Government assurances fail to allay Thai fears amid global oil crisis
Long queues are forming at gas stations in many provinces across Thailand amid depleting stocks of petroleum products, contradicting government assurances of sufficient supplies.
The government has tried to convince the public that oil reserves are adequate, but that has not helped ease concerns as shortages persist.
The war led by the US and Israel against Iran has led to a dramatic spike in oil prices. Soon after the launch of aerial strikes on Iran on February 28, crude oil prices shot up 50 per cent, hovering at around $100 per barrel as of March 17. The situation remains tense.
With no resolution to the Middle East conflict in sight, the crisis has escalated as Iran has targeted US allies in the gulf—Saudi Arabia, UAE, Bahrain, Kuwait and Qatar— as well as Iraq, which are all major oil producers and exporters.
The almost complete shutdown of the Strait of Hormuz, through which one-fifth of the world’s oil is transported, has compounded the global crisis.
Currently, only Iranian oil tankers are allowed to pass through the strait, primarily supplying China and India. In response to the looming shortage, the International Energy Agency (IEA) agreed to release 400 million barrels of oil reserves—the largest such action ever—to address supply concerns.
Thai consumers face oil shortage
The chaotic scenes at gas stations in Thailand highlight both domestic and international disruptions in oil supply. In an attempt to cushion the impact of rising crude prices, the Thai government had earlier capped diesel prices at under 30 baht per liter for 15 days, hoping the global price surge would be temporary.
They reassured the public that existing oil reserves would last for 100 days.
“By fixing the diesel price, the Thai government has failed to manage the demand,” argues Sakon Varanyuwatana, former dean at Thammasat University’s Economics Faculty.
He suggests the government should have made it clear that domestic oil prices would inevitably rise in line with global prices.
“As the government initially capped diesel prices below 30 baht per liter for a 15-day duration, it encouraged consumers to hoard as they expected prices would rise after the capping period ended, resulting in panic buying,” Sakon explains.
This price intervention has led to the Oil Fuel Fund accumulating a deficit of over 12 billion baht as of March 15, with reports indicating the government may need to borrow up to 100 billion baht to maintain the subsidy.
On March 17, realising the soaring costs, the government announced that diesel prices would be allowed to gradually increase but would be capped at 33 baht per liter.
“More borrowing to finance the government’s energy subsidy scheme will not be sustainable, as it will result in higher public debt,” Sakon warns.
Thailand’s public debt is approaching dangerously high levels at 70 per cent of gross domestic product (GDP).
Sakon further warns that surging public debt could prompt international credit rating agencies to downgrade
Thailand’s sovereign rating, which would raise borrowing costs due to demand from investors for higher coupon rates on government bonds. Meanwhile, the business sector is calling for cuts in excise taxes on diesel and gasoline.
Energy Minister Auttapol Rerkpiboon explained that while oil supply is available, distribution is hampered by the surge in buying and limitations in transportation. Oil trucks also face restricted time schedules set by the National Police and local authorities, including the Bangkok Metropolitan Administration, for safety and traffic management purposes.
Tackling oil hoarding
Setting a price ceiling at 33 baht per liter against a market price estimated at around 50 baht could encourage hoarding by refinery plants, large oil traders and middlemen, says People Party’s Representative Supachot Chaiyasat, who closely scrutinizes the government’s energy policies.
“The oil shortage people have experienced at gas stations is in stark contrast with the government narrative that oil supply is adequate. Some market players may hoard stocks,” he notes.
Supachot suggests that the government strengthen law enforcement to punish those who hoard oil. He also highlights that while the government urges people to work from home, rising electricity bills are not being addressed with adequate assistance.
The increase in oil prices has raised the cost of production, prompting many manufacturers and traders to raise the prices of their products. Commerce Minister Suphajee Suthumpun said she would closely monitor 59 categories of controlled goods to prevent unjustifiable price increases or hoarding.
Economic impact and call for reform
KKP Research at Kiatnakin Phatra Financial Group warns of a significant impact on Thailand’s GDP. In their best-case scenario, if oil prices revert from a short-term spike to around $60–$70 per barrel, Thailand’s GDP would grow by 1.8 per cent.
However, if crude oil prices remain above $120 per barrel for six months, GDP growth would fall below 0.7 per cent, with inflation soaring to 2 per cent. This exposes the vulnerability of Thailand’s economy, which is heavily dependent on oil imports.
Sakon argues that the country needs to seriously consider building nuclear power plants to generate electricity. Adis Israngkul na Ayutthaya, a researcher at the Thailand Development Research Institute, asserts that the energy market needs to be liberalized to allow households and communities to produce and sell renewable energy.
He criticises the current policy for focusing too much on large-scale projects monopolized by the Electricity Generating Authority of Thailand and two other state-owned electricity distributors—the Metropolitan Electricity Authority and the Provincial Electricity Authority.
“Today, households need to ask permission to install solar cells on their roofs,” Adis laments. Experts are also calling for cheaper loans and greater incentives for households to install solar panels. Electricity generated by households could power electric vehicles or air-conditioning units, but so far only a limited number can sell their excess capacity back to the grid during the daytime. Adis points to European countries as examples where small players, like communities and households, can freely produce and trade renewable energy.
Supachot shares this view, urging the government to allow more households that install solar panels to sell excess electricity back to the Metropolitan Electricity Authority and the Provincial Electricity Authority. He cited a proposal of the People Party to levy a lower rate per unit for households that consume less electricity. Additionally, the government should offer incentives to large corporations implementing load response schemes, as seen in Europe.
“The government should also introduce a windfall tax on oil refinery plants when their profit jumps during periods of unusually high consumption,” adds Supachot.