Iran war escalation poses serious threat to Thai economy

The raging war in the Middle East has raised worries for Thailand’s economy as oil prices shot up to US$90 per barrel on Friday (March 6), the highest since 2022.

The National Economic and Social Development Council (NESDC), a state think tank, cut Thailand’s GDP forecast amid threats to global oil and gas supply.

If the Middle East conflict, which has shown signs of escalating, persists for a long period, Thailand’s GDP would grow only 1.3 per cent this year, slowing from the 2 per cent forecast earlier, said Danucha Pichayanan, secretary‑general of the NESDC. If the military clash ends within a month, the economy will grow 1.6 per cent.

The US and Israel launched air attacks on Iran on February 28, and Iran retaliated by attacking several neighboring Gulf countries that are US allies.

US President Donald Trump announced that the US would continue its military campaign against Iran for four weeks or longer until it achieves its goals.

The energy challenge

Prime Minister Anutin Charnvirakul held an emergency Cabinet meeting on Monday (March 2), to assess the situation caused by the war, its impact on the safety of Thai workers in the Middle East and on the overall economy.

Beyond people’s safety, the Thai government and others are worried about the spike in oil prices that could trigger high global inflation and sharply slow the global economy.

Thailand, which depends heavily on imported oil, would be hit hard by rising energy prices if the conflict deepens and spreads across the oil and gas-rich region. The country also imports a large quantity of liquefied natural gas (LNG).

The Energy Ministry says Thailand has adequate oil and fuel reserves to cover about 95 days. The country can also seek alternative sources outside the Middle East, such as the US, West Africa and Malaysia, according to Veerapat Kiatfuengfoo, spokesman for the ministry.

Bank of America Global Research has highlighted that Thailand has the deepest negative energy trade balance in Asia, with net energy imports estimated at approximately 6 per cent of GDP in 2025, making Thailand particularly vulnerable to energy price shocks.

Brent crude oil prices spiked about 13 per cent during early trade on Monday (March 2), rising above US$82 per barrel before stabilizing near US$78 per barrel later in the day, up 6.6 per cent overall.

However, the continuing attacks pushed the price to $90 on Friday (March 6). Oil transport has come to a standstill after Iran warned it would attack any ships trying to pass through the Strait of Hormuz.

Oil flows through the strait account for around 20 per cent of global petroleum consumption.

The safety of the large number of Thai workers in the Middle East are also a worry for the government. According to the Ministry of Labour, there are 80,000 Thai workers in the region, 58,000 of them in Israel.

The high wages in Israel continue to attract Thai labor despite the traumatic killings and abductions during the Hamas attacks in 2023, which led to the devastating war in Gaza.

Initially crude oil prices jumped by over 10 per cent, but the pressure eased after Trump announced that the US would provide insurance to oil tankers passing through the strait and escort them if needed.

The Thai government has intervened in the oil market by capping the diesel price at 29.94 baht per liter for at least 15 days, while consumers in some provinces are rushing to buy fuel at gas stations fearing a further increase in prices or shortages.

Reactions to oil price subsidy

Many observers have backed the government’s move to shore up prices. “I agree with the government’s step to subsidize the price of diesel and smoothen out short-term volatility,” says Praipol Koomsup, an independent economist who monitors the energy sector closely.

People should not panic, he advises, adding that the Middle East situation may ease within a month and that storing large quantities of oil at home carries a fire risk.

Praipol is, however, concerned about rising oil prices, which have been rising every day since the strikes began on February 28. Thailand imports about 90 per cent of its oil requirements and 40 per cent of its LNG, says Praipol.

He adds that the current war affects not only oil transportation but also oil production in Gulf countries such as Saudi Arabia. Saudi state oil giant Aramco has shut its Ras Tanura refinery after an Iranian drone strike caused a blaze.

Meanwhile QatarEnergy, the world’s largest LNG producer, has ceased production of LNG and associated products due to military attacks on its operating facilities in Ras Laffan Industrial City and Mesaieed Industrial City in Qatar, sending LNG prices soaring in Europe and Asia.

Thailand imports 60 per cent of its total LNG from Qatar. Thailand could tap into oil and gas from other sources such as the United States, but transport routes are not convenient.

“It would be a big challenge for the government to deal with the impact of the Iran war as the Thai economy is already weak,” Praipol warned.

The Stock Exchange of Thailand index fell sharply and triggered a circuit breaker on March 4 after dropping 8.01 per cent.

Safety of Thai workers

Another immediate issue is the safety of Thai workers in the Middle East, especially in Israel, which is frequently hit by Iranian missile and drone attacks.

The government plans to evacuate about 100 workers from Iran and Israel. But most of them, reportedly, do not want to be repatriated as they want to continue earning to repay debts and support their families.

Impact on tourism

The prolonged conflict is likely to impact the tourism industry, on which Thailand relies heavily. The Iran war has disrupted transportation, and flights to and from the Middle East have been cancelled. Rising oil prices will also increase the cost of air travel.

Prior to the crisis, the Tourism Council of Thailand had projected the number of foreign tourists this year at 34 million, a 3.1 per cent increase from 32.97 million last year, which was down 7.2 per cent from 2024.

The Bank of Thailand has said it is prepared to introduce measures to deal with the impact of the Iran war. The central bank had recently cut its policy rate by 25 basis points to 1 per cent in an attempt to shore up economic activity. GDP growth had been projected at 2 per cent before the Iran conflict, but the outlook now depends on how the situation unfolds.

Impact on inflation

Rising oil prices could put pressure on inflation, which is in negative territory now.

Kasikorn Research Center is maintaining its 2026 inflation forecast for Thailand at 0.4 per cent. There is a possibility that inflation will rise due to the current war, depending on how prolonged and severe the situation becomes, as well as on the government’s domestic price‑support measures.

“If the situation drags on for more than three months and the average price of Dubai crude oil increases to 80 dollars per barrel, Thai inflation is expected to rise by about 1.0 per cent,” the research house said on March 5, while Dubai Crude Oil futures price for March 2026 is hovering at around $72 per barrel.

Thailand’s headline inflation in February 2026 stood at minus 0.88 per cent year on year, with energy prices remaining a key factor keeping Thai inflation in negative territory, in line with global market prices and the government’s cost‑of‑living relief measures.