When US and Israeli forces launched the Iran War in late February 2026, immediate shockwaves were felt — but the secondary tremors are now being felt in Cambodia – the petrol stations, banks, real estate showrooms and, being a small, dollarized, open economy navigating a post-credit-boom adjustment, the conflict could not have arrived at a worse moment.
Iran War energy shock: Already visible at the pump
Cambodia imports virtually all of its petroleum. With the closure of the Strait of Hormuz disrupting 20% of global oil supplies, the price of fuel — the circulatory fluid of any developing economy — has already risen 25–30% at the retail level. That figure is consistent with what is being seen across the region. Brent crude futures rose 36% from February 27 through March 27, when they traded above $113 a barrel. More recently, crude surged more than 8% to top $103 a barrel after President Trump announced plans to impose a naval blockade on Iran.
Cambodia has fewer tools than its neighbours to cushion this blow. Thailand has placed a temporary price cap on diesel, Vietnam is weighing cuts to fuel import tariffs, and Indonesia has increased fuel subsidies. Cambodia lacks the fiscal space or state energy infrastructure to replicate such interventions at scale. The NBC cannot print US dollars — the currency in which most Cambodian commerce and property transactions occur — meaning monetary policy options are effectively foreclosed.
Southeast Asia faces fuel shortages and rationing that threaten industrial activity. For the kingdom, this translates into higher costs across construction, logistics, agriculture, and manufacturing — the very sectors that sustained the country’s impressive pre-pandemic growth.
Garment sector under pressure
Cambodia’s export model is narrow and vulnerable. The garment, footwear, and travel goods sector accounts for roughly 70–75% of merchandise exports, almost entirely destined for the US and European Union markets. Growth is projected to decelerate to 4.8% in 2025 and 4.0% in 2026, reflecting export volatility, declining remittances, a slowdown in tourism, and weak domestic demand.
The Iran war adds compounding pressures to this already fragile outlook. Higher fuel costs inflate freight rates and factory operating costs simultaneously. Insurance premiums rise, investment decisions are deferred, supply chains are rerouted, and trust in Gulf stability erodes. Shipping lines operating through the Indian Ocean and Southeast Asian waters are repricing war-risk premiums, costs that ultimately filter through to exporters via higher container rates.
There is also a demand-side risk. Capital flows shift toward safe-haven assets, emerging Asian currencies face depreciation pressure increasing import costs further, and export-dependent sectors are hit hardest. If Europe and the US slip toward stagflation — which is increasingly the concern of major forecasters — consumer appetite for discretionary goods like garments will soften, compounding Cambodia’s export challenge.
Tourism, another pillar of the economy, faces similar headwinds. Travel becomes more expensive, reducing international arrivals across Southeast Asia. Jet fuel prices have surged, and some airlines are adding refuelling stops. Reduced tourist arrivals would hurt Cambodia’s hospitality sector, restaurants, tuk-tuk operators, and the informal economy that orbits around them.
Finance and the banking system: A stress test arrives at the worst moment
The Iran war has arrived precisely as Cambodia’s banking sector was already grappling with its most serious internal challenge in years. By June 2025, non-performing loans (NPLs) had reached KHR 19.0 trillion (around USD 4.7 billion), making up 8.1% of total loans — the highest in years, driven by the delayed recognition of distressed loans during the pandemic and slowing credit growth.
The NBC responded by relaunching a loan forbearance programme, allowing banks to restructure bad loans up to twice without penalty. But that programme was always a stopgap. The IMF’s Executive Board supported the phase-out of forbearance by end-2025 to enable timely recognition of distressed assets and recapitalisation, and urged the establishment of a deposit insurance scheme and reforms to insolvency and crisis management frameworks.
Simultaneously, the sector sustained a reputational shock of considerable magnitude. In January 2026, the NBC ordered the liquidation of Prince Bank after the extradition of its founder, Chen Zhi, to China on charges linked to cyber fraud and scam compound operations. The liquidation exposed 200,000 customers to potential losses, and the NBC guarantees deposits only up to USD 500 through a deposit insurance fund.
In March, the Association of Banks and the Microfinance Association issued a joint statement saying the financial sector “remained resilient and liquid, despite a few bank closures and service disruptions,” and emphasised that “a temporary operational disruption at an individual institution should not be interpreted as a reflection of the condition of the wider financial system.”
That statement was necessary precisely because confidence was eroding. The good news is that headline prudential indicators remain above regulatory minimums. In 2025, the capital adequacy ratio reached 21.9%, well above regulatory requirements, while liquidity levels remained high at around 177.3% for deposit-taking institutions.
The bad news is that the Iran war introduces a new set of stresses on top of an already-strained system. Higher inflation will erode household incomes, increasing the probability that performing loans tip into NPL territory — particularly in the microfinance sector, where borrowers are concentrated in agriculture, small trade, and construction. Total banking assets are nearing $100 billion, and the ABC expects moderate growth in 2026, contingent upon improvements in global geopolitical conditions and regional stability — a condition that has just become considerably less certain.
