Five shockwaves from Iran war threaten Thai economy

Thailand is facing five major economic risks from the prolonged Iran war, as higher energy prices and disrupted Middle East supply routes begin to feed through to industry, agriculture, tourism, exports and financial markets, the National Economic and Social Development Council has warned.

Danucha Pichayanan, secretary-general of the NESDC, said the Middle East conflict, which began on February 28, had now entered its fourth month and remained highly uncertain despite intermittent reports of peace talks and possible agreements.

He said the damage to oil and energy infrastructure in the region could continue to affect global energy prices for as long as a year, even if attacks eventually stop.

The conflict has already disrupted strategic areas and oil infrastructure, including the closure of the Strait of Hormuz, a key route for global energy shipments.

The strait handles about 40% of the world’s crude oil shipments and 20% of global natural gas shipments, creating major risks for maritime transport and Thailand’s energy security.

Thailand remains heavily reliant on Middle East energy imports. The NESDC said 46.8% of Thailand’s energy imports come from the region, including 59.0% of crude oil and 24% of natural gas.

That exposure is pushing domestic fuel prices higher through market mechanisms.

The Oil Fuel Fund was already in deficit by 63.746 billion baht as of May 17, while domestic fuel prices remained elevated on June 3, with diesel at 40.70 baht per litre, gasohol 91 at 42.53 baht per litre and gasohol 95 at 42.90 baht per litre.

The rise in oil prices has also filtered into inflation. Thailand’s inflation rate accelerated to 2.8% in April, the highest level in more than a year.

The NESDC said Thailand is more exposed than many regional economies because energy accounts for 14% of its inflation basket.

Higher fuel costs are also being passed on to production sectors with heavy oil use, including fisheries, mining and quarrying, chemicals, electricity and water supply, and basic metal production.

Transport-intensive sectors are also under pressure, including chemical fertiliser production, construction, wholesale trade, concrete products and cement manufacturing.

The NESDC said higher costs are likely to be passed on to consumers through more expensive goods and services.

Petrochemical supply risks

The Middle East conflict also threatens key imported raw materials, especially oil and natural gas-related products used in Thailand’s industrial supply chain.

Thailand imports 90.20% of its naphtha from the Middle East, making it highly exposed to disruption.

Other raw materials with significant Middle East import shares include helium at 56.80%, propane at 43.30%, ethyl at 22.20% and propylene at 1.20%.

1. Industry faces the strongest direct impact

The NESDC said the manufacturing sector is likely to suffer the most direct and severe impact, particularly industries that rely heavily on petroleum and petrochemical raw materials.

The impact is expected to move through the economy from upstream industries to midstream and downstream production.

At the upstream level, natural gas separation and electricity generation are considered high-risk because they depend directly on imported crude oil and natural gas.

Offshore and coastal fisheries, petroleum extraction and natural gas production face medium-level risk because of their dependence on fuel for vessels and drilling operations.

Midstream industries are also exposed because they use upstream raw materials to produce semi-finished goods and industrial inputs.

High-risk sectors include oil refining, plastic products, synthetic rubber and petrochemicals, all of which rely on important petrochemical inputs from the Middle East.

Medium-risk midstream sectors include paints, varnishes and lacquers, which could face shortages of chemical and petrochemical raw materials.

Downstream manufacturers, including automotive producers and makers of household and office electrical appliances, may see their export competitiveness weaken because of higher costs for parts, plastic packaging and transport.

2. Transport and services face rising costs

Transport-related services are another vulnerable area, particularly those linked to distribution and exports.

Coastal and water transport activities face high risk because of the direct impact of higher fuel prices.

Medium-risk areas include land passenger transport, air transport, sea transport, land freight and transport-related services.

Business services, wholesale trade, education services and public construction services are considered lower-risk but could still face indirect pressure from higher energy prices and wider economic uncertainty.

3. Farm costs could rise as fertiliser stocks run down

The agricultural sector is exposed through possible shortages of raw materials used to make chemical fertiliser, as well as higher prices for fertiliser and pesticides.

Thailand imports 71.4% of its urea fertiliser from the Middle East. The country also relies on imported fertilisers and pesticides for 40.84% of total use.

As of mid-March 2026, Thailand had 6.5 million sacks, or 0.32 million tonnes, of urea fertiliser in stock. Another 2 million sacks, or 0.10 million tonnes, were imported in April, bringing total available stock to 8.5 million sacks, or 0.42 million tonnes.

The NESDC said this would be enough only until the end of August, raising concerns over fertiliser shortages and the need to find alternative supply sources.

Based on 2021 data, the five production areas most dependent on imported fertilisers and pesticides were fruit farming, accounting for 25.17% of total imports; rice farming, 24.42%; vegetable farming, 17.32%; rubber plantations, 8.63%; and fertiliser and pesticide production, 8.63%.

4. Weaker Middle East demand hits exports

The NESDC also warned that a prolonged conflict could weaken purchasing power in the Middle East and affect Thai exports.

In 2025, Thailand’s exports to the Middle East were valued at 339.635 billion dollars, accounting for 3.7% of total Thai exports.

Key export items in March 2026 included automobiles, equipment and parts at 35.4%; gems and jewellery at 10.7%; and air-conditioners and parts at 7.8%.

Imports from the Middle East were valued at 344.943 billion dollars, or 8.1% of Thailand’s total imports.

Major imported goods in March included gems, jewellery, silver bars and gold at 45.0%; crude oil at 42.8%; and natural gas at 5.2%.

Thai exports to the Middle East contracted for the first time in four months in March 2026, falling 57.1% after expanding 19.4% in the previous month.

The sharpest declines were seen in automobiles, equipment and parts, down 53.5%; gems and jewellery, down 67.5%; air-conditioners and parts, down 41.4%; rubber products, down 55.1%; canned and processed seafood, down 47.5%; and computers, equipment and parts, down 15.9%.

5. Middle East tourism revenue weakens

Tourism is also being affected. In 2025, Middle East tourists accounted for 3.7% of all foreign visitors to Thailand and were considered a high-spending group.

However, arrivals from the region fell sharply in March and April 2026, dropping to 32,815 and 45,990 visitors respectively. They accounted for only 0.03% and 0.05% of total foreign arrivals in those months, down 37.3% and 47.0% year on year.

Tourism revenue from Middle East visitors in the first quarter of 2026 stood at 17.6 billion baht, accounting for 3.87% of total foreign tourism revenue, and was down 6.4%.

Financial markets turn risk-off

The fifth area of concern is financial and capital market volatility.

The NESDC said investors have shifted towards lower-risk assets, particularly US dollar-denominated assets, strengthening the dollar and putting pressure on regional currencies, including the baht.

Stock markets initially weakened as investors moved away from risk assets, while government bond yields rose because of inflation concerns.

Higher bond yields could increase government borrowing costs and reduce fiscal policy space in many countries, including Thailand.

At the same time, stronger inflation pressure may lead major central banks to keep monetary policy tight, or hold interest rates high for longer.

The NESDC warned that financial markets could become tighter in the period ahead, creating further pressure on emerging markets that are vulnerable to currency depreciation, capital outflows and higher borrowing costs.

Danucha said the government had tried to ease the impact through energy price subsidies and tax measures.

However, if the conflict becomes prolonged, Thailand could face greater limits in its policy response because its fiscal space is already low, making it harder to manage a long-running crisis.

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