Thai, Chaikasem Nitisiri is seen as a potential PM candidate should the party seek to retain leadership under mounting pressure.

Regional Tensions: The leaked phone call has triggered renewed border tensions with Cambodia, with trade retaliations and a potential escalation to the ICJ, complicating Thailand’s diplomatic positioning and adding risks for cross-border trade and investment flows.

US–Thailand Trade Talks: Deputy PM Pichai Chunhavajira is in Washington for reciprocal tariff negotiations with the US on July 3, aiming to secure fair rates and address non-tariff barriers while reinforcing Thailand’s competitiveness within global supply chains.

Outlook: Key dates include the July 3 cabinet swearing-in, Paetongtarn’s defence submission by July 15, and a potential Constitutional Court ruling later in Q3, alongside the critical FY2026 budget vote. Continued protests, legal challenges, and coalition fragility may increase the likelihood of early elections if instability persists.

Recommended Actions: Businesses should closely monitor policy signals, maintain engagement with stakeholders, prepare for procedural delays in project approvals, assess regional trade risks, and develop scenario-based strategies to navigate Thailand’s evolving political and regulatory landscape.

Photo Credit: Thai PBS

1. Overview

On 1 July 2025, Thailand’s Constitutional Court voted 7–2 to suspend Prime Minister Paetongtarn Shinawatra pending a ruling on allegations of ethical misconduct following a leaked phone call with former Cambodian Prime Minister Hun Sen. The call, which took place on 15 June and was later leaked, included assurances from Paetongtarn to “take care” of Hun Sen’s concerns while criticising a Thai military commander during a period of heightened border tensions.

The suspension has deepened Thailand’s ongoing political instability, raising concerns about government continuity and the functioning of parliamentary processes. Paetongtarn now has 15 days to submit her defence to the Constitutional Court. During this period, Deputy Prime Minister Suriya Juangroongruangkit has assumed caretaker prime ministerial duties, ensuring basic continuity within the cabinet.

Paetongtarn retains her position as culture minister but is barred from exercising prime ministerial authority while the court deliberates on her case. This suspension has added to the uncertainty surrounding Thailand’s political environment, with wider implications for investor confidence, policy momentum, and coalition stability.

On July 2, Deputy PM Suriya Juangroongruangkit will lead the cabinet swearing-in as acting Prime Minister following Paetongtarn’s suspension, temporarily replacing Phumtham Wechayachai, who lost his acting PM role after stepping down from his cabinet posts as deputy prime minister and defence minister.

Suriya signed documents appointing Phumtham to resume the acting Prime Minister role and stated that after the cabinet is sworn in before the King on July 3, Phumtham is expected to resume as acting Prime Minister. 

Photo Credit: CNA

2. Domestic Political Implications

The suspension followed a petition from 36 senators who accused Paetongtarn of violating ethical standards and undermining national sovereignty. In parallel, the National Anti-Corruption Commission (NACC) has launched an investigation into her conduct related to the leaked call, adding further legal pressure on the suspended prime minister and her administration.

The government’s lower house majority has narrowed to 255 seats out of 500 seats following the Bhumjaithai Party’s withdrawal from the coalition. Bhumjaithai, which has reversed its stance on cannabis legalisation, is pushing a no-confidence motion against Paetongtarn but currently lacks nine votes to advance the censure.

Public confidence in the government has declined amid perceptions of mismanagement, governance fatigue, and concerns over sovereignty and transparency. Protests are building across major urban centres, while the private sector has raised concerns about delays in policy decisions, investment approvals, and regulatory clarity.

Thailand’s current crisis reflects the cracking of the “grand political compromise” established during 2023–2024 between Pheu Thai, conservative elites, and monarchy-aligned networks. Under this arrangement, the Move Forward Party, despite winning the general election, was blocked from forming a government, with power instead shifting to Pheu Thai under conditions set by conservative forces. 

This arrangement also reportedly aimed to ensure stability and avoid further coups by allowing Pheu Thai to govern under constraints. However, it has left the government too weak to deliver on economic promises while limiting policy space, leading to dissatisfaction among supporters and weakening coalition coherence. 

The People’s Party continues to operate as Thailand’s largest opposition force, maintaining calls for constitutional and military reform although legal challenges and institutional constraints persist in limiting People’s Party’s momentum.

The Minister of Defence position remains vacant following Bhumjaithai’s departure, with Deputy PM Suriya currently overseeing the portfolio in a caretaker capacity. A permanent appointment is expected in the upcoming cabinet reshuffle, but the leadership gap has created vulnerabilities in security policy and coordination at a sensitive time.

The military has reaffirmed its commitment to neutrality but has signalled its readiness to maintain public order should protests escalate further. This stance reflects historical patterns of the military’s involvement in stabilising periods of heightened political uncertainty while seeking to avoid overt political intervention.