One underappreciated risk for a dollarized economy like Cambodia is what happens when the US Federal Reserve is caught between inflation and recession. Interest rate reductions were expected to be postponed or conversely increased in light of higher inflation caused by supply shortages and speculation.
Higher US rates tighten dollar liquidity globally, making it more expensive for local banks to access offshore funding and placing pressure on the riel’s effective exchange rate. For a country whose economy is approximately 85% dollarized, this is a critical vulnerability.
Cambodia real estate market: A sector already in retreat
Cambodia’s property market entered 2026 already under significant pressure, and the war has arrived as an additional headwind in what was already a challenging environment. The nationwide residential property price index fell by 3.67% from a year earlier in January 2026, following an annual decline of 3.8% in 2025. Residential property prices have been declining for 29 consecutive months.
In Phnom Penh specifically, the index declined by 4.52% in January 2026 from a year earlier, its ninth consecutive month of year-on-year fall. Knight Frank noted that “heightened geopolitical uncertainty and weaker external demand have weighed on sales performance,” and that “ongoing Cambodia-Thailand border tensions have adversely affected investor sentiment, particularly among foreign and speculative buyers, leading to a moderation in transaction activity.”
The war is now adding layers of pressure to each of these weaknesses. Foreign investor sentiment — already cautious — will be further dampened by regional instability and rising risk premiums. Chinese investment, which accounts for over 70% of Cambodia’s FDI according to 2025 data, is under pressure as higher energy costs feed directly into production costs for steel, chemicals, and electronics, squeezing margins and weakening export competitiveness in China itself.
Construction costs will rise materially. Cement, steel, and logistics all carry embedded energy costs. Higher fuel prices inflate these inputs, making new development less viable and squeezing developer margins on projects already under construction — many of which are financed with bank debt that is itself under NPL pressure.
The three biggest risks for Cambodia property prices as of early 2026 are a slower-than-expected recovery in bank lending to buyers and developers, external trade shocks affecting incomes and confidence, and persistent oversupply in certain condo segments taking longer to clear. The Iran war materially worsens two of these three risk factors simultaneously.
There is one structural buffer worth noting: the nation’s dollarized economy insulates real estate from currency devaluation risk that would otherwise compound the pain. Rental income is predominantly received in US dollars, which is why net rental yields — typically still compelling relative to neighbouring markets, where cities such as Bangkok or Ho Chi Minh City rarely exceed 3–4% net returns — remain the primary draw for income-focused investors.
The cascading logic: From pump to real estate
The transmission mechanism from oil shock to real estate distress in Cambodia follows a predictable but accelerating sequence. Higher fuel prices first hit household disposable income and small business operating margins. This increases microfinance and bank NPLs. Banks, already cautious, tighten credit further — reducing mortgage availability and developer financing. With less credit available, property transactions slow and prices soften. Slower transactions reduce government stamp duty and registration fee revenues, constraining the fiscal response available to the government.
At each stage, the Iran war’s effects interact with pre-existing weaknesses: the NPL overhang, the Prince Bank liquidation, weak investor sentiment, and construction-sector oversupply. What begins as a battlefield shock hardens into a geoeconomic one.
Cambodia outlook: Fragile but not broken
A note of measured perspective is warranted. A fragile ceasefire was announced on April 7, 2026, and oil markets reacted positively. Analysts from Raymond James estimate a two-to-three month period of recovery in traffic through the Strait, with improvement starting slowly and then accelerating, though the physical damage to Gulf infrastructure — refineries, terminals, and processing plants — will take considerably longer to repair.
Cambodia’s financial authorities have shown they are watching carefully. The NBC has reduced the Capital Conservation Buffer and Reserve Requirements to release liquidity, and the banking sector’s capital ratios, while under pressure, remain above regulatory minimums. The government’s decision to postpone the capital gains tax on property until January 2027 is a practical, if modest, measure to preserve transactional confidence in real estate.
The deeper risk is not a sudden collapse but a prolonged, grinding deterioration. If oil prices remain elevated through mid-2026, the confluence of squeezed household incomes, tightened bank credit, weakened export demand, and declining investor confidence could push Cambodia’s growth well below the IMF’s already-revised 4.0% projection for the year — and push an increasing share of real estate collateral into distressed territory on bank balance sheets.
For a country that has spent the last decade building a financial system sophisticated enough to support a modern economy, but not yet robust enough to weather a simultaneous external energy shock and internal NPL crisis, the coming months will be the most consequential test in a generation.
This article draws on data from the IMF, the NBC, AMRO, Knight Frank Cambodia, the WEF, the Atlantic Council, CSIS, the Council on Foreign Relations, and multiple financial press sources current to April 14, 2026. It is intended as analysis and does not constitute financial or investment advice.
