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EXPLAINED: How Italy could be impacted by Russia’s invasion of Ukraine

Tensions between Russia and western nations have increased following Russia's invasion of Ukraine. The Local takes a look at Italy's stance and how the country could be impacted.

EXPLAINED: How Italy could be impacted by Russia’s invasion of Ukraine
Activists carry Ukrainian and EU flags at a demonstration in Kyiv on February 22, 2022.. Photo by Sergei SUPINSKY / AFP

What is Italy’s relationship with Russia in general?

Despite the geographical distance between Italy and Russia the two countries have long had a relatively close relationship, with some analysts suggesting Italy is Russia’s “biggest European friend”.

Italy has historically had friendlier ties with Putin than many other Western nations, backed by strong business relationships – primarily investments by Italian corporations in Russia. State-controlled energy group Eni has long-term gas contracts with Russia and agreements with oil group Rosneft, which are on hold.

As the Ukraine crisis deepened, Russian President Vladimir Putin held a video call with heads of major Italian energy firms earlier in February at which he reportedly stressed the importance of their links.

The Italian government deemed the meeting inappropriate and asked energy bosses not to attend, though many still did, including the head of state-backed Italian energy firm Enel.

In the Ukraine crisis of 2014-2015, such corporate ties were a major factor in Rome’s push to prevent tough EU sanctions on Russia under the government of Matteo Renzi.

As well as business links, there have long been close relations between Russia and major political forces in Italy.

Russian President Vladimir Putin meets with former Italian prime minister Silvio Berlusconi in Rome in 2019. Photo by Alexey DRUZHININ / SPUTNIK / AFP

Prominent examples of those ties include the famously close and long-standing friendship between Putin and disgraced former Italian prime minister Silvio Berlusconi, while hard-right League party leader Matteo Salvini has often expressed his admiration of the Russian president and repeatedly called for an end to previous EU sanctions against Moscow.

But political analysts say Italy’s stance on Russia is becoming increasingly aligned with that of Germany and other major EU powers under the current government, since former European Central Bank head Mario Draghi became prime minister in February 2021.

PROFILE: Who is Italian prime minister Mario Draghi?

While Berlusconi, Salvini, and other Italian political forces believed to be sympathetic to Russian interests remain influential as part of Italy’s current broad coalition government, the prime minister himself has repeatedly stressed Italy’s commitments to the EU and NATO.

What has Prime Minister Mario Draghi said?

Draghi immediately condemned Russia’s attack on Ukraine on Thursday morning, describing it as “unjustified and unjustifiable”.

Later on Thursday, Draghi demanded that Russia “withdraw unconditionally” from Ukraine, saying the invasion of the pro-Western nation “concerns all of us, our lives as free people, our democracy”.

He added that Rome was strengthening its “contribution to military deployment in all the most directly exposed Allied countries”.

READ ALSO: Italy condemns Russian invasion of Ukraine and summons ambassador

Draghi has faced criticism in some quarters for appearing lukewarm over Western sanctions against Russia, particularly after he said on Friday that these should not be applied to energy imports. 

He was unusually outspoken last month in playing down the risk of a Russian invasion of Ukraine, but he has also made clear that Italy’s place in NATO takes precedence over friendly relations with the Kremlin.

Italian Prime Minister Mario Draghi gives a speech in Rome on February 24th after Russian forces invaded Ukraine. Photo by Remo Casilli / POOL / AFP

On Thursday, Draghi said Italy was “fully aligned” with its partners and would decide “on a very tough package of sanctions against Russia”, AFP reports.

“We have made it clear in every forum that we are ready to impose severe consequences if Russia…rejects our attempts to resolve the crisis through political means. Now is the time to apply them.”

Rome would “do whatever it takes to preserve Ukraine’s sovereignty, Europe’s security, and the integrity of the international order based on the rules and values we all share,” he said.

How will Italy’s economy be impacted?

Gas prices are the most obvious cause for concern in a country as heavily reliant on imports as Italy.

