Currency depreciation, a surge in oil prices and a decline in purchasing power often result from geopolitical conflicts.
The recent tit-for-tat conflict between Israel and Iran could pose a challenge to the Thai economy in the second quarter, as the International Monetary Fund slashed its Thai GDP forecast to 2.7% growth from 4.4% when domestic consumption slumped.
Stock markets and gold prices across Asia were affected earlier this month when the attacks started, while a spike in energy prices would increase living costs and dampen the economic outlook.
GOLD PRICES
Fears of a broader battle between Israel and Iran led investors to buy gold around the middle of this month, pushing prices of the safe-haven asset to surpass US$2,400 an ounce, while domestic gold hit a new record high of 42,000 baht per baht-weight.
Gold prices reached $2,417.59 per ounce on April 19, close to the April 12 peak of $2,431.29, as investors turned to the precious metal for security.
But Tehran downplayed the significance of Israel's recent retaliatory drone strike, in a move perceived as trying to prevent further regional turmoil.
Gold prices then cooled, attributed to diminishing concerns over a potential full-scale conflict in the Middle East.
Gold prices dropped 2% last Monday, settling at $2,354.61 per ounce, with US gold futures falling 2.4% to $2,357.00.
Bullion was trading above $2,300 an ounce on Thursday after dropping about 3% in the prior two sessions, when easing tensions sapped demand.
"Among the factors driving gold prices was Middle East conflicts, but the impacts did not last very long, similar to the Russia-Ukraine war earlier," said Jitti Tangsithpakdi, president of the Gold Traders Association.
Prices fell significantly on recent profit-taking, but Mr Jitti said he believes gold prices will remain on an upward trend, partly because central banks worldwide are expected to increase their gold reserves and the US Federal Reserve is not likely to cut interest rates until the second half of the year.
"Tensions in the Middle East influence gold price movements, but the sharp price spikes we saw shortly after Songkran are unlikely to repeat," he told the Bangkok Post, adding the key support level for gold is $2,275.
SHORT-TERM IMPACT
The Stock Exchange of Thailand (SET) index dipped by 2.13% to 1,332 points, the lowest in three years and five months, on April 19 when Israel launched a retaliatory strike on Iran, increasing fears of a widening conflict across the region.
According to the SET, the decline tracked sharp losses on other bourses around the world. From April 17-19, the Thai index fell 4.6% or 64.3 points, with market capitalisation decreasing 813 billion baht to 16.9 trillion from 17.7 trillion before the start of the long Songkran holiday on April 11.
The SET rebounded by 1.3% on April 22, similar to other stock exchanges as concern over Middle East conflicts subsided.
Asia Plus Securities (ASPS) said the conflicts pressured high-risk assets including stocks, following the attacks by Israel and Iran.
The brokerage estimates the economic impact of the war at 1% of GDP this year, pushing global inflation to 1.2%.
ASPS said the conflicts have pressured the SET index in a series. When Israel started its invasion of Gaza in October 2023, the Thai index fell 81 points. Cases of shipping piracy in the Red Sea in January this year coincided with the SET losing 61 points.
When Iran attacked Israel during Songkran, the index fell 78 points to near 1,330 points.
"The index declined 60-80 points when the situation was violent," said the brokerage.
"The ongoing conflicts in the Middle East, like other recent wars, have a psychological impact on stock markets, but the damage is unlikely to be severe unless the US takes part in the fighting," said Bamrungpong Chevatanakornkul, senior vice-president for investment at ASPS.
As geopolitical conflicts escalated, oil prices rose, pressuring the SET index to dip in the short term. However, the decline should be minor as oil stocks account for one-third of SET capitalisation, he said.
Another consequence of higher oil prices is more persistent inflation, according to many analysts. As a result, the Fed may delay cutting interest rates until late 2024, limiting any SET index rebound, said Mr Bamrungpong.
ASPS's strategist team believes the chances of oil prices rising significantly would only happen as a result of supply chain issues. For example, if Iran allies with Syria, Iraq, Yemen and Bahrain to boycott oil exports to western countries, or if Iraq blocks the Strait of Hormuz, which supports 20% of the world's marine oil shipments, said the brokerage.
