Thai economy caught in global crossfire as Israel-Hamas tensions fuel price hike fears
The Thai economy, already tested by geopolitical conflicts over the past few years, is facing potential consequences from the hostilities between Israel and Hamas in the Middle East, as governments and corporations all over the world look for excuses and justifications to hike prices to obscene heights. It’s a well-worn tactic last seen in the conflict between Russia and Ukraine as greedy corporations and governments look to profit from the fallout of tragedy and war.
Notably, Israel ranks as Thailand’s sixth-largest trading partner in the Middle East and 40th overall.
Government sources revealed, that between January and August, trade volumes between Thailand and Israel reached US$857 million, a 1.15% growth. Thai exports to Israel, valued at US$546 million, increased by 12.6%, whereas imports decreased by 14.2% to US$311 million.
Before the pandemic, Israel emerged as a promising market for Thai tourism, recording 194,081 arrivals in 2019. Despite the pandemic, approximately 190,000 Israelis visited Thailand in the first nine months of this year, outperforming their pre-pandemic tally.
However, the anticipated war in Gaza is predicted, once again, to have a ripple effect on energy prices and impact other regional trade partners of Thailand. This presents potential economic risks for Thailand, necessitating a comprehensive mitigation plan to enhance the Thai economy.
Phusit Ratanakul Sereroengrit, the director-general of the International Trade Promotion Department, warned that a war-induced economic crisis in Israel could alter its trade, investment, and commerce relations with other countries, including Thailand. While short-term conflicts might allow Israel’s economy to recover as it has in the past, a protracted war could significantly delay Israel’s economic recovery and undermine business confidence.
Thai Economy drawbacks
Despite potential drawbacks such as delayed shipments and increased shipping costs, it has been reported that Thailand might also find opportunities to boost exports to Israel in the form of rice, canned seafood, processed fruit, rubber products, medical instruments, and pharmaceuticals.
Conversely, non-essential exports like automobiles, auto parts, jewellery, and gems might suffer as Israeli consumers limit their purchases during the conflict.
Israel’s ongoing conflict with Hamas represents the deadliest fighting between the two parties in the past 50 years.
A similar conflict, the Yom Kippur War in 1973, led to a 60% decrease in the S&P index within a year, increased oil prices by US$11 per barrel, and skyrocketed gold prices from US$100 per ounce to US$160. The global GDP also plummeted from over 6% to less than 2% in 1974.
Poonpong Naiyanapakorn, the director-general of the Trade Policy and Strategy Office, highlighted the possible indirect impacts of the conflict on the global economic recovery.
The escalation in the Middle East could further boost energy prices for the rest of the year, potentially undermining global efforts to control inflation. This, in turn, could trigger another inflation cycle, slowing down the global economy and international trade.
Geopolitical uncertainties
Despite the uncertainties, the potential for the conflict to escalate into a large-scale war is slim, according to independent political analyst Somjai Phagaphasvivat. Major powers like China and the US are primarily observing since the conflict has minimal impact on their economies.
The ongoing Russia-Ukraine war and the pandemic have already caused significant disruptions to the global supply chain. These disruptions are unlikely to resolve any time soon, prompting companies to consider reshoring or nearshoring as alternative strategies to control costs.
Another strategy that has gained popularity in recent years is “friend-shoring,” which involves sourcing from countries considered political and economic allies.
Amidst these geopolitical challenges, Siripakorn Cheawsamoot, the deputy governor of the Tourism Authority of Thailand (TAT), remains optimistic that the conflict will not spread to other countries in the region.
He cited the unchanged number of flights from the Middle East and the request by El Al Airlines to increase flights to Phuket from two to three to four per week due to higher demand. Despite the unpredictability of events, the TAT anticipates the Middle East region will continue to grow this year based on the performance in the first half, reported Bangkok Post.
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