The government is also grappling with challenges in clearing ambiguity around its stalled digital wallet stimulus, persistent rumours of Trump-related US tax negotiation interests, and the entertainment complex initiative. These issues have become politically sensitive and are facing delays amid the current instability, limiting the government’s ability to advance key economic and social policies.

The ongoing political turmoil has delayed the disbursement of the FY2026 budget, stalling public spending and state investment, and undermining Thailand’s economic recovery momentum. These delays are impacting government contractors and the broader supply chain while weakening investor confidence, with analysts warning that prolonged deadlock could dampen Thailand’s 2025 GDP growth trajectory.

Photo Credit: The Standard

3. Regional Relations and Border Tensions

Longstanding disputes over undemarcated border areas in Ubon Ratchathani have resurfaced, with Cambodia suspending Thai imports in retaliation and Thailand threatening to cut electricity and internet services to Cambodian areas hosting scam syndicates.

These tensions align with Thailand’s broader crackdown on cross-border scams but risk clashing with interests tied to casino-linked businesses along the border, complicating enforcement and exposing governance vulnerabilities. Cambodian Prime Minister Hun Manet’s plan to escalate the dispute to the ICJ reflects distrust in Thailand’s leadership, recalling the 2013 Preah Vihear ruling and signalling a hardened legal stance.

Meanwhile following the leaked phone call, once-flexible ties between the Shinawatra and Hun families have become politically sensitive within Thailand, adding another layer of complexity during this period of domestic upheaval.

Photo Credit: Bangkok Post

4. What’s Next for the Thai Government

• 3 July: Thailand’s newly formed “Paetongtarn 1/2” Cabinet is scheduled to be sworn in as it has been officially endorsed by the King, with Prime Minister Paetongtarn Shinawatra also assuming the portfolio of Culture Minister

• By 15 July: Paetongtarn is required to submit her defence to the Constitutional Court, with the legal proceedings drawing close attention from all political factions.

• Late July (at the earliest): The Constitutional Court is anticipated to deliver its ruling on Paetongtarn’s removal or reinstatement, which will heavily influence the coalition’s stability and potential public reactions. This process can take up to 3 months, taking example from former PM Gen Prayuth Chan-ocha’s case.

• July–August: The FY2026 budget vote is scheduled, representing a critical test of government durability and the coalition’s ability to function amidst political pressure.

• Q3 2025: If instability continues, discussions around early elections are likely to gain traction, shaping Thailand’s political and investment outlook for the remainder of the year.

5. Analyst Projections

Analysts forecast heightened volatility in the coming 4–8 weeks as Thailand navigates the combined pressures of legal challenges, coalition instability, and intensifying protests. A ruling against Paetongtarn could trigger large-scale demonstrations by her supporters while increasing calls for early elections from within the opposition and activist groups.

If Paetongtarn is reinstated, protests led by nationalist factions may continue, while coalition management will remain fragile, requiring careful handling to avoid further erosion of parliamentary control. The FY2026 budget vote will be a critical indicator; passage would stabilise governance temporarily, while failure could trigger parliamentary dissolution and potential elections.

Despite ongoing turbulence, Thailand’s bureaucracy remains operational, enabling technical-level engagement to continue, though delays in high-level decision-making on sensitive issues should be anticipated. The ongoing budget deadlock is slowing public investment pipelines, with prolonged delays likely to exert downward pressure on Thailand’s 2025 GDP growth prospects.

While a military coup is not imminent, the current instability has increased long-term coup risk. The military retains its role as a “guardian of stability” and may intervene if protests escalate, the judiciary fails to resolve the crisis, or public disorder spreads. However, the economic and reputational costs of a coup make intervention unlikely unless the crisis worsens significantly. For now, Thailand’s deep state and judiciary are expected to continue using institutional and legal mechanisms to constrain elected governments while retaining the military as a stabilising force of last resort.

Regionally, Cambodia’s escalation of the border dispute to the ICJ is expected to gradually increase tensions, requiring careful diplomatic management to avoid broader disruptions in bilateral and ASEAN relations. The situation will require close monitoring as it unfolds alongside domestic political challenges.

5. Political Outlook: Coalition Stability and Bhumjaithai’s Positioning

Many observers note that the Pheu Thai-led coalition is likely to hold despite Bhumjaithai’s departure, given the extensive compromises made to form the alliance, including the inclusion of Pirapan Salirathavibhaga from the United Thai Nation Party, an ultra-conservative faction formerly led by 2014 coup leader General Prayuth Chan-ocha.

Bhumjaithai is expected to continue tactical manoeuvring, using its leverage to extract concessions while positioning itself for future negotiations or elections, without triggering an immediate collapse of the coalition. The party’s decision to halt its planned no-confidence motion against Paetongtarn and the Cabinet reflects a cautious recalibration of its strategy amid heightened legal and coalition sensitivities.

