PM seeks to mitigate potential economic impacts from Israel-Hamas conflict

Danucha Pichayanan, secretary-general of the National Economic and Social Development Council, said the NESDC is currently assessing the impact of this conflict on the Thai economy, noting that geopolitical situation had not been factored into the risk assessment prepared by NESDC for this year.

A preliminary assessment indicates that the current impact on the Thai economy is primarily seen in the increase in oil prices, although this is not as significant as during the conflict between Russia and Ukraine, which led to a surge in crude oil, natural gas, and fertiliser prices, affecting the global and Thai economies.

One aspect that must be closely monitored is whether the war will escalate and, if it does, to what extent and which countries might join each side. If the conflict expands significantly, it could have substantial impacts on global economies. However, if the conflict does not escalate to any great degree, the economic impact might remain limited, said Danucha.

Deputy Finance Minister Julapun Amornvivat stated that the Prime Minister has assigned the Finance Ministry to assess the economic impact of the conflict in Israel.

Although the Finance Ministry does not have direct jurisdiction over international economics, it has entrusted the Fiscal Policy Office (FPO) to study the impacts on Thailand, including the effects on oil prices. Currently, there are three main concerns: Whether the conflict will escalate further; whether the issue will transform into a regional problem; and the stability of global energy prices.

Any escalation will affect Thailand to some extent, as its economy is relatively vulnerable. While consumption might increase, the rapid growth of the US economy has led to higher interest rates, with the Monetary Policy Committee (MPC) raising the policy rate to 2.50% annually. This has caused the Thai baht to depreciate by 0.3%, indicating that the Thai economy might be slowing down. Therefore, the potential impact of an escalating conflict needs to be analysed closely.

Regarding the significant decline in the Thai stock index, the Finance Ministry has not intervened and is closely monitoring the situation. However, the interest rate differential between Thailand and the US is affecting Thailand, causing capital outflows from both the stock and bond markets. The unstable situation in Israel and Palestine further contributes to this.

As for managing energy prices in the country, extending the diesel tax measure and reducing gasoline tax have been proposed, but if these taxes are reduced, it will undoubtedly impact revenue collection. However, it is believed that if it is necessary, the government can manage it. Currently, the government has exceeded its tax collection targets, so it is unlikely to affect revenue collection at the end of the year.

For his part, Deputy Prime Minister and Energy Minister Peeraphan Salirathvipak stated that the Energy Ministry is closely monitoring the situation but noted that, in any case, the price of Thailand’s imports will follow the global market price.

The structure of oil prices in Thailand is not based on the conflict, but rather on the refinery prices, which are significantly higher than the global market prices. These include taxes, refining costs, and marketing costs. The refinery price is the starting reference point, taking into account the oil companies' cost and the refining cost. Import cost averages must therefore be studied and expenses and profits clearly allocated to the refinery and service stations.

Prasert Sinsukprasert, the Energy Ministry’s Permanent Secretary, added that the ministry is closely monitoring oil and fuel prices. The public does not need to worry about oil shortages because Thailand currently has 70 days' worth of crude oil reserves, divided into 45 days of reserves within the country (3.91billion litres) and another 25 days of crude oil reserves in transit (2.18 billion litres). Thailand currently imports 57% of its crude oil needs from the Middle East and 33% of LNG from various sources.

Industry news suggests that oil traders are closely watching the direction of oil prices under the Israel-Hamas conflict, speculating how much the conflict will escalate. The continuous severity of the situation could escalate into a regional conflict between the Middle East and Israel, as Hamas has many regional allies, including Iran, Syria, and Hezbollah, which do not agree with the policies of the United States towards the Middle East and the support for Israel.

It is believed that if the escalation continues, it will significantly affect the global population because the Middle East is a major producer and exporter of oil globally and controls the oil export routes. It could also impact energy security and lead to higher oil prices. While for now, the conflict is limited to Israel and Palestine, the possibility of escalation cannot be discounted, Prasert said.