Escalating conflict in the Middle East affects exports and has a negative impact on Thailand’s economy both directly and indirectly.
Escalating conflict in the Middle East is negatively affecting Thailand’s economy both directly and indirectly, the Bangkok Post reported, citing a statement by Punpong Nayyanapakorn, head of the Trade Policy and Strategy Office.
The Strategic Planning Division of Thailand’s Ministry of Commerce advised stakeholders to keep an eye on the Red Sea terrorist attacks and the war between Israel and Hamas to assess the potential impact of the conflict on Thailand.
Ever since Yemen’s Houthi rebels began attacking and seizing Israeli-linked cargo ships passing through the Bab el-Mandeb Strait in the Red Sea on 19 November last year to show resistance to Israel’s actions in Gaza, this crucial world trade route has become a choke point.
If the attacks in the strait continue, it could affect various supply chains and global crude oil transport,” Punpong said. The Red Sea, with its passage through Egypt’s Suez Canal, serves as a major trade route between Asia and Europe, covering 12 per cent of the world’s maritime trade routes.
Following the attacks on cargo ships, many shipping companies around the world have suspended operations in the Red Sea, preferring alternative routes that require longer transit times.
This has increased the cost of shipping on other routes, as well as routes through the Red Sea and the Suez Canal. As a result, Thai goods destined for the Middle East, Europe, North Africa, and the eastern US have become more expensive.
According to the National Shippers Council of Thailand, freight rates have increased significantly compared to December 2023 on the Thailand-Jabal Ali (UAE), Thailand-Europe (major ports), Thailand-West Coast of the US and Thailand-East Coast of the US routes.
On the Thailand-Europe route, freight rates increased by 252 per cent for 20-foot containers and 196 per cent for 40-foot containers, reaching US$3,200 and US$4,500, respectively. In addition, exporters have to bear additional costs such as transport system disruption charges, port congestion charges, extra service charges during peak periods and emergency assistance charges.
In terms of the impact on Thailand’s exports, according to a study by the Trade Policy and Strategy Office, shipments to Europe are predominantly via the Red Sea route, accounting for more than 8 per cent of Thailand’s total exports.
Key exports such as computers, air conditioners and their parts, electronic circuit boards, automobiles and their parts, garments, rubber products, processed chicken and wheat may face transport problems due to shipping issues.
As for Thai exports to the Middle East, the route is crucial for shipments to Jordan and Israel, which account for about 10 per cent of Thailand’s trade with the region,” the study said.
However, 90 per cent of Thai exports are transported through UAE ports and then distributed to other countries in the region. Therefore, the agency said the overall impact on exports to the Middle East may not be significant.
Punpong said the various conflicts in the Middle East could spread to other regions and directly affect other countries. Although the conflict zone has not spread beyond Gaza, there have been periodic clashes between Israel and various armed groups in Lebanon and Syria.
This has raised fears that the conflict could escalate into a regional conflict, leading to the closure of the strategic Strait of Hormuz, a crucial oil transport route through which 21 per cent of the world’s daily oil supply, equivalent to 21 million barrels, passes.
The impact of closing the strait would be significant for Thailand, as the country relies heavily on crude oil imports from the Middle East. In 2023, half of Thailand’s energy imports (crude oil, natural gas and refined oil) came from the Middle East, primarily from the UAE, Saudi Arabia and Qatar.
The closure of the Strait of Hormuz will temporarily block oil imports to Thailand, leading to a shortage of crude oil and a sharp rise in prices, which will negatively affect industrial production and the transport sector.
Such a turnaround could potentially lead to inflation and cost-of-living problems, Punpong said. In addition, the Strait of Hormuz plays a crucial role in Thailand’s exports to the Middle East. Most Thai goods are shipped through the strait to the port of Jabal Ali in the UAE.
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