While Bhumjaithai had initially positioned itself for an aggressive challenge, the Constitutional Court’s suspension order on Paetongtarn has paused direct parliamentary confrontation, with the party signalling it will reassess its approach once the court’s ruling is delivered. This development reduces the near-term risk of a formal coalition breakdown but underscores the fragile stability underpinning the current government, as coalition partners continue to monitor legal proceedings closely before making moves that could escalate instability or prompt early elections.

Several potential scenarios for Thailand’s next Prime Minister are now emerging. Anutin Charnvirakul, leader of Bhumjaithai, has openly indicated his willingness to assume the PM role before the parliament dissolves in the near term. Conversely, if Pheu Thai insists on retaining power, Chaikasem Nitisiri, a senior Pheu Thai figure, is reportedly positioned as a potential PM candidate, reflecting the internal recalibration within Pheu Thai as it seeks to maintain leadership amid growing instability.

6. Implications for Business

• Digital Economy and Finance: The delayed FY2026 budget has slowed disbursement for the digital wallet stimulus and public investment projects, impacting liquidity in the consumer economy. Regulatory frameworks for fintech and digital payments may face delays or require recalibration amid shifting coalition priorities.

• Energy and Infrastructure: The political recalibration and fiscal uncertainty are slowing approvals for infrastructure and energy projects, particularly initiatives tied to the current administration’s stimulus plans. The government’s push for green hydrogen development, electric vehicle charging networks, and renewable grid upgrades remains on track in principle, but stakeholders should anticipate procedural delays and potential funding reprioritisation amid coalition management. Analysts note rising private sector interest in Thailand’s green hydrogen corridor and regional energy security integration, particularly under shifting global supply chain dynamics following regional tensions in the Hormuz Strait.

• Healthcare and Pharmaceuticals: While Thailand’s universal healthcare commitments remain intact, the budget delays are slowing hospital procurement and reimbursement schedules, impacting pharmaceutical and medical device cash flows. Regulatory momentum on drug pricing and infrastructure expansion may pause during political recalibration. However, main regulatory bodies, such as the Thai FDA, will continue to operate, enabling product registration, compliance processes, and technical engagement to proceed. 

• Retail and E-commerce: The persisting economic slowdown is weighing on consumer sentiment and purchasing power, softening retail and e-commerce spending in the short term. The government’s digital wallet stimulus package, intended to inject liquidity and support consumption, remains stalled amid political recalibration.

• Tourism and Entertainment Complex: The flagship entertainment complex initiative, intended to boost tourism and regional competitiveness, is facing political delays. Businesses in hospitality, gaming, and related sectors should prepare for deferred approvals and increased scrutiny under heightened public debate. Over the longer term, analysts continue to view the Entertainment Complex Bill as likely to be revived once political conditions stabilise, given Thailand’s tourism ambitions and the potential for capturing regional gaming revenue currently lost to neighbouring markets. Interested parties should continue to maintain engagement with Thailand during this period of recalibration to position themselves effectively for opportunities as the policy environment evolves.

• Trade and Foreign Policy: Thailand’s escalating tensions with Cambodia, including potential ICJ proceedings, may impact cross-border trade and investment confidence in the short term. Broader regional tensions and fiscal constraints may slow the government’s push to expand outbound investment agreements and negotiate bilateral tax arrangements, including discussions with the United States.

Deputy Prime Minister and Finance Minister Pichai Chunhavajira arrived in Washington and met with the US Chamber of Commerce, led by Charles Freeman, and senior executives from leading American firms invested in Thailand. The discussions focused on trade and investment challenges under current US tariff policies, with both sides reaffirming their commitment to advancing long-term, sustainable economic cooperation.

Thailand is preparing for crucial reciprocal tariff negotiations with the US on July 3, aiming to secure fair tariff rates that match those applied to peer countries while preserving Thailand’s competitiveness. Pichai emphasised Thailand’s readiness to address non-tariff barriers and regulatory bottlenecks to enhance its position in global supply chains, while maintaining a transparent, friendly, and predictable investment environment.

Photo Credit: The Nation

7. Recommended Actions

Given Thailand’s evolving political landscape, businesses should take proactive steps to mitigate risk and position for future opportunities:

• Monitor and Maintain: Closely monitor developments, track legislative and regulatory updates closely while maintaining momentum in stakeholder engagement across both the public and private sectors, as this transition period may present opportunities to advance discussions and align interests.

• Prepare for Transition Opportunities: Align project timelines and engagement strategies to accommodate potential procedural adjustments as the new government stabilises. Identify opportunities to support the administration’s priorities while planning for potential delays in approvals for projects requiring government coordination or funding.

• Assess Trade and Regional Strategies: Monitor the Thailand–Cambodia border situation and potential ICJ proceedings, evaluating potential supply chain and trade impacts for cross-border operations.

• Seek Expert Guidance: Engage government affairs and risk advisory experts to develop scenario-based action plans, ensuring readiness for shifts in Thailand’s political and regulatory environment.