Like much of the world, Italy is already feeling the effects of the war between Iran and the US and Israel, which has rapidly devolved into a regional crisis.
On a political level, Prime Minister Giorgia Meloni and her government have thus far avoided making public statements beyond calling on Iran to halt its “unjustified” attacks, mainly responding quietly through diplomatic channels.
On Tuesday, the PM chaired high-level meetings with both ministers and with Eni and Snam, Italy’s largest energy supplier and natural gas distributor. Meloni has reportedly also had phone conversations with several Gulf Cooperation Council leaders and other relevant nations, such as Jordan.
While the political impact of the conflict remains to be seen, the economic ripple effects are something Italy is unlikely to avoid.
Fuel prices
The most immediate impact is on the price of fuel. Iran accounts for around 10 percent of global oil reserves and 16 percent of natural gas reserves, and is the third largest producer in OPEC.
The war led to European gas prices almost doubling between Sunday and Tuesday. That came after the announcement that Qatar, one of the world’s top liquified natural gas producers, would stop operations amid the unrest.
The effects are already directly impacting Italian consumers at the pumps.
Italian media has reported record fuel increases, specifically a 16 percent hike for diesel fuel. These are the highest fuel prices Italy has seen in years.
Il Fatto Quotidiano newspaper quoted Defence Minister Guido Crosetto as estimating a 30-40 percent increase in transportation costs as a result of the conflict.
Davide Tabarelli, the president of energy-focused research firm Nomisma Energia, told Italian news agency Ansa that Italy’s household gas bills could rise by as much as 15 percent by April.
Food prices
Beyond energy costs, the price impact could also be felt in supermarkets – adding to the bloated inflation already impacting Italian consumers.
READ ALSO: How Italian grocery costs have exploded in recent years
The Gulf supplies a bedrock ingredient for about half of the world’s agriculture – nitrogen fertilizer. About a quarter of the world’s nitrogen fertilizer, which is derived from natural gas, must pass through the Strait of Hormuz, which is now all but closed by Iranian authorities.
Italy relies heavily on synthetic fertilizers, much of which the country imports from the Middle East and North Africa. Without it, crops will start to fail.
Even before war broke out in Iran, European farmers were suffering from a lack of fertilizer. Just last month, Italy and France called for a suspension on the European Commission’s carbon tariffs on fertilizers, which drove down imports by 80 percent since the new year.
Travel
Ita Airways suspended flights to and from Riyadh and Dubai until March 4th and Tel Aviv until March 8th.
Hundreds of thousands are stranded in airports across the region. Italy’s Foreign Minister Antonio Tajani formed the Gulf Task Force to help citizens repatriate, and Italy has started evacuation flights for Italians.
Markets
Milan’s stock exchange suffered big losses on Tuesday along with other major European stock markets, closing with a 3.9 percent drop.
Bank and fashion stocks were hit hard in early trading, with Mediobanca down 3.7 percent, Unicredit down 3.3 percent, Bper down 3 percent and Banco Bpm losing 3.1 percent.
Luxury fashion brand Moncler shed 2.7 percent and Cucinelli 2.6 percent.
A lengthy Middle East conflict and sustained drop in energy supplies could trigger a spike in eurozone inflation and hit regional growth, the European Central Bank has warned.
Security risk?
At a parliamentary hearing on Monday, Foreign Minister Antonio Tajani said the conflict was a direct threat to Italy's security.
For now, the on-the-ground impact in Italy has been limited to public demonstrations – both for and against the US’s attack on Iran – outside the US consulate in Milan and the embassy in Rome.
Unlike the UK and other European nations that have spoken out on allowing their bases and other infrastructure to be used for defensive purposes, Italy has not yet taken an official stance.
As to whether Italy will allow the US to make use of its bases to attack Iran, Ansa quoted Defence Minister Crosetto as saying: “It's not my decision, it's the government's decision – when they ask us, we'll answer.”
Though the majority of US military installations in Europe are in Germany, there is a significant presence in Italy as well – five large-scale bases and a total of about 120 relevant sites. Most of the primary US bases in Italy are in the north of the country, with one in Sicily.
Italy has already received requests for assistance from Gulf countries, specifically for air defence and anti-drone systems, to which there has been no official response reported.
So far, the closest Italy has come to being drawn into the conflict was an Iranian missile attack that significantly damaged a Kuwaiti air base hosting Italian air force personnel on Saturday.
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