Baht on brink as Middle East war sends oil soaring. Top Thai bank warns currency could hit 33 per dollar if crude tops $100. Thailand’s import bill, inflation and growth at risk as markets reel and the central bank braces for prolonged conflict shock.
On Thursday, a leading Thai bank warned the baht could weaken to ฿33 per US dollar if the United States-Iran conflict deepens. Earlier this week, Bank of Thailand Governor Vitai Ratanakorn urged the government to prepare for all eventualities, particularly a prolonged conflict driving high oil prices, rising inflation and weaker GDP growth. Meanwhile, some US analysts argue that a decisive American victory, including regime change, could deliver a significant upside for the global economy.
Thailand’s baht is facing renewed pressure as oil prices surge amid escalating conflict in the Middle East. On Thursday, the Kasikorn Research Centre warned that the currency could weaken sharply.
Specifically, it said the baht could slide to 33 per US dollar if the war continues over the coming week. Already, volatility has intensified across currency markets. As a result, Thailand’s exposure as a net oil importer has come back into focus.
Earlier this week, the baht weakened to a three-month low of 31.95 per dollar in the offshore market. However, it later rebounded to 31.73–31.75 on Wednesday. By comparison, it had closed at 31.45 on Monday.
Capital flight and dollar strength drive baht swings amid oil surge and market volatility
According to Dr. Kanjana Chockpisansin, head of research in banking and finance at the centre, the swings reflect rapid capital reallocation. In particular, funds have flowed out of risk assets and gold into the US dollar. Consequently, the greenback has strengthened as investors seek safety.
At the same time, expectations around US monetary policy have shifted. Markets now anticipate that the Federal Reserve will cut interest rates gradually. Moreover, they expect fewer cuts than previously projected.
This adjustment follows rising US inflation linked to higher oil prices. Therefore, the dollar has gained additional support. In turn, emerging market currencies, including the baht, have come under pressure.
Across Asia, equity markets fell by 1–2% at the open following the latest escalation. Meanwhile, oil prices jumped about 5% in early trading. Brent crude’s front-month contract has surged 35.7% year-to-date. Likewise, West Texas Intermediate crude has climbed 31.2% over the same period. Thus, energy markets are transmitting immediate shockwaves into financial systems.
Oil above $100 risk threatens trade balance as Thailand’s energy import exposure deepens
If oil prices exceed US$100 per barrel for a prolonged period, the consequences will deepen. In that case, Ms Kanjana said the baht would almost certainly approach 33 per dollar. Therefore, the currency outlook is directly tied to crude price movements. As oil rises, Thailand’s import bill expands sharply. Consequently, pressure builds on the trade balance.
Thailand spends roughly 5–6% of gross domestic product on oil imports. By contrast, that share is lower in neighbouring Southeast Asian economies.
Because of this higher ratio, Thailand is more sensitive to sustained energy price increases. Currently, the country runs only a slim trade surplus. However, that surplus could narrow quickly. If high prices persist, it could tip into a deficit.
Meanwhile, baht volatility has already increased. It has risen from 7% last year to 7.7% year-to-date. Typically, median volatility ranges between 3% and 5%. Therefore, present conditions exceed normal historical levels. Furthermore, domestic economic pressures remain weak. As a result, external shocks exert greater influence on capital flows and exchange rates.
Bank of Thailand flags prolonged war threat as supply shocks loom over growth outlook
The conflict erupted last Saturday and has since broadened. Initially, exchanges involved Israel and Iran. However, retaliatory actions have spread across the region.
According to Bank of Thailand Governor Vitai Ratanakorn, the situation is more serious than previously assessed. He described it as a real event unfolding in real time. Consequently, authorities are evaluating multiple scenarios.
First, policymakers are assessing whether the conflict will be short-term or prolonged. Second, they are measuring the scale of oil price increases. Third, they are analysing potential supply disruptions. Each factor carries different macroeconomic consequences.
If the conflict ends quickly, the impact on growth would likely be limited. However, inflation would feel the sharper effect. Thailand’s inflation is currently very low. Therefore, a modest rise would be manageable in the near term.
