Oil price spike adds to woes of struggling Thai SMEs

Small and Medium-sized Enterprises (SMEs) in Thailand, already bogged down by a plethora of problems, are now battered by the spike in crude oil prices, which have soared to above US$100 per barrel due to the prolonged US-Israel war on Iran.

The sector is already battling with the saturation of Thai markets by cheap products from China, difficulty in accessing bank loans and failure to catch up with fast-changing technology.

The oil-price hike is an enormous burden for local SMEs, as it would further strain their production and logistics budgets, while also dampening consumer demand as the conflict continues to unsettle the broader economy.

“Higher oil prices would, of course, raise production and logistics costs but at the same time demand for our products are likely to slow due to the impact of the war on the whole economy,” says Sangchai Theerakulwanich, strategy chairperson of the Federation of Thai SMEs.

Setbacks for exports and tourism

Thai exports to the Middle East, especially Iran, are likely to take a hit due to logistical difficulties in the region.

Last year, Thailand’s exports to Iran were valued at $137 million, with SMEs accounting for more than a quarter at $38.54 million.

SMEs mostly exported machinery and boilers, electrical machinery, automobiles and parts, fruits and vegetables, according to Sangchai.

The ongoing conflict and oil price surge are expected to disrupt trade routes and reduce demand from these markets.

Not only manufacturing, but tourism-related services would also be impacted. Fewer tourists from the Middle East and Europe are expected to visit Thailand due to flight disruptions or economic concerns, he warns.

This could result in a significant revenue decline for SMEs who rely on international visitors.

Slow adaptation to ESG and sustainability trends

In addition to the bottlenecks, Thai SMEs have been slow in responding to global trends such as sustainable development goals that focus on environmental, social and governance (ESG) principles.

The Office of Small and Medium Enterprise Promotion (OSMEP)’s recent survey found that just 4.4 per cent of SME respondents had implemented an adaptation plan, 30.7 per cent had begun studying it, and 13 per cent had no plan at all.

“While 51.9 per cent of them think they would not be impacted by the ESG trend, this group is the most complacent, which is a cause for concern,” says Sangchai.

Boosting SME potential

Chana Poomee, chief sustainability officer at corporate giant SCG and vice chairman of the Federation of Thai Industries, wants Thailand to boost the share of SMEs’ output in the national GDP from the current 35 per cent to 50 per cent by improving productivity and fostering Smart Green Industry.

Speaking at a public forum early this month, he highlighted that increasing local value creation, especially by reducing capital goods imports and developing domestic industry, could add up to 3 trillion baht to the economy and help close critical economic gaps.

He cited the Saraburi Sandbox model, which transitions from coal to cleaner energy and involves numerous SMEs in the new supply chain, as a prime example of how industrial restructuring can build a sustainable ecosystem connecting large firms with smaller businesses.

For long-term growth, Chana proposed focusing on three pillars: strategic industry development, infrastructure investment, and transforming industries toward smart, eco-friendly operations.

He also advocated for skill mapping and leveraging national strengths in sectors like electronics, automotive and food processing by integrating advanced technology.

Achieving these goals requires moving from policy discussion to real action through public-private-people partnerships, with the private sector leading and the government supporting investment-friendly policies.

Digitalization and AI: A slow transition

Thai SMEs are also making slow progress in adapting to digitalization and artificial intelligence (AI).

A recent survey conducted by the OSMEP found that 39 per cent of SMEs plan to invest in digital technology, 34.2 per cent would do so depending on economic conditions, and 26.8 per cent have no plan. This cautious approach may leave many SMEs lagging behind as technology rapidly evolves.

Atip Asvanund, executive director of the Digital Council of Thailand, recently discussed how AI was reshaping the business landscape, especially for SMEs. Unlike past technological shifts, the AI wave is rapidly transforming both blue- and white-collar jobs, making adaptability essential.

While AI enables small businesses to operate efficiently with fewer staff—sometimes leading to “solo-founder unicorns”—it may also widen the digital skills gap, primarily benefiting those with advanced skills.

Research shows that experienced workers (aged 30 to 50+) can leverage AI effectively due to their expertise in task management and prompting.

Atip also warned that Thailand’s heavy reliance on foreign AI platforms poses economic and security risks.

He stressed the importance of developing a domestic AI ecosystem, including local infrastructure and talent, to safeguard digital sovereignty and retain investments within the country. Building Thailand’s own AI capabilities is crucial for long-term economic direction and national security.

Backbone of the Thai economy

Thai SMEs have played an important role in Thailand’s economy and in employment generation. According to OSMEP’s statistics, the number of SMEs exceeded 3.3 million last year and they employed more than 13.7 million workers, around 34 per cent of the 39.6 million total work force.

The recent oil price spike, coupled with other challenges, will test the resilience of these vital businesses. “SMEs need more support from both government and large corporations in raising their productivity and participating in high-valued supply chains,” adds Sangchai.