Analysis: Oil war shock is driving up Thailand’s costs and testing state intervention

Thailand is now feeling the full economic aftershock of the war that began when the United States and Israel launched attacks on Iran on February 28, 2026. By March 21, 2026, the conflict had already escalated beyond geopolitics into a full-blown global energy shock, with the closure of the Strait of Hormuz disrupting a critical artery of world oil transport and sending Brent crude above US$100 a barrel, peaking at US$126 in early March.

For Thailand, the impact has not arrived in the form of an immediate supply collapse, but through a widening chain of higher costs. Fuel prices, transport expenses, raw material shortages and logistics disruption are now feeding into household budgets and business operations alike, turning an overseas conflict into a domestic cost-of-living problem.

From geopolitical conflict to energy shock

The first transmission channel has been retail fuel prices. Petrol and gasohol prices rose gradually in early March, increasing by a cumulative 2-3 baht per litre in line with global market movements and the government’s managed pricing approach.

Diesel, the main fuel used by the transport sector, was initially held near 30 baht per litre, at 29.94 baht, before rising by another 70 satang per litre on March 21. The latest price moved to roughly 31.14 baht per litre, but only because the state continued to intervene heavily through the Oil Fuel Fund. Without price controls and compensation, diesel would have climbed to 54.19 baht per litre.

That gap captures the scale of the pressure. Thailand has not been shielded from the energy shock. Rather, the shock has been partially absorbed by the state.

Diesel cap slows pain but deepens fiscal strain

The government’s decision to cap diesel has helped contain the immediate blow to transport operators, manufacturers and consumers. But the policy is becoming increasingly costly.

By mid-March, the Oil Fuel Fund had already slipped more than 12 billion baht into deficit, and the burden is expected to rise further if oil prices remain elevated. The state is preparing to use a borrowing mechanism of up to 40 billion baht to stabilise domestic prices.

This means the government is buying time, not solving the underlying problem. As long as global oil remains high, the fiscal cost of cushioning consumers will continue to build. If the conflict drags on, the question will become whether the state can still afford to defend prices at current levels.

Industry, exports and farming face rising costs

The deeper concern lies in the wider economy, where higher energy costs are already spreading through supply chains.

The petrochemical sector has been hit particularly hard. Transport disruption has tightened supplies of feedstocks such as naphtha and propane, forcing some olefins plants to suspend operations. Domestic plastic resin prices have risen by 30-40% within a matter of weeks, feeding pressure into downstream industries.

That has already begun to affect consumer goods manufacturers. Instant noodle producers such as Mama are facing signs of a shortage in plastic film used for packaging, while TOA reportedly has raw material stocks left for only 20 days.

Exporters are also under strain. The closure of the Strait of Hormuz and rising insecurity in the Red Sea have pushed marine insurance premiums up by four to six times. Major shipping lines have rerouted vessels around the Cape of Good Hope, adding 10-15 days to delivery times and sharply increasing logistics costs. For Thai exporters, especially those serving Europe, that means weaker competitiveness just as external demand is already under pressure.

Agriculture is facing a parallel squeeze. Imports of chemical fertiliser from the Middle East are tightening, raising cultivation costs and threatening the next production cycle. Although the government is trying to diversify import sources, replacement supplies cannot be secured in full in the short term.

State controls buy time, but not relief

To contain the spillover, the government has tightened controls on 59 products, including fresh food, agricultural goods and construction materials. Those found profiteering or hoarding face penalties of up to seven years in prison. Sensitive goods such as bottled palm oil are also being closely monitored, even though formal price increases have not yet been approved.

In energy policy, the government insists Thailand still has enough oil reserves for 96-104 days and says it is negotiating for additional crude imports from Russia to reduce supply risk. It is also accelerating the use of cheaper alternative fuels, including plans to adjust blending ratios for petrol products such as E10, E20 and E85, and diesel products such as B7, B10 and B20.

Particular emphasis is being placed on B20, which is around 4-5 baht per litre cheaper than B7, as a way to ease cost pressures in industry, transport and agriculture.

Yet these measures can only soften the blow. They cannot remove the inflationary pressure already moving through the economy. Preliminary data suggest Thai goods have already become 3-5% more expensive on average because of energy and logistics costs. Consumers are becoming more cautious with spending, and that is beginning to weigh on economic activity, especially in services and restaurants.

In some areas, panic buying has added to the anxiety, with motorists rushing to refuel until stations run dry. Early signs of stockpiling have also begun to emerge, reflecting growing unease about how long the disruption might last.

The bigger question is how long Thailand can hold out

The overall picture is clear: the cost of living in Thailand has risen meaningfully across fuel, food and travel. Low-income households are bearing the heaviest burden because energy and food account for a larger share of their spending than for better-off groups.

That makes the duration of the war the central variable. If tensions remain high and energy shipping routes stay disrupted, oil could remain above US$100 a barrel for a prolonged period. In that scenario, the Oil Fuel Fund could come under pressure beyond what the state can credibly sustain, raising the possibility that fuel prices may eventually have to be allowed to float more freely.

If that happens, the consequences would extend beyond fuel stations. Thai industry would face structurally higher costs, exporters would lose competitiveness, and households would confront a longer period of weak purchasing power.

The real issue, then, is no longer simply whether the government can manage the crisis. It is how long it can continue to absorb the shock while facing pressure from both global energy prices and domestic fiscal limits.

If the war does not end soon, Thailand may be pushed into a prolonged high-cost, weak-demand environment — one of the most serious economic tests in years, and a defining measure of the state’s ability to keep both businesses and households afloat through a geopolitical storm it did not create.