BANGKOK – Thailand’s economy is grappling with what economists term a “cost tsunami” as the Middle East conflict enters its third month following US and Israeli strikes on Iran on February 28. This escalation is driving up energy prices and exerting significant pressure on both businesses and households across the nation.
The Bank of Thailand has issued a warning, indicating that the impact will disproportionately affect vulnerable groups whose energy costs are escalating much faster than their incomes. Small and medium-sized enterprises (SMEs), which inherently possess less resilience than large corporations in terms of liquidity and technological adaptability, are also facing mounting pressure. This is particularly acute as crude oil, petrochemicals, and urea fertilisers continue to experience transport disruptions through the critical Strait of Hormuz.
Amonthep Chawla, assistant managing director and head of research at CIMB Thai Bank, highlighted that the surge in diesel prices and transport costs is permeating all goods, consequently pushing up living expenses. This forces households to curtail spending, which could ultimately weigh down the broader economy.
SMEs remain the most vulnerable segment, often unable to pass on increased costs to consumers. Should this situation persist, it risks escalating into a more severe economic crisis.
Pipat Luengnaruemitchai, chief economist at Kiatnakin Phatra Financial Group, noted that the cost surge is impacting key drivers of Thailand’s economy.
Tourism has suffered due to flight suspensions on Middle East routes, while elevated fuel costs have led to higher airfares. This could result in a reduction in visitor numbers in 2026 compared to 2025.
Exports are confronting rising shipping costs, encompassing higher freight rates, fees, and insurance premiums, all linked to the escalating energy prices.
Domestic consumption is also weakening as higher energy costs erode purchasing power, particularly for non-essential goods. This carries potential knock-on effects on debt repayment capabilities and industrial production.
High-Risk Sectors
The Office of the National Economic and Social Development Council (NESDC) has cautioned that Thailand could enter a second scenario where the conflict prolongs for three to five months, with oil prices potentially soaring to US$105–115 per barrel, thereby increasing the risk of stagflation.
Industries most susceptible to rising oil prices and their reliance on Middle East inputs include electricity generation, natural gas production, transport, marine and coastal fisheries, and petrochemicals.
Electricity generation faces energy costs that constitute 74.7% of its total costs, while natural gas production sees 44.0%. The transport sector incurs energy costs of 35.5% and transport costs of 10.1%, whereas marine and coastal fisheries contend with energy costs of 36.8%.
Petrochemical and plastic production also face significant exposure, with energy costs reaching 34.1%.
Medium-Risk Sectors
Industries with moderate exposure include water supply, cement production, wholesale and retail trade, plastic manufacturing, and fruit farming.
These sectors depend on imported refined oil and urea fertiliser, with energy costs ranging from 9.4% to 40% and transport costs reaching as high as 17.2% in wholesale trade.
Low-Risk Sectors
Lower-risk industries encompass steel, glass, paper, and automotive manufacturing, though they are not immune to rising costs.
Steel production has energy costs of 15.3%, while glass stands at 12.4% and paper at 11.2%. The automotive sector records energy costs of 7.3% but remains exposed to broader supply chain pressures.
Heavy Reliance on Imports
Thailand maintains a high dependency on Middle Eastern raw materials. Imports of naphtha, crucial for plastic production, account for 90.2% of its supply.
Urea fertiliser imports stand at 71.4%, primarily sourced from Saudi Arabia and Oman, directly affecting farmers in the fruit, rice, and crop sectors.
Helium imports constitute 56.8%, impacting electronics manufacturing and medical industries.
In the short term, policymakers are urged to concentrate on alleviating living costs and bolstering business liquidity. For the longer term, economists recommend accelerating the transition to renewable energy and increasing reliance on domestic production inputs, such as organic fertilisers and plastic recycling.
SCG Shifts to Daily Cost Management
The prevailing situation has compelled companies to adapt their strategies. SCG has temporarily halted operations at its olefins plant in Rayong to manage feedstock supplies, redirecting production to facilities in Map Ta Phut.
Thammasak Sethaudom, president of SCG, stated that the Middle East situation directly impacts the petrochemical industry, particularly shipping routes through the Strait of Hormuz, a vital global choke point. SCG relies on this route for 50–60% of its raw materials, intensifying pressure on freight and energy costs.
The company is responding by diversifying supply sources, managing inventory in real-time, and prioritising strategic domestic customers, all while operating under a “war room” approach to manage escalating production costs.
Transport Sector Raises Fees
Thongyu Kongkhan, president of the Land Transport Federation of Thailand, reported that rising diesel prices have compelled transport operators to increase service fees.
The initial adjustment occurred on April 1, when diesel prices reached 40 baht per litre, followed by a second increase on April 6, when prices rose to 50 baht per litre. However, many operators are still maintaining current rates to avoid passing costs directly to customers.
Operators are also facing increased costs for engine oil, lubricants, filters, and tyres, which have surged by 20–25%. Concurrently, demand for transport and logistics services has fallen by 15–20% compared to last year, particularly in the agriculture and construction sectors.
Double A Seeks New Channels to Reduce Risk
Jatupon Dumnernchanvanit, executive director of Double A (1991) Plc, acknowledged that the Middle East conflict has pushed up operating costs, though the company has managed to absorb the impact over the past two months.
The company is adapting by exploring new business channels and actively managing risks related to freight costs, currency volatility, and supply chain disruptions.
Transport costs, especially for wood and paper, remain a significant burden. Double A has invested in 215 electric trucks and plans further expansion to reduce its reliance on oil-based energy.
“The shift to EV trucks is a winning formula,” he asserted, adding that the company also generates its own electricity to enhance cost competitiveness and sustainability.
Double A exports to over 130 countries. With rising shipping costs and extended lead times, it is dispatching products earlier to build inventory for distributors, while also utilising alternative transport routes.
Despite higher costs, the company has maintained domestic paper prices and ensured sufficient supply.
Lion Launches Cost Transformation
Prasert Suruttanamethakul, managing director of Lion (Thailand) Co Ltd, stated that production costs have surged, particularly for detergents, dishwashing liquid, and shower cream.
Petrochemical-based inputs such as Linear Alkyl Benzene (LAB) have risen by more than 100%, while plastic packaging costs have increased by 30%. Palm oil-based inputs have also become more expensive.
Despite the pressure, the company has no immediate plans to raise prices, instead focusing on internal efficiency measures and launching a “Cost Transformation” initiative.
Lion has set a target of achieving 30 billion baht in sales by 2030, with cost restructuring and agile management identified as key to maintaining competitiveness.
Measures include reducing packaging materials and cutting plastic use by 40 tonnes per year.
Businesses Absorb Rising Costs
Other companies, including Farmhouse, Mama, EssilorLuxottica, Onetouch, BJC, Big C, and LG Electronics, have indicated that they are working to absorb rising costs while diligently managing supply chains to prevent product shortages.
This situation underscores how escalating energy costs are cascading throughout Thailand’s economy, impacting every facet from production and transport to consumer prices and long-term competitiveness.
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