While a significant drop in crude oil prices has been observed following indications of progress toward a peace agreement, many businesses are adopting a wait-and-see approach. They are prioritizing a reassessment of the economic outlook once tangible outcomes are evident and all trade restrictions are fully lifted.
Thailand’s fragile economy continues to be a point of concern, especially with unresolved structural challenges exacerbating the struggles of low-income households facing a surge in the cost of living.
Structural Challenges Persist Despite Falling Oil Prices
Amonthep Chawla, executive vice-president and head of research at CIMB Thai Bank, suggests that the recent decline in global oil prices could offer a welcome stimulus to Thailand’s economy. This is anticipated through easing inflationary pressures, bolstering household spending, and reducing operational costs for businesses and the vital tourism sector.
Oil prices, which had previously surpassed $100 per barrel and briefly neared $120 during a period of conflict and the closure of the critical Strait of Hormuz shipping lane, have now retreated to below $80. This shift is attributed to signs of progress in peace negotiations.
Mr. Amonthep predicts this downward trend may continue in the coming months, with oil prices likely settling in the $75-$80 per barrel range for the third quarter. This projection is based on increasing global oil supply and diminishing concerns over supply disruptions.
“For Thailand, a net oil importer, lower oil prices generally translate to positive news,” Mr. Amonthep stated. “They contribute to reducing inflationary pressures and preventing a sharp increase in the cost of living.”
The moderation in energy prices is also expected to alleviate concerns among central banks that have been closely monitoring inflation risks. Following recent meetings of the US Federal Reserve and the Bank of Japan, investors are keenly awaiting policymakers’ projections for future interest rate adjustments and their assessment of current economic conditions.
Domestically, the Bank of Thailand is scheduled for a policy meeting this week. Analysts will be scrutinizing not only the interest rate decision but also the unanimity of the vote and the central bank’s communication regarding its outlook on inflation and economic growth, according to Mr. Amonthep.
“Initial concerns that inflation might escalate to between 3% and 5% were largely driven by supply-side shocks and elevated energy prices. With oil prices now returning to pre-conflict levels, these fears have begun to subside,” he observed. “If oil prices continue their decline, inflation is likely to ease further, diminishing the necessity for tighter monetary policy.”
The benefits of reduced energy costs could extend beyond inflation. Businesses might experience relief from lower operating expenses, while consumers could see an improvement in their purchasing power if domestic fuel prices mirror global downward trends.
The tourism industry, a cornerstone of Thailand’s economy, may also see advantages. Lower fuel costs could decrease airline expenses and potentially support travel demand at a time when tourist arrivals are still below expected levels.
Underlying Economic Weaknesses Remain
However, Mr. Amonthep cautioned that lower oil prices alone are insufficient to resolve Thailand’s broader economic challenges. “Even if the impact of the conflict fades and oil prices return to normal levels, Thailand’s economy still faces structural issues,” he emphasized. “Economic growth remains sluggish, the purchasing power of lower-income households is fragile, and various risks continue to weigh on the economic outlook.”
Consequently, government support is deemed essential to maintain economic momentum and assist households in managing living costs, according to Mr. Amonthep. While the decline in oil prices is expected to offer short-term relief, policymakers must address the economy’s underlying weaknesses to foster a more robust and sustainable recovery.
Exporters Await Tangible Shipping Improvements
Dhanakorn Kasetrsuwan, chairman of the Thai National Shippers’ Council (TNSC), highlighted the peace agreement between the US and Iran as a significant positive development for the global economy, trade, and the maritime shipping industry. He noted that the agreement should help de-escalate tensions in the Middle East, a region of critical strategic importance for global logistics.
Despite this progress, exporters and maritime transport operators acknowledge that it is premature to anticipate an immediate return to normal shipping conditions through the Strait of Hormuz, even with a finalized agreement.
The implementation process is anticipated to unfold in phases, focusing on enhanced security protocols, demining operations, comprehensive shipping route inspections, and thorough risk assessments by insurers and shipping companies.
According to the TNSC, if all parties uphold the agreement, cargo transport through the Strait of Hormuz could gradually resume within one to two months following the signing. However, a full return to normal operations might require a longer timeframe, as global shipping lines and logistics providers will closely monitor regional stability before fully reinstating regular services.
In the short term, Mr. Dhanakorn indicated that importers and exporters will continue to encounter several challenges. War risk surcharges are expected to remain high and are unlikely to decrease until there is clear, sustained evidence of the agreement’s effective implementation.
Confidence among shipping providers is delicate, with many carriers maintaining stringent risk management measures in response to recent attacks on commercial vessels in the region. Furthermore, ongoing imbalances in the availability of containers and transport equipment persist.
