The continuing war in Iran and disruption across global energy markets could cost Italy nearly €12 billion in additional energy expenditure in only six months. According to estimates by Italy’s Confederation of Craft Trades and Small and Medium-Sized Enterprises, CNA, the additional cost of fuel, electricity and natural gas between March 1 and August 31 amounts to approximately €11.6 billion compared with price levels before the conflict began at the end of February. Fuel accounts for the largest part of the increase at around €5.8 billion, followed by approximately €3.8 billion for electricity and about €2 billion for natural gas. The impact is being felt by households and businesses alike, although smaller companies are particularly vulnerable because energy can represent a significantly larger share of their overall costs. The cause of the price increase lies far beyond Italy’s borders. The conflict has severely disrupted shipments through the Strait of Hormuz, one of the world’s most important routes for oil and liquefied natural gas. Before the war, around 20 million barrels of oil and petroleum products passed through the waterway every day, but traffic has fallen dramatically, triggering a global energy price shock.
The problem for Italy could become considerably more serious if the crisis persists. The country is a major importer of energy and, despite diversifying supplies following Europe’s previous energy crisis, remains heavily exposed to international oil and gas prices. More expensive energy gradually feeds into transportation, manufacturing, food and services, increasing inflationary pressure and weakening the competitiveness of businesses. Earlier estimates from Confindustria suggested that if the conflict continued and oil prices remained substantially higher, additional energy costs for Italian industry alone could become significantly larger. The issue is increasingly becoming a European problem as well. Italy, Germany, Spain, Portugal, Poland and Austria are pushing for the European Union to discuss a common approach to taxing windfall profits earned by oil companies as governments struggle with the economic consequences of the energy shock. The Iran war is therefore developing into not only a geopolitical and energy crisis but also a major economic test for Europe, while Italy’s nearly €12 billion additional bill demonstrates how quickly an international conflict can translate directly into higher costs for households and businesses.
