Thailand Faces Energy Crisis as Iran Threatens to Close Strait of Hormuz

 

Thailand could face significant energy disruption if Iran follows through on parliamentary approval to close the Strait of Hormuz, with one-third of the country's energy imports transiting through the strategic waterway, according to the Thailand Development Research Institute (TDRI).

 

Dr Areeporn Asawinpongphan, a research fellow specialising in energy policy at TDRI, warned on Monday that whilst Iran's parliament has approved the measure, it still requires ratification by the Supreme National Security Council and the country's supreme leader before taking effect.

 

The Strait of Hormuz serves as a crucial global energy transport route for both oil and gas, accounting for 30% of worldwide energy shipments. 

 

Should Iran proceed with the closure, oil prices could surge beyond $100 per barrel from current levels of $77-80, though experts believe any disruption may be short-lived due to impacts on global supply chains and shipping.

 

 

Government Tools to Mitigate Oil Price Impact

Thailand possesses three key mechanisms to address short-term oil price volatility, Dr Areeporn explained. 

 

The oil fund can subsidise domestic fuel prices to prevent sharp increases, with diesel already receiving 65 satang per litre in support. The country maintains a 60-day strategic petroleum reserve that could help stabilise prices during brief disruptions.

 

Additionally, the government could reduce excise taxes on fuel products, requiring cooperation between the Energy Ministry and Finance Ministry to implement such measures effectively.
 

 

 

 

Electricity Sector Vulnerability

The electricity sector faces particular challenges, as Thailand imports approximately 30% of its liquefied natural gas (LNG) from the Middle East. Higher LNG prices would increase electricity costs, though the government has capped tariffs at 3.99 baht per unit this year.

 

This price ceiling places financial strain on state enterprises including PTT and the Electricity Generating Authority of Thailand, which must absorb fuel cost differences and debt burdens. However, these costs don't disappear and will require government compensation eventually.

 

 

Long-term Energy Security Recommendations

TDRI recommends Thailand accelerate development of domestic clean energy resources to reduce LNG dependence. However, renewable energy alone cannot ensure grid stability due to intermittency issues.

 

The institute advocates for substantial investment in three critical technologies: energy storage systems, smart grid infrastructure, and demand response systems.

 

These developments would enhance Thailand's domestic energy security and stability.

 

Dr Areeporn also proposed establishing a Strategic Petroleum Reserve (SPR) to provide longer-term price support during crises, moving beyond the current 60-day reserve capacity.

 

 

 

Call for Strategic Planning

The research fellow emphasised that geopolitical crises and extreme weather events affecting energy security are becoming increasingly frequent. Rather than addressing problems reactively, the government should develop comprehensive long-term strategies.

 

"The government should plan for Thailand to become more self-reliant for longer periods, with greater flexibility," Dr Areeporn stated. "We shouldn't solve problems as they pass by – we need systematic planning to build resilience."

 

The current situation highlights the critical importance of balancing three aspects of energy policy: security, prosperity, and sustainability. 

 

Thailand must develop robust domestic mechanisms to manage such risks, particularly as geopolitical tensions continue to affect both energy security and price stability.

 

The institute's recommendations include using the oil fund appropriately during crises, accelerating electricity sector reforms, and prioritising domestic energy resources alongside clean energy technology investments to create a more resilient energy system.