"Absent such incidents, we see limited impacts from the ongoing conflicts on oil prices," said ASPS.
Iran exports 700,000 barrels of oil per day, representing 0.7% of oil consumption globally, and produces 3 million barrels a day or 3% of global consumption, said the brokerage.
OIL SUPPLY WATCH
National oil and gas conglomerate PTT Plc, a key petroleum supplier in the country, said Thailand has sufficient oil to meet demand amid concerns over the impact of the Israel-Iran conflict on global supply.
"It's difficult to predict whether the tension between the two countries will escalate, but as a state-owned company, we ensure oil and gas will not be scarce in Thailand," said Auttapol Rerkpiboon, president and chief executive of PTT.
Oil and gas must be sold at fair prices in the country, meaning PTT does not face losses and oil buyers are not affected, he said.
During the Russian invasion of Ukraine in 2022, which drove up global crude oil prices, PTT decided to buy an additional 4 million barrels, enough to last roughly five days in case of a possible shortage.
There were inadequate storage facilities on land, so the company kept the oil on ships.
"The decision allowed the country to avoid oil scarcity," said Mr Auttapol.
He said the company should have no problems acquiring oil. Its oil drilling arm PTT Exploration and Production Plc runs a petroleum business in many regions outside the Middle East.
Thailand needs to use oil from various sources as part of a risk diversification plan, said Mr Auttapol.
Last year PTT acquired up to 1.5 million barrels of oil per day, while national demand tallied 900,000 barrels per day.
PTT has yet to implement an emergency acquisition plan for oil and gas following volleys by Iran and Israel, but the company has prepared measures to ensure sufficient oil for use in the country, he said.
"We are monitoring the situation and have petroleum trade plans in place," said Mr Auttapol.
"We also check oil storage and transport facilities to ensure they are ready to serve our business."
CURRENCY DEPRECIATION
According to the latest edited minutes of the Monetary Policy Committee (MPC) meeting, the Bank of Thailand recognises the baht's volatility against the US dollar and its greater depreciation compared with regional peers.
This trend is primarily driven by external factors, such as the monetary policy outlook of the Fed, along with domestic economic and financial developments such as a weaker economic performance than projected and fluctuations in gold prices, according to the minutes.
This year the baht has registered its lowest level relative to other regional currencies. After the MPC maintained the policy rate at its recent meeting, the baht's volatility against the greenback diminished.
Piti Disyatat, assistant governor for the monetary policy group at the central bank, also highlighted seasonal factors, particularly tourism and dividend payments from SET-listed companies, as significant drivers pressuring the baht's depreciation.
Forecasts suggest a slight decline in foreign arrivals in the second quarter because of seasonal factors and Thailand's hot climate.
In addition, SET-listed companies are anticipated to transfer dividends totalling around 2 billion baht to their parent firms overseas in the second quarter of this year.
However, expectations for Thai economic expansion in the latter half of the year are driven by budget disbursements for fiscal 2024, improvements in tourism and a rebound in exports, bolstering the baht's performance against the dollar, according to Mr Piti.
"The Bank of Thailand will keep a vigilant eye on baht fluctuations. At the moment, body deems it unnecessary to introduce further policies to manage the local currency," he said in the minutes.
"Maintaining the policy rate at its current level will contribute to baht stability relative to the US dollar."
However, the central bank intervened on Wednesday to steady the baht as it teetered around 37 to the dollar.
According to ASPS, despite persistent outflows, the baht is unlikely to weaken beyond 37 per dollar, and it may strengthen soon if fund inflows return.
The brokerage noted the Fed is expected to maintain elevated interest rates for an extended period, while concerns about conflicts in the Middle East have diminished.
As of February 2024, Thailand's foreign exchange reserves amounted to 8.4 months of imports, accompanied by a current account surplus of $2 billion.
Thailand's economic revival is evident from both government and private investment, as well as government spending, according to ASPS. Consumer spending should be fuelled by the adoption of the digital wallet scheme, said the brokerage.
