The chief economist of a leading Thai economic research centre has warned that Thailand faces growing risks to its energy security and economic growth if the conflict in the Middle East continues and the Strait of Hormuz remains closed.
Burin Adulwattana of the Kasikorn Research Centre has expressed concern that the ongoing war is adversely affecting Thailand’s economy, particularly energy prices, saying that “without energy, our economy cannot run.”
Too reliant on imports?
The Strait of Hormuz, a major shipping channel for the export of 20% of the global oil supply, is now closed. Oil prices have also shot up since the war erupted. Crude has increased to 81 US dollars per barrel, the highest since January last year.
This has led to uncertainties over both imports and exports, as costs of shipping will be higher and voyage times will be longer.
According to the Energy Ministry’s Department of Energy Business, Thailand imports at least 54% of its crude oil from the Middle East, 39.4% of this is from the United Arab Emirates, followed by Saudi Arabia (11.3%), Qatar (3.1%) and Kuwait (0.4%).
Oil shipments from these countries must pass through the Strait of Hormuz.
Thailand also sources crude oil from other countries, which does not pass through the Strait, such as the United States (13.7%), Malaysia (4.8%), Indonesia (4.2%) and Brazil (1.6%).
The country also imports hydroelectricity from Laos and natural gas from Myanmar, and even produces its own fuel for domestic consumption.
Based on the current situation, Burin feels that it is time for Thailand to move towards renewable energy. Even though the country still needs to rely on some oil imports, he thinks that the country should find alternatives and build its own renewable energy production capacity.
“We need to have alternative sources of renewable energy, especially solar and hydropower, and try to get in touch with other oil producers, not just in the Middle East,” he suggests.
On the other hand, Thailand exports oil to 11 countries, with Singapore being the largest importer, which takes 25.7% of all oil exports. Laos is the second largest (20.6%), followed by Bangladesh (12.02%), Vietnam (9.86%), Malaysia (9.18%) and the Philippines (7.98%).
Spreading our bets
Kasikorn Research Centre predicts that the country’s GDP growth will reach only 1.9% this year. With the ongoing crisis in the Middle East.
Their chief economist has outlined two scenarios for how this will impact Thailand’s economy, depending on the war’s severity and how long it lasts.
If it ends within a month, he predicts that Thailand’s economic growth might decrease by 0.2%. In the worst case, which is a prolonged war, he predicts that Thailand’s projected economic growth will drop by 0.6%.
This is similar to forecast by the National Economic and Social Development Council (NESDC), which says that the country’s GDP this year will grow by only 1.6% if the war with Iran ends in one month, or plunge even further, to 1.3%, if the war continues and the Strait of Hormuz remains closed.
“So, I think the main impact (on the Thai economy) will depend upon how long this conflict lasts,” the chief economist noted.
Burin still hopes for the best case, in which the war comes to a swift end, and that the war does not spread to other regions. This, he says, will allow global trade and tourism to resume.
He suggests that Thailand “spreads its bets”, considering the increasing geopolitical tensions over the past few years and that nothing is guaranteed.
“The supply chain is shifting from ‘just in time’ to ‘just in case’, because we never know when political tensions will pop up in which region around the world,” Burin explains.
This also refers to the recent trade tariff changes by US President Donald Trump, to 15% for all countries for a limited period initially, but it remains uncertain whether that will be extended. This, he says, will add more uncertainty to Thailand’s economic growth.
“We don't know what “normal” means now, because I think now we have different rules, so to speak. I think the US doesn't have to play by international rules and that could be another element of uncertainty going forward, in terms of the geopolitical risks that we face,” he concluded.
What has the Thai government done so far?
Amid concerns that Thailand’s oil reserves will last only 60 days, the Energy Minister, Atthapol Rerkpiboon, announced on Thursday that the country will have sufficient oil in reserve for 95 days, as additional supplies are expected to arrive in the country from sources other than the Middle East. It is also set to halt exports of crude oil, with the exception of Laos and Myanmar.
Finance Minister Ekniti Nitithanprapas supports the claim, revealing that there are still shipments of liquefied natural gas (LNG) en route from the Middle East, most of which passed through the Strait of Hormuz before the closure.
This is on top of the existing LNG being produced in the Gulf of Thailand and that imported from Myanmar. More energy supply from Malaysia, based on the Joint Development Area, is also being considered.
Prices of diesel have also been frozen, currently capped at 30 baht per litre for just 15 days, using the Oil Fuel Fund mechanism, in hopes of easing the burden on people in Thailand.
Meanwhile, the Transport Ministry announced a ministerial regulation on Thursday, aimed at
preventing public transport providers, including taxis, motorcycle taxis and on-demand ride-hailing services, from increasing their fares.
