Thailand faces economic risk due to Middle East conflict

Thailand faces economic risk from the Middle East conflict as the situation increasingly pressures global energy markets. Thai authorities are reassessing growth projections and warning that economic stagnation could intensify.

Danucha Pichayanan, Secretary General of the National Economic and Social Development Council (NESDC), said the Middle East situation is putting growing pressure on global energy markets, causing crude oil to be volatile, even as signals of negotiations between the U.S. and Iran have appeared. NESDC has outlined four plausible scenarios to reassess Thailand’s economic trajectory this year.

Scenario analysis: oil prices, growth and inflation

1) Fighting spreads but ends within two months

In the first scenario, if fighting in the regions spreads but ends within the next two months, disruptions to fuel shipments through the Hormuz Strait and the Red Sea would be temporary and would not cause further damage to energy infrastructure.

Oil supply would gradually return to an average level of $85-95 per barrel within this year. However, financial markets would remain volatile, investors would shift toward safer assets, and the Thai baht would weaken.

Under this scenario, GDP growth would slow to 1.4% and inflation would rise to 2.7%. NESDC noted that the pre-conflict baseline forecast had Thailand’s economy growing about 2% this year.

2) Conflict widens and lasts 3–5 months

In the second scenario, if the conflict is expected to widen and last 3–5 months, energy production infrastructure could be damaged, leading to longer supply disruptions.

The average oil price would rise to $105-115 per barrel, global energy supply would be tightened significantly, inflation would increase, and industrial supply chains would be disrupted.

NESDC said many economies, including Thailand, could slip into a stagflation phase with slower growth and higher prices. In that case, GDP growth would fall to 0.9% and inflation would rise to 4.4%.

3) Conflict lasts 6–9 months

In a more severe third scenario, if the conflict lasts 6–9 months, energy supply from the Middle East would be hard to restore even after the conflict ends, pushing oil prices to $135-145 per barrel.

NESDC warned the global economy could fall into a severe recession, with widespread supply-chain disruptions, fragmented trade, and shortages of energy and food. In this scenario, the Thai economy would shrink sharply, with growth at 0.2% and inflation rising to 5.8%.

4) Worst case: conflict expands beyond the Middle East

In the worst-case scenario, if the conflict expands beyond the Middle East, the world would enter a global recession. NESDC said Thailand would then be unable to forecast oil prices, inflation, or growth.

Broader spillovers beyond oil

NESDC warned that the impact of the conflict would not be limited to oil prices. It would spill over into commodity costs and reduce purchasing power. As demand weakens while inflation climbs, the risk of economic stagnation becomes more evident. In addition, supply chain disruptions—particularly shortages of input materials—could continue to pressure manufacturing and industry.