Iran war hits global economy, could shave up to 1% off Thailand’s GDP, analysts warn

Former commerce and energy minister Narongchai Akrasanee said the Iran war is deeply concerning for Thailand, with oil prices already surging to around US$110 a barrel, leaving the country hard-pressed to avoid fallout because it relies heavily on imported oil and natural gas.

He said higher energy costs would feed through to prices of goods in the period ahead. While the Thai government may be able to cushion the impact for a time, he warned the support would be constrained by fiscal limits and the fact that Thailand remains dependent on imported energy.

“We have limits on subsidising fuel prices. In the past, the Oil Fuel Fund ran a deficit of more than 100 billion baht. If that happens again, it could reach a point where the government has to stop providing support. That would certainly lead to higher prices for everyday goods,” he said.

Narongchai added that if the war drags on, one of the biggest concerns is the risk of terrorism spreading globally, given Iran’s influence and international networks. That could disrupt investment and travel, heighten security fears, and affect sectors such as hotels and tourism.

He also said financial markets could face significant volatility. A prolonged conflict could strain debt-servicing capacity and confidence in US government bonds, pushing prices down and sending global interest rates higher—dragging on markets worldwide as asset values and collateral weaken.

Narongchai said Thailand’s economic outlook had previously been expected to improve, citing the professionalism of the current government team, but added that the crisis would force the government to work “many times harder”.

“Volatility will be with us for a long time, and this conflict is likely to last longer than many people think. Compared with the Russia-Ukraine war, the Middle East conflict has a more severe impact through energy prices because huge volumes of oil must be shipped through this region,” he said.

He said it remains unclear whether the situation could widen into a broader global conflict, as this would depend in part on decisions by major powers such as China and Russia, but warned the risks are real if tensions escalate.

Oil at US$110 is a ‘danger zone’

Kobsak Pootrakool, deputy managing director of Bangkok Bank and chairman of the Federation of Thai Capital Market Organisations (FETCO), said oil at around US$110 a barrel marks the beginning of a danger zone and needs close monitoring, particularly if the war becomes protracted.

He said the impact should be assessed against the Russia–Ukraine war, which similarly pushed up oil and energy-linked commodities. During that period, oil rose to around US$120-130 a barrel and stayed there for about four months before gradually easing, creating a global economic shock.

For Thailand, Kobsak said the effects would come through at least two or three channels. First is higher oil prices raising transport costs, domestic energy costs and retail fuel prices. The next is inflation: as prices rise, central banks may tighten policy—potentially raising interest rates to curb inflation—putting downward pressure on asset prices globally.

He warned that the world’s financial system still has accumulated vulnerabilities. If the US Federal Reserve sees inflation clearly returning as a problem, it could trigger renewed tightening that would hit global assets again.

“What worries me most is if the conflict escalates further and begins striking oil rigs, refineries and freshwater storage facilities. The impacts would be far more severe,” he said.

Kobsak said Thailand could again be forced to draw heavily on the Oil Fuel Fund to stabilise domestic energy prices, as it did previously when the fund was used to the tune of around 200 billion baht. However, he cautioned that Thailand faces tighter fiscal constraints and limited room for additional borrowing, as public debt is near its ceiling.

Looking at past experience, he said the Russia–Ukraine war shaved around 0.5-1% off Thailand’s economy, and warned a similar hit is possible again. If the conflict continues, he added, oil returning to US$120 a barrel is a very real possibility.

Baht weakens fastest in the region

Wachirawat Banchuen, a senior financial markets strategist at Siam Commercial Bank Plc, said the baht has weakened past 32.00 per US dollar as investors worry that the war’s impact on energy markets will be more severe than expected.

Brent crude has surged above US$115 a barrel after reports that Middle Eastern producers such as the UAE, Kuwait and Iraq cut oil output, following the Strait of Hormuz being closed for more than a week.

The key factor to watch from here is the oil price trend. If Brent remains in the US$110-120 a barrel range, the baht could trade around 32.00-32.50, a scenario in which the conflict is not seen intensifying significantly further.

However, if Brent rises to around US$130 a barrel and the US dollar index (DXY) climbs above 105, the baht could weaken towards 33.00.

On the domestic front, he said government measures to cushion local fuel prices could help reduce the impact on Thailand’s economy and provide some support for sentiment towards the baht.

Osotspa warns US$150 oil could cut profit by 1-2%

Mookda Pairatchavet, Chief Executive Officer of Osotspa Plc (OSP), said the fighting involving the US, Israel and Iran has pushed oil prices higher and could raise the company’s production costs—especially the cost of energy, including liquefied natural gas (LNG) used for its glass-bottle packaging plants.

She said the company has already managed some of the risk by signing two contracts with PTT to lock in energy prices—one running through 2028 and another through 2029—with price adjustments tied to energy pricing formulas. Osotspa is currently operating two glass furnaces, down from seven previously, which has also improved efficiency and management.

The company is closely tracking oil prices and assessing business impacts. If oil climbs to US$130 a barrel and rises to no more than US$150, it estimates costs would increase by 20% and profits could fall by 1-2%.

Osotspa is also modelling an extreme scenario where oil reaches US$200 a barrel, but it does not expect prices to rise beyond US$150.

“We are assessing oil prices in the same way as during the Russia-Ukraine conflict in 2023, when oil quickly spiked to US$130 a barrel but fell back quickly because the situation did not drag on. We also expect the US–Iran fighting will not be prolonged,” she said.

She added that shipping through the Strait of Hormuz remains possible, but requires escorted convoys. Overall, Osotspa is watching whether oil stays below US$150, which it says would lift costs by 20%, while energy costs account for about 20% of its total cost base.

It may be too early to assess impacts on product prices and inflation, she said, but the company will hold its product prices steady and confirmed it has no policy to raise prices.

However, she acknowledged the Middle East conflict has affected Osotspa’s export plans—particularly for personal care products planned for the Middle East market, which may be delayed. Logistics for overseas shipments have also been impacted, with detours required and shipping costs rising by 20%.

“Logistics must take slightly longer routes. For products sold in the Middle East, we benchmark pricing against Europe—selling prices are higher than in Asia—so profitability remains solid. We hope the US-Iran conflict will be short-lived. In any case, our overseas market base is still small. If the timing is not right, we will not go. We will choose what is best,” she said.