The outbreak of war and geopolitical conflicts in the Middle East is becoming a critical test for Thailand’s economy. KKP assesses that this crisis could heavily impact the country's growth.
Since Thailand has the highest net energy import dependency in the region, if the situation escalates causing crude oil prices to surge beyond $120 per barrel and persist, Thailand's GDP growth this year could be held below 0.7%.
KKP also recommends the government consider reviewing its universal energy price subsidy policy to reduce the fiscal burden that is rising by billions of baht daily, and instead adopt a targeted assistance approach.
Dr. Pipat Luangnarumitchai, Chief Economist at Kiatnakin Phatra Bank (KKP), said the geopolitical conflict centers on the Strait of Hormuz, a strategic route through which 21 million barrels of oil flow daily — about one-fifth of global oil demand.
Thus, any closure or fighting in this area would immediately remove approximately 10 to 15 million barrels of oil per day from the global system, representing a very significant impact.
This risk inevitably targets Thailand because it has a high level of energy imports — the highest compared to regional countries like Singapore or South Korea.
Moreover, Thailand depends on oil imports from the Middle East for 58-60% of total usage, and on natural gas from that region for another 29%.
The concern in this crisis is not only the rising prices of energy and liquefied natural gas (LNG) but also the risk of shortages if alternative sources cannot be secured in time.
Regarding inflation, KKP estimates it may not be as severe as past crises, since Thailand’s current general inflation rate is about -0.88%, a relatively low base.
If oil prices spike to $120 per barrel, annual inflation might rise to around 2%, which remains within the Bank of Thailand’s target range, so an interest rate hike is unlikely.
However, if the economy slows while inflation rises simultaneously—known as stagflation—it would pose significant challenges for the Monetary Policy Committee in deciding on interest rate adjustments going forward.
This energy crisis also highlights structural problems in Thailand’s fiscal policy, especially the huge costs from subsidizing energy prices.
Dr. Pipat pointed out that the government’s effort to cap diesel pump prices at no more than 30 baht per liter contradicts the real cost, which has now soared to 48 baht per liter (excluding subsidies).
The 18 baht per liter difference is borne by the oil fund. Multiplied by the domestic diesel consumption of 70 million liters per day, this means the government faces a daily diesel subsidy burden exceeding 1 billion baht.
Whether the government reduces excise taxes or uses the oil fund mechanism, both approaches impact fiscal burdens and the country’s public debt.
Dr. Pipat suggested Thailand cannot indefinitely fix oil prices because doing so creates excessive costs and distorts market mechanisms, reducing incentives for the public to save energy.
Therefore, appropriate policy would gradually adjust prices to reflect true costs and shift subsidies from a universal approach to targeted aid for vulnerable groups or low-income earners who are genuinely affected.
In the short term, the government must urgently manage risk by negotiating oil and natural gas imports from countries outside the Middle East, such as the United States or Australia.
It should also upgrade domestic refineries to handle crude oil from new sources and communicate clearly with the public to prevent panic buying that could worsen shortages.
In the long term, this crisis is a clear warning that Thailand relies too heavily on imported fossil fuels, while other countries have renewable energy making up over half of their electricity capacity; Thailand’s share of renewables remains under 20%.
Accelerating promotion of clean energy, such as rooftop solar and wind power, is a national priority to reduce dependence on declining natural gas supplies in the Gulf of Thailand.
Meanwhile, citizens must assess their own situations and find ways to conserve energy to cope with rising living costs and prepare for worst-case scenarios.
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