The Iran war has exposed Thailand’s reliance on Middle Eastern energy and fertiliser imports and points to the need for a long-term economic strategy if it is to become a regional hub for green industries and advanced technologies.
The 2026 US–Israel war on Iran and the closure of the Strait of Hormuz are posing an unprecedented challenge to Thailand’s energy security and economy. While the country has contained the immediate economic fallout to some extent, the crisis highlights the need for a coherent long-term strategy to diversify supply chains, strengthen energy security and accelerate economic restructuring.
Thailand has been historically reliant on Middle Eastern oil, gas and fertilisers, with approximately 60 per cent of its crude oil imports, 90 per cent of light oils, 70 per cent of urea and 28 per cent of natural gas originating from the Middle East. Retail oil prices rose by roughly 34 per cent on average across all fuel types between January and May 2026, while domestic urea fertiliser prices surged by 50–75 per cent over the same period. Year-on-year consumer and producer price inflation reached 2.4 and 7.2 per cent respectively in June 2026, driven by price increases in transportation and communication, fuel and certain food products including rice, flour, flour products and ready-to-eat food.
Given the unpredictability of a successful agreement between the US and Iran, Thailand’s ability to mitigate the undesirable effects of this external shock most critically depends on the responses of the government and private sector.
The Thai government has managed the short-term impacts to some extent. Core inflation – excluding raw food and energy – edged up only marginally from 0.6 per cent in January to 0.9 per cent in May and 1.2 per cent in June 2026, while producer prices in many sectors have yet to rise. Thailand’s GDP for the first quarter of 2026 – 2.8 per cent year-on-year – exceeded expectations, supported by both private investment and exports. Though the country’s fiscal space has been relatively constrained – with public debts approaching 70 per cent of GDP – there remains scope to use monetary and exchange rate policy to address inflationary pressures and support economic growth.
But several aspects of Bangkok’s policy mix have attracted concerns. The abrupt reduction of Oil Fuel Fund subsidies was criticised as favouring selected oil refineries and government-affiliated groups, while support for the most vulnerable has been delayed. The effectiveness of the co-payment scheme, which targets 30 million citizens as part of the 400 billion baht (US$12 billion) emergency loan decree approved on 5 May 2026, is questionable given its broad-based design and possible leakages through import channels like China. Moreover, tax incentives to stimulate electric vehicle demand without a coherent plan to develop domestic production risk undermining Thailand’s ambition to become a regional green-vehicle hub.
Concrete mid- to long-term plans to diversify suppliers and develop an appropriate energy and fertiliser strategy remain unclear. Bangkok has announced its intention to source oil through partnerships with the United States, Angola and Russia, but has not yet released any details. The government has also earmarked 200 billion baht (US$6 billion) from the emergency loan decree for economic restructuring to accelerate Thailand’s green transition and upgrade workforce skills. Yet the absence of specific and coherent plans for the actual use of allocated funds risks producing fragmented and overlapping initiatives that fail to achieve its objectives.
Support for economic restructuring should not be a one-off measure through the emergency loan, but rather a long-term plan with continuous budgetary support. The government should align the emergency plan with its existing ‘Thailand 4.0’ strategy on digital economy, advanced manufacturing and green technologies. While Thailand aims to position itself as a regional hub for artificial intelligence, data centres, semiconductors and green vehicles, this technology boom would place significant pressures on the nation’s energy infrastructure. A coherent strategy for energy infrastructure – including solar farms, bioenergy and hydroelectric power – is essential to ensure energy supply resilience.
Water management, including wastewater reuse and water treatment, must also feature prominently in the agenda, since these activities are water-intensive – particularly those involving cooling systems. Water shortages continue to threaten Thailand’s agriculture sector, which still employs nearly one-third of the population despite a decline in its GDP share due to structural transformation. To strengthen the sector’s resilience to future shocks, research and development on higher-yield, less fertiliser-dependent crop varieties and on alternative fertilisers should be fast-tracked.
The government should also develop a clear plan for the use of the Oil Fuel Fund in managing and restructuring domestic oil and gas prices. Once the immediate price shock subsides, it may be opportune to carefully consider a gradual phase-out of Oil Fuel Fund subsidies and reassess Thailand’s appropriate fuel price structure. Such a review could be conducted alongside a broader reform of the country’s other revenue tools such as the value-added tax – with appropriate rebates for low-income households – with the aim of raising government revenue, reducing inequality and easing growing concerns about public debt and fiscal sustainability.
Republished from East Asia Forum
Juthathip Jongwanich
Juthathip Jongwanich is Associate Professor in the Faculty of Economics, Thammasat University, Bangkok, Thailand. Her research interests span international economics, capital mobility, multinational enterprises, international macroeconomics and international production networks. She also serves as a consultant to various international organisations and has published in several leading peer-reviewed journals.