Bank of Thailand Governor warns of 0.15% GDP hit as Middle East conflict stokes oil volatility
Governor Vitai Ratanakorn flags potential for 0.5% inflation spike and supply chain disruption via the Strait of Hormuz as Iran-US tensions escalate
- The Governor of the Bank of Thailand warns that escalating conflict in the Middle East could reduce the country's GDP by 0.1% to 0.15%.
- This forecast is based on a potential average annual increase of $10 per barrel in oil prices, which could also cause inflation to rise by 0.4% to 0.5%.
- Thailand is particularly vulnerable to oil volatility as it imports roughly 60% of its oil from the Middle East, all of which passes through the at-risk Strait of Hormuz.
- In anticipation of such economic shocks, the central bank has already taken pre-emptive action by cutting its policy rate to 1% to "cushion" the economy.
Governor Vitai Ratanakorn flags potential for 0.5% inflation spike and supply chain disruption via the Strait of Hormuz as Iran-US tensions escalate.
The Governor of the Bank of Thailand (BOT), Vitai Ratanakorn, has warned that the intensifying conflict between Iran and the United States is poised to destabilise global markets, with the potential to shave up to 0.15% off Thailand’s GDP.
Speaking on NBT’s "Why" programme on Tuesday, the Governor urged close monitoring of the situation, noting that global financial markets opened with significant volatility on the morning of 2 March 2026.
While the Monetary Policy Committee (MPC) had previously accounted for geopolitical risks, the Governor admitted the current escalation—marked by high-level assassinations and multi-country retaliations—has surpassed initial forecasts in both scale and severity.
The ‘Hormuz’ Risk Factor
A primary concern for the central bank is the potential closure of the Strait of Hormuz. With approximately 20–25% of global oil supplies transiting this corridor, any prolonged blockage would result in consequences far more severe than current models suggest.
"The critical issue is not merely the immediate price spike, but the depth and duration of that increase," Vitai stated.
He highlighted that Thailand, along with Japan, China, and South Korea, is particularly vulnerable due to a high reliance on Middle Eastern energy. Thailand currently imports roughly 60% of its oil from the UAE and Saudi Arabia, all of which must pass through the Strait.
Economic Projections and Inflation
The Governor outlined the specific fiscal pressures facing the kingdom:
GDP Contraction: While oil prices have already risen by $5–$7 per barrel, an average annual increase of $10 per barrel would likely reduce Thai GDP by 0.1–0.15%.
Inflationary Pressure: The impact on the consumer price index (CPI) is expected to be more acute. Since energy constitutes roughly 13% of the inflation basket, a $10 per barrel rise could push inflation up by 0.4–0.5%.
Proactive Monetary Intervention
Defending the central bank’s recent decision to slash the policy rate to 1% in February—earlier than the April or June timeline anticipated by analysts—the Governor described the move as a pre-emptive "cushioning" of the economy.
The Governor noted that while the Thai economy showed signs of recovery in Q4 2025, much of that growth was bolstered by short-term fiscal stimulus, such as the "Co-Payment Scheme" (Khon La Khrueang) scheme and EV tax incentives.
With the domestic growth forecast currently sitting at 1.9%—well below the nation's 2.7% potential—the BOT believes there is significant "policy space" to support long-term recovery and incentivise commercial lending amidst the burgeoning crisis.