Nevertheless, sustained oil increases would push inflation higher. Conversely, if the conflict drags on, risks escalate significantly. In that case, the issue would shift from price increases to supply shock. Thailand imports about 60% of its oil from the Middle East. Of that total, more than 40% comes from the United Arab Emirates.
In addition, significant volumes are sourced from Saudi Arabia. Therefore, any prolonged disruption in the region would directly affect supply channels. Moreover, shock trades could amplify volatility in global energy markets.
Higher crude prices threaten GDP and tourism as trade links and inflation risks rise
According to Mr Vitai, every US$10 per barrel increase sustained for a year reduces GDP growth by roughly 0.10–0.50%.
However, the more pronounced effect would be on inflation. Oil prices had been abnormally low, suppressing headline inflation. Now, as crude rises, inflation will follow. Consequently, businesses may see higher revenues, while consumers face higher costs.
Beyond oil, Thailand’s trade exposure to the Middle East adds another layer of risk. The country exports about 4% of its goods to the region. Meanwhile, it receives around 1.2 million tourists from Middle Eastern markets.
These visitors account for approximately 3.8% of total arrivals. Furthermore, they generate about 6.5% of tourism revenue. Therefore, prolonged instability could ripple into both goods and services exports.
In addition, a global slowdown triggered by sustained high oil prices would weigh on external demand. As a result, export performance could weaken beyond direct Middle East trade links. Financial markets have already shown rapid adjustment. Gold is expected to rise as a safe asset. Meanwhile, regional currencies have depreciated by an average of 0.1–0.4%. Thus, volatility remains elevated across asset classes.
Central bank holds 1.00% rate and readies measures as government tracks deepening crisis
Against this backdrop, the Bank of Thailand moved pre-emptively last week. The Monetary Policy Committee cut the policy rate by 0.25 percentage points, from 1.25% to 1.00% per year. According to Mr Vitai, that decision mitigated several anticipated risks. Without the cut, the next meeting in two months might have faced tighter constraints. Therefore, the move created additional policy flexibility.
If the conflict intensifies and risks rise sharply, the 1.00% rate can be maintained. Moreover, further action remains possible if absolutely necessary. In severe shock scenarios, adjustments of around 0.50 percentage points are typically available.
Additionally, the central bank can deploy targeted measures to address specific stress points. However, any response will depend on incoming data and the duration of hostilities.
The Prime Minister and the Finance Minister are also monitoring developments closely. Government measures would be released if required. For now, agencies are conducting broad and continuous assessments. Markets continue to react in real time to each development.
Baht outlook hinges on conflict path as oil markets and escalating strikes shape sentiment
Ultimately, oil remains the dominant transmission channel into Thailand’s economy. Because the country is a net importer, higher crude prices immediately expand the import bill.
Consequently, the baht’s direction is closely linked to energy markets. If oil remains elevated, downward currency pressure will intensify. Conversely, if tensions ease quickly, volatility may moderate.
US Ambassador Seán O’ Neill briefed Prime Minister Anutin Charnvirakul at Government House on War
Prime Minister Anutin urges calm as real fears grow over a volatile and dangerous war in the Middle East
For now, the baht trades below 33 per dollar. However, that threshold is clearly in view. Should crude prices remain high for an extended period, the currency could test that level. In the coming days, oil markets will set the tone.
Accordingly, Thailand’s financial outlook will hinge on how the conflict works itself out. At this time, the news from the United States, Israel and Tehran is not particularly encouraging. The conflict indeed appears to be escalating. Israel and the United States continue to hammer the Iranian regime.
On the other hand, even as economic analysts point to uncertainty, there is a potential bright side if the United States and Israel emerge victorious or if there is, after all, regime change.
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Further reading:
US Ambassador Seán O’ Neill briefed Prime Minister Anutin Charnvirakul at Government House on War
Visa waivers, discounted hotel stays and 2,000 baht a person per day for stranded tourists announced
Liquidity crisis or shortage of cash on the ground is shrinking Thailand’s economic growth prospects
Thai Minsters engage with US trade chief Jamieson Greer in Paris at global OECD ministerial meeting
