Thailand plans diesel subsidy cuts as fund deficit could hit 100bn baht in October

Energy concerns have resurfaced in Thailand as the Middle East war becomes more complex. Traders are assessing regional supply risks, particularly the shutdown of a major Saudi Arabian oil pipeline following an attack, while shipping conditions through the Strait of Hormuz have failed to improve. Global crude prices remain above US$100 a barrel.

Diesel prices last closed above US$195 a barrel and are expected to remain elevated towards the end of 2026.

Retail fuel prices in Thailand have meanwhile risen across all categories. A particularly sharp increase of 0.85 baht a litre for petrol, gasohol and diesel took effect on September 15, prompting close monitoring by the Energy Ministry.

Wattanapong Kurovat, director-general of the Energy Policy and Planning Office (EPPO), said the ministry was preparing measures to manage energy prices. Renewed geopolitical tensions and clashes in the Middle East, particularly around the Strait of Hormuz, were affecting global markets and required action to limit the impact on the public.

International prices for crude oil, refined fuels and natural gas have risen rapidly in recent days, with particularly steep increases in spot-market liquefied natural gas (LNG).

Wattanapong said Thailand, alongside other economies in Asia, Europe and the Americas, continued to depend on fossil fuels such as oil and natural gas during the energy transition. Global price volatility therefore remained a major challenge requiring close attention.

 

Energy Ministry turns to long-term LNG contracts and clean power

The Energy Ministry has outlined two approaches to limit the effect of expensive spot LNG on electricity generation costs and household bills:

1. Make greater use of long-term LNG contracts. Accelerate procurement and maximise supplies under long-term agreements, whose pricing structures are more stable and less expensive than highly volatile spot-market prices.
2. Purchase additional clean electricity. Consider buying more electricity from clean energy sources to supplement the grid and reduce imports of costly spot LNG.

Oil Fuel Fund deficit threatens further pump price rises

EPPO and the Energy 

Ministry are using the Oil Fuel Fund to stabilise domestic retail prices and ease household living costs, with officials putting the fund’s deficit at 80 billion baht.

EPPO is trying to prevent the deficit from reaching 100 billion baht. However, continued increases in global crude prices could require some costs to be passed on through higher domestic pump prices, both to send a market signal and to prevent the fund’s financial position from becoming unmanageable.

The Oil Fuel Fund is also supporting biofuel use to reduce imports of expensive crude oil and refined products.

Oil Fuel Fund spends 770 million baht a day on subsidies

Pornchai Jirakulpaisan, director of policy and planning at the Oil Fuel Fund Office (OFFO), said international fuel prices were likely to remain high for some time, with diesel last closing above US$195 a barrel and the office expecting international fuel prices of US$180–190 a barrel towards the end of 2026.

The Oil Fuel Fund is spending 770 million baht a day, or about 23 billion baht a month, to prevent domestic prices from rising so quickly that they cause severe hardship, Pornchai said. The daily expenditure comprises more than 700 million baht for oil products and more than 10 million baht for liquefied petroleum gas (LPG), or cooking gas.

 

Oil Fuel Fund prepares gradual subsidy withdrawal

OFFO puts the fund’s deficit at 80 billion baht and warns it could reach 100 billion baht in October 2026. The office has prepared measures under its crisis response plan, particularly adjustments to subsidy rates through a gradual withdrawal of support.

Pornchai said subsidy reductions would be handled carefully to prevent excessive increases in domestic retail prices. Diesel, previously capped at 30 baht a litre, has already reached 40 baht and could rise further depending on market conditions. The Oil Fuel Fund Management Committee has met every evening since the war began to monitor developments.

Oil Fuel Fund considers further borrowing to ease financial pressure

Additional borrowing is another option under OFFO’s crisis response plan. On April 28, 2026, the Cabinet approved a borrowing facility of 20 billion baht, of which 10 billion baht has been drawn, leaving another 10 billion baht available.

A further round of borrowing would depend on government direction and policy. Pornchai said the government would need to help shoulder some of the burden because reduced subsidies would increase household living costs. Other measures to cushion the public were being studied alongside the financing options.

Pornchai said the transitional subsidy arrangements under Section 55 of the Oil Fuel Fund Act 2019 would expire on September 24, 2026. Support under those arrangements would no longer be available in normal conditions, although the fund could still intervene during a crisis.

Biofuels fall within the definition of fuel under Section 3 of the Act and can receive support during a crisis, Pornchai said. Although blending biofuels can increase costs, it reduces dependence on imported fuel and keeps more money within Thailand. OFFO is exploring ways to lower costs while maintaining fuel quality and supporting farmers’ incomes.

Oil Fuel Fund keeps LPG accounts separate from oil

The Oil Fuel Fund manages oil and LPG through separate accounts, known as Fund 1 and Fund 2, to distinguish their costs and sales. LPG used by industry, transport operators and households remains within a single LPG account.

Pornchai attributed the recent increase in LPG prices to the US–Iran war. Under normal price conditions, the balance between the two accounts can be positive and generate income for the fund. The retail price of LPG remains capped at 423 baht per 15-kilogram cylinder, a level the office considers manageable.

Pornchai maintained that Thai fuel prices were not excessively high compared with other members of the Association of Southeast Asian Nations (ASEAN), placing diesel third or fourth in the regional comparison. Thai diesel was less than one baht a litre more expensive than Malaysia’s and was not dearer than in most countries, he said. Prices were higher than in oil-producing Brunei, while Thailand’s position relative to Vietnam and Malaysia fluctuated.

High fuel prices threaten Thailand’s economic recovery

Beyond fuel prices themselves, Pornchai identified a possible economic slowdown as the greatest concern. Investment is essential to economic activity, while oil is a major production input. Excessively high prices would weaken purchasing power and production, making continued price support necessary to help sustain the economy.

Pornchai said conserving energy and planning consumption offered the most sustainable way forward. Thailand’s dependence on imported energy would impose a heavy burden without savings, while cooperation across all sectors could help the country weather the crisis and support economic recovery.

Suphajee warns renewed crisis could be more severe

Deputy Prime Minister and Commerce Minister Suphajee Suthumpun warned that renewed geopolitical risks could have a more severe impact, citing further restrictions on passage through the Strait of Hormuz and rising oil prices. Suphajee said Prime Minister Anutin Charnvirakul understood domestic economic conditions and had asked Deputy Prime Minister and Finance Minister Ekniti Nitithanprapas to consider extending the Thais Help Thais Plus scheme.

“Economic stimulus measures are not limited to Thais Help Thais Plus. There will be other measures too, because this crisis could be more severe: we are still bruised from the first round and have yet to recover,” Suphajee said.

Bangkok Biznews reported that a two-month extension, covering October and November 2026, was under consideration after the first phase ends in September. The Finance Ministry was assessing whether monthly assistance should remain at 1,000 baht.

Source: Bangkokbiznews