IT WAS A SCENE harking back to Cambodia's darkest days, when battlefields took precedence over market places. On January 29, a Cambodian mob that swelled at times to 1,000 people stormed and set fire to the Thai embassy in Phnom Penh and proceeded to ransack many Thai-owned businesses.

The unlikely spark: Thai starlet Suvanant Kongying, apparently misquoted in the Cambodian press as saying that Thailand was the rightful owner of Cambodia's Angkor Wat temple ruins, the symbolic cradle of Khmer nationalism. There were also false rumours in Phnom Penh of destruction and death at the Cambodian embassy in Bangkok.

Thai Prime Minister Thaksin Shinawatra at one point threatened to intervene militarily to protect Thai citizens. He and Phnom Penh-based Western diplomats blamed Cambodian Premier Hun Sen for unleashing the nationalistic fervour. Hun Sen denied the charge and pinned the blame instead on unidentified "extremists." He has promised to pay reparations.

Nonetheless, Thai-Cambodian diplomatic relations are now in tatters, and a burgeoning economic relationship is in jeopardy. The Bank of Thailand estimates that bilateral trade in 2002 between the countries was 1.4 billion baht ($32.6 million), more than 12% higher than in 2001. Thai investment in Cambodia, ranging from interests in hotels to telecommunications, has also been growing fast. The Thai Farmers Research Centre estimates the total trade and investment relationship between the countries is now worth 42 billion baht annually.

Thai officials have put a 1.8-billion-baht price tag on damage to Thai property, downgraded diplomatic relations, closed all border crossings and cut government-to-government commercial ties. Cambodian officials tried to mend fences, but the riots may have left a black mark on the country's reputation as a stable destination for foreign investment.

"The glass is already broken," says Cambodian Minister of Commerce Cham Prasidh. "So many years of work and in one night everything is gone." Adds Thai Chamber of Commerce director Kiat Sittheeamorn: "If it happens to Thai businesses, it can just as easily happen to Malaysians, Singaporeans or anyone else."

Thaksin has made improved relations with Cambodia a centrepiece of his "forward engagement" foreign policy, which emphasizes business ties over ideological matters like human rights and democracy. That policy was starting to pay dividends for Cambodia. Importantly, Thai investors were ploughing money into infrastructure projects aimed at improving Cambodian tourism, one of the country's few foreign-currency-earning industries.

But is Thailand serious about pulling back? Perhaps not. For big Thai businesses, Cambodia's open and underdeveloped market has presented a fertile environment for new investment, important at a time Thailand is facing massive manufacturing overcapacity at home.

Situated next to slow-footed Vietnam and Laos, Cambodia represents a unique opportunity for Thai businesses to expand regionally. Many have had a reasonably easy time gaining market share in Cambodia, particularly in the services sector.

The rubble from the riots demonstrated just how pervasive Thai interests in Cambodia recently have become. For example, Shin Satellite, the communications company that Thaksin created and his family controls, provides infrastructure services to all six mobile-phone operators in Cambodia. Shin has said the riots won't affect its activity in Cambodia. Bangkok Airways, Thailand's No. 2 carrier, has already recommenced its six daily flights to Phnom Penh and Siem Riep. So far, no Thai conglomerates in Cambodia say they plan to uproot their operations because of the turmoil.

Considering the symbolic and political nature of the riots, Thaksin has so far held the rhetorical high ground in full view of his domestic audience. But with many regional competitors keen to move in and fill the void in the event of a Thai retreat, economic analysts bet that Thaksin's government, and the commercial interests it supports will soon get back to business as usual in Cambodia--at their own, now higher, risk.