As Thailand’s domestic economy stagnates, ongoing geopolitical tensions in the Middle East are raising concerns among Thai business leaders. The conflict between Israel and Hamas has now persisted for over a year, with no resolution in sight. Industry experts warn that this situation could significantly impact the Thai private sector.
Rising oil prices and shipping disruptions are key issues that could affect the Thai currency. Increased fuel costs may drive inflation higher, compelling countries like the U.S. to raise interest rates.
In response to these challenges, the Thai Energy Ministry is preparing for potential oil price surges as the conflict in the Middle East escalates. Recent missile attacks from Iran and Houthi rebels in Yemen, along with Israel’s military actions against Hezbollah in Lebanon, indicate that the conflict may continue for some time.
Veerapat Kiatfuengfoo, the deputy permanent secretary for energy, stated that any escalation could disrupt oil production and exports from the Middle East. As a major oil importer, Thailand is likely to feel the effects of rising global oil prices.
Following U.S. President Joe Biden’s comments about discussing the conflict with Israel, crude oil futures saw an increase. On October 3, Brent crude prices rose by 4.8%, closing at $77.40 per barrel, while West Texas Intermediate prices climbed by 5.1% to $73.60 per barrel.
To manage domestic oil prices, the Energy Ministry plans to utilize subsidy programs funded by the Oil Fuel Fund, which has recently improved its financial status, reducing losses from over 130 billion baht to less than 97 billion baht due to earlier declines in global oil prices.
If the Middle East conflicts disrupt oil supplies, officials aim to stabilize domestic prices to mitigate impacts on businesses and households. Last year, the Russian invasion of Ukraine caused a spike in global oil prices, resulting in significant losses for the Oil Fuel Fund.
Mr. Veerapat reassured that Thailand has enough oil reserves to last two months if tensions escalate. The country currently holds 3.36 billion liters of crude oil, enough for 26 days, with an additional 2.05 billion liters on the way for another 16 days. There is also a stock of 2.41 billion liters of refined oil, sufficient for 20 days of domestic demand in an emergency.
However, cargo transport to the Middle East is expected to slow due to the ongoing conflict, raising concerns about trade impacts. The Federation of Thai Industries (FTI) highlighted that prolonged hostilities could hinder exports, particularly of cars and auto parts, with higher freight costs anticipated.
Chairman Kriengkrai Thiennukul noted that if Houthi rebels continue attacking ships in the Red Sea, it could harm the global economy and supply chains. He emphasized that crucial shipping lanes in the region facilitate 12% of global trade annually.
Mr. Kriengkrai suggested exploring alternative transport routes, such as the Eurasia Train Direct, which connects Europe and Asia via rail. This route is not only safer but also more efficient, potentially reducing logistics costs significantly. The FTI hopes the Thai government will engage in discussions with China to facilitate this rail service for exporters.
Chaichan Charoensuk, chairman of the Thai National Shippers’ Council (TNSC), concurred that major maritime routes are vulnerable to geopolitical tensions. Recent vessel attacks in the Red Sea have led to a 60% decrease in shipping traffic, prompting some vessels to reroute via the Cape of Good Hope, which increases both transit time and costs.
Given that 60% of Thailand’s maritime exports pass through Middle Eastern ports, any disruption could have serious consequences. Despite a 3.3% increase in Thai exports to the Middle East this year, challenges remain, particularly as exporters must monitor the situation closely.
Mr. Chaichan advised small businesses to prepare for liquidity issues resulting from potential shipping delays, suggesting that diversifying markets to Southeast Asia and China could be beneficial.
Nattapol Khamthakrua from Yuanta Securities (Thailand) warned that rising oil prices from Middle Eastern tensions could drive global inflation and affect interest rates. Any military action by Israel’s allies against Iran could lead to a significant increase in oil prices.
According to the U.S. Energy Information Administration, the Strait of Hormuz is crucial for global oil transport, with an average flow of 20.5 million barrels per day in the first half of 2023. A conflict escalation could threaten oil supplies and significantly increase prices.
As energy prices impact U.S. inflation rates, every 1% rise in oil prices can increase inflation by 0.04%. Analysts believe that sustained conflict could hinder central banks’ ability to ease monetary policies, affecting currencies worldwide.
The Tourism Authority of Thailand is also monitoring the situation, as the Mideast conflict could impact the upcoming high tourism season. Governor Thapanee Kiatphaibool mentioned that airlines are adjusting routes to avoid Iranian airspace due to military activities.
Chamnan Srisawat, president of the Tourism Council of Thailand, noted that while airfares might rise, many tourists still view Thailand as a safe destination. He expects arrivals from the Middle East, including Israel, to reach 1 million this year, as previous conflicts did not deter tourism significantly.
Overall, Thailand remains a preferred travel destination for Middle Eastern visitors seeking medical and wellness services, often choosing private hospitals for their longer stays.
You Might Be Interested In