Thai cost squeeze grows

Thailand just got a warning that its fuel bill may stay painful for up to two years, not a few weeks, after Finance Minister Ekniti Nitithanprapas told lawmakers that Middle East energy disruptions could take one to two years to stabilize. He said “low oil prices are a thing of the past” for that period. (bloomberg.com) That hits Thailand harder than many countries because it is a net energy importer, which means it buys more fuel from abroad than it sells. More than half of its oil imports come from the Middle East, much of it moving through the Strait of Hormuz. (bloomberg.com) The first shock already showed up at the pump in March, when Thailand cut back fuel subsidies and retail prices jumped by as much as 22% overnight. Diesel matters especially because it powers trucks, farm equipment, and a big share of domestic freight. (bloomberg.com) Thailand had tried to hold diesel down with a state oil fund, but that fund was burning about 1.24 billion baht a day and had fallen more than 57.7 billion baht into deficit. When the government let diesel prices float, it was admitting the subsidy bill was getting too big to carry. (bloomberg.com 1) (bloomberg.com 2) The squeeze does not stop with drivers filling up in Bangkok. Higher diesel and fuel oil prices raise the cost of milling grain, drying crops, running factory boilers, and hauling containers from inland plants to ports. (bloomberg.com) That is why exporters feel the pain twice. Their production costs rise at the factory gate, and their transport costs rise again on the road to Laem Chabang and other ports, which narrows margins unless they charge buyers more or cut costs somewhere else. (bloomberg.com) The inflation data is already moving in that direction. Thailand’s consumer prices were still down 0.08% in March from a year earlier, but that was a much smaller drop than February’s 0.88% decline, and the Commerce Ministry lifted its 2026 inflation forecast to 1.5% to 2.5%. (bloomberg.com) The central bank is not treating this like a normal demand boom that higher interest rates can easily cool. Governor Vitai Ratanakorn said inflation will “definitely accelerate” with oil price hikes and supply disruptions, but the Bank of Thailand plans to keep rates steady for as long as possible because a supply shock does not respond much to tighter borrowing costs. (bloomberg.com) Markets have started pricing in the damage. Thai local-currency bonds have lost 4.1% since the end of February, and the baht had dropped more than 5% in March as traders focused on Thailand’s larger import bill and weaker growth outlook. (bloomberg.com 1) (bloomberg.com 2) The government says it wants to speed up solar power, biofuels, and other renewables, and it is weighing relief worth 30 billion baht. But energy systems do not turn over in a quarter, so Thai exporters are still left managing a simpler problem right now: every extra baht spent on fuel makes each shipment more expensive before it even leaves the dock. (bloomberg.com)