Italy is more dependent on natural gas for energy than most of its European neighbours and imports 90 percent of its gas supply, according to Reuters, with Russia supplying around 40 percent.

As in the rest of Europe, consumers and businesses in Italy are already struggling with the rising cost of energy after a series of sharp price hikes over the past year, fuelled by the surging price of natural gas.

Analysts point out however that the cost of energy will be less of a concern in Europe as it heads into the summer months. If conflict continues into the winter, the scenario may be different.

READ ALSO: How will the Russian invasion affect Italy’s gas supplies and prices?

Italy is a key export market for Russian energy giant Gazprom. Photo by Kirill KUDRYAVTSEV / AFP

Food prices are also likely to be affected in Italy, which imports a majority of its wheat and corn.

“The war is aggravating the problems of the national agricultural sector, which is already suffering from the effects of price volatility,” the Coldiretti agricultural association stated on Thursday.

Agricultural commodities are usually much less volatile than stocks or oil, but have recently seen spectacular spikes and drops provoked by Russia’s looming invasion of Ukraine.

The stakes are especially high for wheat, with Russia being the world’s top exporter and Ukraine the fourth according to estimates by the US Department of Agriculture (USDA).

But the consequences for agricultural markets of Russia’s invasion of Ukraine on Thursday are still difficult to predict.

“It is totally unprecedented,” Sebastien Poncelet, an analyst with the French consultancy Agritel, told AFP.

“When we see that there are explosions in Odessa, which is the main Ukrainian port, we must assume there will not be much grain loaded there today,” he said.

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ENERGY

How long will it take Italy to wean itself off Russian gas?

Italy's government has repeatedly said it plans to end its dependence on Russia for gas supplies following the invasion of Ukraine. But as the timeline keeps changing, when and how could this happen?

How long will it take Italy to wean itself off Russian gas?

Italy is heavily dependent on Russian gas, but has been seeking new sources since Moscow’s invasion of Ukraine as part of an effort to end this reliance in the coming years.

But it remains unclear whether Italy can really end its dependence on Russia for its gas supply – or when this might be feasible.

READ ALSO: What does Italy’s Algerian gas deal mean for energy supplies?

The government has been seeking new sources since Moscow’s invasion of Ukraine, including with a recent deal to boost supplies from Algeria.

Prime Minister Mario Draghi said last week the country could be independent of Russian gas by the second half of 2024 – the latest in a series of changing estimates.

“Government estimates indicate that we can make ourselves independent from Russian gas in the second half of 2024,” Draghi told the Senate, while adding that the “first effects” of this plan would be felt by the end of this year.

He said his government was also seeking to boost its production of renewable energy, including by “destroying bureaucratic barriers” to investment, saying it was the “only way” to free Italy from having to import fossil fuels.

Explained: Why and how Italy will pay for Russian gas in rubles

In April, Italy‘s Ecological Transition Minister Roberto Cingolani estimated the country would no longer need Russian gas within 18 months, following an earlier prediction that it could take until 2025.

Italy is one of Europe’s biggest users and importers of natural gas, importing 90 percent of its gas supply with 45 percent of that coming from Russia – up from 27 percent ten years ago.

Italy now imports 29 billion cubic metres of Russian gas a year, which Cingolani said in March “must be replaced” – but he didn’t specify with what.

Analysts have said there are “a lot of questions” about how helpful Italy’s gas deal with Algeria will be.

Despite its vast natural gas reserves, Algeria is already exporting at close to full capacity.

Draghi repeated his strong support for EU sanctions on Moscow last week, including a proposed ban on imports of Russian oil, although this is currently being blocked by Hungary.

“We must continue to keep up the pressure on Russia through sanctions, because we must bring Moscow to the negotiating table,” he said.

But for now, Italian energy giant Eni says it plans to pay for Russian gas supplies in rubles, meeting a demand from Vladimir Putin.

It was not immediately clear whether the plan would fall foul of European Union sanctions, although Eni said it was “not incompatible”.

The company said its decision to open the accounts was “taken in compliance with the current international sanctions framework” and that Italian authorities had been informed.

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