Business sector welcomes Iran pact

Businesses and economists took a deep breath after the US and Iran signed off on a deal to end their war and reopen the Strait of Hormuz, lifting optimism as oil prices fell, which could ease inflation and support potential economic growth.

Tanit Sorat, chairman of the National Labour Development Advisory Council, hailed the signing after more than three months of war rattling energy markets and spiking inflation.

"This is good news for Thailand, which previously imported roughly half its oil from the Middle East, though that proportion is now down to 20%," he told the Bangkok Post.

If the war in Iran persists, Mr Tanit said goods prices would begin to increase this month after logistics operators increased their charges to reflect higher oil prices since the conflict began.

Oil prices tumbled Thursday after US President Donald Trump signed a memorandum of understanding (MoU) in Versailles following the G7 summit, with a ceremony set for today in Switzerland to mark the start of a 60-day negotiation period.

Iranian Foreign Ministry spokesman Esmail Baghaei told reporters Iran's president signed the document.

"Oil prices have reduced over the past couple of days, and I believe prices will fall significantly after the peace deal is signed," said Mr Tanit, a former vice-chairman of the Federation of Thai Industries.

The decline in oil prices would lower inflation and lift domestic consumption, which is critical for Thailand's economic growth, he noted.

Commerce Minister Suphajee Suthumpun said the ministry and Thailand are preparing for any situation that may arise.

"The pact makes us more relaxed, as the situation will not escalate during these 60 days," she said.

The ministry will monitor the situation during the 60-day period, said Mrs Suphajee.

IMPROVING PROSPECTS

Aat Pisanwanich, an independent scholar specialising in international economics, said the peace MoU is a positive signal for both the global economy and Thailand's economy.

However, details must still be negotiated between the countries, which may create concerns about future uncertainty.

If global crude oil prices drop quickly, domestic retail fuel prices should also decrease in line, he noted.

"Lower fuel prices should ease local concerns about shortages of key raw materials in the industrial sector, including plastics and chemical fertilisers. The MoU is likely to support improvements in Thailand's exports for the remainder of this year," said Mr Aat.

Following the MoU, both countries agreed to spend 60 days negotiating detailed terms of the agreement, during which disruptions could occur, he noted.

Poonyawat Sreesing, senior economist at Siam Commercial Bank Economic Intelligence Center (EIC), agreed uncertainties remain given the US president's personality.

However, the significant decrease in crude prices to around $75-78 per barrel on Thursday prompted the EIC to revise its oil price estimates for the year to $85-90 from $95.

The research centre lowered its inflation outlook this year to less than 3%, while upgrading Thai GDP growth to around 2% from 1.7% previously, said Mr Poonyawat.

UNCERTAINTIES REMAIN

The deal calls for Washington to commit to immediately waive oil sanctions and facilitate the release of a $300-billion reconstruction fund, while Tehran agrees to dilute its enriched uranium as talks on a longer-term agreement are held.

Mr Aat said the MoU specifies that nuclear arms will be limited, but it does not say they must be dismantled, which could create distrust from Israel.

Another sensitive issue for Israel is armed groups in Lebanon, and the MoU does not explicitly prohibit support for armed groups.

Regarding passage through the Strait of Hormuz, the MoU stipulates no transit fees may be charged for passage.

However, Iran can still control the strait, raising the question of whether passage would require Iran's permission.

Iran established an authority to oversee the strait called the Persian Gulf State Authority, which has the power to collect transit fees, requiring payment in yuan or Bitcoin.

Passage through the strait must be approved by this authority, said Mr Aat.

Mrs Suphajee said the Commerce Ministry will maintain its focus on ensuring fair prices, reducing the cost of living, and supporting farmers and small and medium-sized enterprises.

"We are not placing all our hopes on this MoU. However, it is a positive sign of easing tensions over the next 60 days," she said.