Economic institutions project Thai GDP growth of 2.8% this year, up from the 1.9% posted in 2023.
The baht has depreciated by 7.8% this year as of April 23, while the US dollar has strengthened by 4.7%.
EXPORT SECTOR UNFAZED
Chaichan Chareonsuk, chairman of the Thai National Shippers' Council, said exports could experience a slight impact from Mideast skirmishes because there is minimal trade value between Thailand and Iran.
Israel is responsible for less than 0.1% of Thai exports, according to the council.
Thai exports to the Middle East include farm products, processed agricultural goods, car parts, electrical appliances and rubber.
However, if the tension escalates and expands to include other countries in the region, Thai exports will be severely affected as the Middle East is a key trading partner, accounting for 4% of Thai shipments, said Mr Chaichan.
Thai exports to the Middle East grew 23% in 2022 and 24.6% last year.
Countries in the Middle East, which possess 48.3% of the world's oil reserves, play a vital role in global oil production and export.
If the conflict broadens to include the closure of the Strait of Hormuz -- the world's busiest oil-shipping channel -- it would cause a surge in crude oil prices and affect global trade, he said.
Moreover, the closure of the Bab el-Mandeb Strait in response to threats against the US, a key route crossing the Red Sea, could affect Thailand's trade with the Middle East and Europe.
Even though the tension in the Middle East eased and shipping activity returned to normal, traders are monitoring the situation as Thai exports to Europe accounts for 8% of total shipments, said Mr Chaichan.
"Given no further escalation of the conflict in the Middle East, Thai exports are expected to grow 1-2% in the first quarter and first half this year," he said.
The baht's depreciation to 37 to the dollar is a boon for the export sector, said Mr Chaichan.
Key export products with continued demand include automobiles and auto parts, vehicle tyres, electronic components, air conditioners and food products, according to the council.
However, Thai exporters should be prepared to deal with geopolitical uncertainties by tapping new markets, particularly in Southeast Asia, China and India, if the conflict expands to other parts of the Middle East, he said.
Business operators should also consider reducing production costs as prices of crude oil may surge up to $90 as barrel.
Production planning should maintain a delicate balance between supply and demand amid increasing downside risks, such as a global economic slowdown and ongoing geopolitical tensions, said Mr Chaichan.
LIMITED EFFECT
Siripakorn Cheawsamoot, deputy governor for Europe, Africa, the Middle East and the Americas at the Tourism Authority of Thailand (TAT), said El Al Israel Airlines still maintains 1-3 daily flights as usual from Tel Aviv to Bangkok and Phuket. These flights are still posting overwhelming demand, said Mr Siripakorn.
He said the only flight cancellations occurred on April 13-14 as airspace in conflict areas were restricted at that time.
Mahan Air, which operates full-service flights from Tehran, also maintained its flight schedule to Thailand as passenger demand remains steady despite the conflict.
A TAT market forecast for the second quarter said geopolitical concerns would have indirect impact on tourism demand to some extent as higher fuel costs affect airfare and might discourage long-haul visitors from travelling to Thailand, particularly family groups.
Some potential travellers might be concerned about escalating wars and instead save their resources for more daily necessities, noted the forecast.
JET FUEL
According to energy information provider Platts, the weekly global average jet fuel price ending on April 19 fell by 3.7% compared with the week before to $106.89 per barrel, after soaring to $111.3 in the first week of April.
Wutthiphum Jurangkool, chief executive of Nok Air, said while jet fuel prices didn't surge because of ongoing conflicts in the Middle East, most airlines were affected by the weak baht as the majority of airline expenses must be paid in US dollars.
He said the average price of Jet-A1 fuel for commercial planes last week was $105.7, which is high for passengers if translated into airfare and fuel costs, which make up 30-40% of total expenses.
Mr Wutthiphum said one indirect impact would be airlines awaiting maintenance services at maintenance, repair and operations (MRO) centres.
If there are airspace closures in the future, some airlines might have to switch to other MROs in different countries, some of which are already crowded as every airline is competing to bring back their aircraft post-pandemic, he said.
Narumon Kasemsuk and Phusadee Arunmas