Italy and the era of geopolitics

The escalation of the recent Middle Eastern crisis following American and Israeli intervention in Iran opens a new perspective on interpreting geopolitical shocks for our country: the temporal horizon. To a large extent, the tense situation in the Middle East does not represent a direct strategic problem for Italy. We do not have significant commercial exposure to Tehran, nor immediate geopolitical interests that would independently alter our economic posture or industrial positioning.

However, events in the Persian Gulf can become highly impactful for the Italian economy—not because of the event itself, but because of its duration. Italy is a major manufacturing economy, deeply integrated into global value chains and structurally dependent on energy imports. Oil is almost entirely imported; gas (particularly Liquefied Natural Gas, or LNG) remains central to the electricity mix; and the energy bill decisively affects the trade balance. In this context, Italy is exposed to the Iranian crisis not as a geopolitical actor, but as a global price taker in energy markets.

The centrality of liquefied natural gas

The Strait of Hormuz, through which roughly one-fifth of the world’s oil passes, is a systemic bottleneck. Bloomberg has documented how, in the days following reciprocal attacks in the area, tanker traffic slowed significantly, and oil and diesel futures moved enough to trigger temporary trading halts. Even without a physical blockade, increased perceived risk immediately translates into a geopolitical premium on Brent, higher insurance costs, and rising maritime freight rates. Goldman Sachs estimates that a one-month disruption in the Strait could see Brent rise by up to $15. However, the bank notes that oil prices tend to normalize quickly if disruptions are temporary, as strategic reserves or OPEC+ supply increases—already being deployed—can compensate. Problems arise if uncertainty lingers, which depends on potential damage to production facilities in the area.

For Italy, the decisive energy variable is not oil, but gas. While oil affects inflation and fuel prices, gas is the core of the national energy system. Even with growing renewables, gas still fuels about 40% of electricity production and remains key for energy-intensive industries.

We must look at the LNG market to evaluate the crisis's impact. Here, flexibility is limited; since the Russian invasion of Ukraine blocked gas flows to Europe, global liquefaction capacity has been almost fully utilized. Because 20–25% of the world’s LNG (particularly from Qatar) passes through the Strait of Hormuz, a prolonged slowdown would hit gas harder than oil. Consequently, the news of the (hopefully temporary) closure of Qatar’s Ras Laffan plant—one of the world's largest liquefaction hubs—creates significant economic headaches for Italy, primarily regarding price rather than quantity.

Short and long term

In the short term, Italy appears relatively protected regarding physical supply. A significant portion of LNG deliveries for March 2026—including gas contracted by operators like Edison—is already on ships that departed Qatar before the escalation. Furthermore, since the 2022 shock, storage levels are generally higher and sources more diversified. However, the European gas price (TTF) remains global and interconnected, having already spiked by 80% since the crisis began.

If prices do not retreat within days, the effects on the Italian economy would manifest through three channels:

1. Growth: Rising energy costs squeeze margins for energy-intensive sectors (metallurgy, ceramics, chemicals) and reduce household purchasing power, slowing GDP.
2. Inflation: Sustained energy spikes drive up production costs for intermediate goods. This puts stress on industries like construction and transport, which are currently awaiting PNRR (National Recovery and Resilience Plan) reimbursements. If inflation persists, the ECB may have less room for monetary easing, pressured by high public debt.
3. Trade Balance: Italy recently recovered a trade surplus thanks to normalizing energy bills. A structural price hike would quickly erode this margin, potentially impacting sovereign risk perceptions.

In summary, Italy's vulnerability is not determined by the crisis "today," but by its potential persistence. While Italy is more resilient in terms of physical supply than in 2022, we remain highly vulnerable to global prices that react in real-time to geopolitical friction. We are learning that in an interconnected world, the relevance of a shock is measured not just by its geographical distance, but by its duration.

This article is also published on SDA Bocconi Insight, in Italian. illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.