“The crisis altered shipping routes and reduced services in some areas, disrupting the allocation of containers and vessel capacity. These issues cannot be resolved immediately,” he stated.
There is also a potential for congestion in the early stages of recovery, particularly if numerous exporters and importers simultaneously resume shipments to Middle Eastern markets as conditions improve. Such a surge in demand could exert upward pressure on freight rates in the short term, according to Mr. Dhanakorn.
“Major ports in the Persian Gulf, including Jebel Ali, Dammam, Doha, and Kuwait, could experience congestion as vessel arrivals and cargo volumes increase rapidly. Consequently, freight rates on Middle Eastern routes may remain firm or temporarily rise before gradually returning to equilibrium as shipping services and global supply chains normalize,” he explained.
Moreover, energy prices and transport costs remain highly sensitive to the progress of negotiations and political stability in the region.
“The TNSC views the ceasefire as a long-awaited positive development for global markets. However, the true measure of success will be the consistent implementation of its terms and the maintenance of long-term regional stability,” Mr. Dhanakorn commented. “Ongoing developments involving Israel, Lebanon, and other groups in the Middle East remain key factors that could impact the sustainability of any peace arrangement.”
If a peace deal cannot be reached, oil prices are likely to remain highly volatile and could increase further if oil exports or regional shipping activities are disrupted, he warned.
War risk insurance premiums would stay elevated, with the possibility of additional surcharges in affected areas. Shipping lines would continue to enforce strict risk management measures, including limiting voyages or rerouting vessels, according to the TNSC.
Higher bunker fuel and transport costs would be passed on to importers and exporters, with freight rates likely to remain above normal levels or rise further, particularly on routes connecting the Middle East, Europe, and Africa, the council noted.
“The most critical factor this year is whether all parties can keep their commitments and meaningfully reduce regional tensions. Confidence in these efforts will shape the direction of oil prices, logistics costs, insurance premiums, and freight rates in the months ahead,” Mr. Dhanakorn asserted.
Should a peace agreement fail to materialize, or if tensions in the Middle East persist, Thai exporters and logistics operators are prepared to navigate these uncertainties. In recent years, businesses have continuously adapted to disruptions stemming from wars, geopolitical conflicts, and global supply chain challenges, according to Mr. Dhanakorn.
“Exporters now prioritize cost control and risk management, such as securing vessel space in advance, managing inventory more efficiently, diversifying export markets, and preparing alternative transport plans in case of further disruptions to shipping routes or international logistics networks,” he detailed.
Gradual Recovery Expected for Energy Markets
If the ceasefire paves the way for an end to the conflict, the oil and gas market should take at least six months to recover, according to Pimjai Leeissaranukul, chairwoman of the Federation of Thai Industries (FTI).
“The energy situation should improve by early next year,” she indicated.
Energy prices are not expected to fall rapidly over the next six months, as oil production and refinery facilities were impacted by the conflict, said Mrs. Pimjai.
Amid ongoing energy volatility, she urged the government to maintain its oil price subsidy for the transport sector, with aid targeted at the most vulnerable groups.
Manufacturers are advised to control energy costs, while households are encouraged to remain vigilant in their conservation efforts, according to Mrs. Pimjai.
Panitarn Pavarolavidya, secretary-general of the FTI, called for consideration of alternative scenarios should the peace agreement encounter obstacles or fail to materialize.
“Don’t forget, US President Donald Trump can shift his mood within 24 hours,” he remarked, warning that such shifts could rapidly alter Washington’s policy on Middle East conflicts. “This morning I woke up to see whether Trump changed his mind.”
Cautious Optimism Amid Geopolitical Uncertainty
Nattaporn Triratanasirikul, deputy managing director of Kasikorn Research Center (K-Research), stated that even if the US and Iran reach a peace agreement, its terms and conditions must be thoroughly examined to ascertain the compliance capabilities of both sides.
Uncertainties are likely to remain elevated, impacting global asset prices, including energy, and are not expected to decline rapidly, she observed.
The ceasefire provides the US and Iran with a 60-day window to negotiate a permanent end to the conflict and resolve issues surrounding Iran’s nuclear program. Both parties must demonstrate a willingness to accept the conditions set by the other. Specifically, the US is demanding Iran halt uranium enrichment, while Iran is seeking the removal of US sanctions and the release of its frozen assets.
“The conditions set by each side appear difficult for the other to accept, so the situation requires close monitoring,” Ms. Nattaporn commented.
K-Research forecasts that the US may soften its stance on several issues, partly influenced by the upcoming midterm elections. The US appears keen to prevent further escalation before the elections to minimize political repercussions.
