US-Israeli joint strikes on Iran heighten Middle East tensions.
The attack, known as “Operation Epic Fury”, on February 28, 2026, resulted in the death of Iran’s Supreme Leader and triggered a crisis marked by violent military retaliation across the region. This has led to disruptions to major oil and gas production sites, impacting energy supplies and causing a subsequent standstill in midstream and downstream petrochemical production. In addition, the closure of the Strait of Hormuz has created severe disruptions in key energy transportation routes that are nearly impossible to replace.
On the logistics front, key shipping lines have suspended routes through the Suez Canal, opting instead to detour around Africa. Meanwhile, airspace closures and damage to several airports, particularly in the United Arab Emirates, have forced airlines to cancel flights or reroute entirely. Consequently, airfares have surged to four to five times their normal levels.
Volatile global energy prices pose a primary risk to Thailand’s economy
Global oil markets have reacted sharply to the crisis. On March 3, 2026, Brent crude oil prices surged past USD80 per barrel, up from the previous level of USD70. Meanwhile, European LNG prices jumped by more than 40%, while the prices in the Asian market (JKM) rose by more than 20% in a single day. These spikes were driven by the closure of the Strait of Hormuz and disruptions at key refineries. Given this, KResearch has assessed three scenarios based on the potential duration of the situation as follows:
Thailand’s economy faces risks from four areas of vulnerability
KResearch assesses that if the conflict is resolved quickly within one month (Scenario 1), the impact on Thailand will be contained. Global crude oil prices would be expected to retreat to USD60-70 per barrel once the situation eases, resulting in an average crude oil price of approximately USD65 per barrel. Subsequently, this would shave only 0.2% off Thailand’s GDP and increase headline inflation by 0.1%, as the effect on energy costs, tourism, and exports would be strictly short term.
However, if the situation persists for more than three months (Scenario 2), which KResearch views as an increasingly likely outcome, the average crude oil price could rise to USD80 per barrel. This would reduce Thailand’s GDP by 0.6% and push headline inflation up by approximately 1% as compared with the baseline scenario. The impacts would be transmitted through the following channels:
1) High Energy Dependency: Thailand is heavily reliant on energy imports, which account for as much as 70% of total consumption, particularly crude oil, of which more than 60% is imported from the Middle East via the Strait of Hormuz. When global energy prices surge, it triggers a chain reaction across domestic costs, including electricity, fuel, and LPG, which serve as key drivers of inflation.
Meanwhile, the government’s capacity to support oil prices is limited, as the Oil Fuel Fund has only just begun to recover, and the Electricity Generating Authority of Thailand (EGAT) still carries a high outstanding debt of nearly THB50 billion. Furthermore, the government’s fiscal space is far more constrained than during the Russia-Ukraine crisis.
Businesses with a higher-than-average dependence on energy in their production processes, or where energy costs account for approximately 10-33% of total production costs, such as electricity generation, transportation, hotels and accommodation, fisheries, textiles, chemicals, mining, and iron and steel products, would be among the first to be affected if domestic energy prices rise.
2) Trade Risks: Thai exports to the Middle East, which account for approximately 3-4% of total Thai exports, may face severe disruptions, particularly for automobiles, rice, and processed seafood, where more than 10% of exports depend on this market. Surging shipping costs and war risk insurance premiums are expected to exert significant downward pressure on order volumes.
Furthermore, Thai exports to Europe, which account for approximately 10-12% of Thailand’s total exports, could be affected by the rerouting of shipping lines around Africa to avoid the Red Sea and the Suez Canal. This detour extends transit times by 10-15 days and drives up freight rates, further exacerbating the challenges faced by an already vulnerable export sector.
3) Tourism Connectivity: Disruptions to aviation hubs in the Middle East directly impact flight connections and demand from the Middle Eastern and Israeli tourist markets, which account for approximately 3-4% of total arrivals in Thailand. This segment has high per-capita spending and serves as a key revenue source for medical tourism. Although the second quarter is typically the low season due to Ramadan, a prolonged situation could extend the impact into the high season. Additionally, soaring aviation costs driven by higher oil prices and the rerouting of flights to avoid Middle Eastern airspace are expected to reduce the number of long-haul travelers from Europe and the US who rely on regional transit points.
4) External Stability Vulnerability: For every USD10 per barrel increase in global oil prices, Thailand’s current account balance is projected to decline by approximately USD4 billion, or roughly 0.6-0.7% of GDP, reflecting a more fragile foundation for the Thai Baht. Meanwhile, the US Dollar is likely to strengthen due to demand for safe-haven assets and reduced expectations that the Fed will cut interest rates, as persistently high oil prices increase inflation risks in the US.
Therefore, if the situation is prolonged, the Thai Baht may experience high volatility, with a risk of depreciation beyond the baseline level of THB32.80/USD. At the same time, the Bank of Thailand (BOT) may face challenges in conducting monetary policy if inflation begins to accelerate amid an economic slowdown.
In short, the situation remains highly uncertain. KResearch will continue to closely monitor developments and assess the ongoing impacts.
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