"CompLab" is the blog on competitiveness and growth coordinated by Carlo Altomonte
The escalation of the recent Middle Eastern crisis following the American and Israeli intervention in Iran opens up a new perspective for interpreting geopolitical shocks for our country: the time horizon. The current tension in the Middle East largely does not represent a direct strategic problem for Italy. We do not have significant trade exposure to Tehran, nor immediate geopolitical interests that would independently alter our economic stance or the positioning of our industrial structure.
However, what happens 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, LNG) remains central to the electricity mix; and the energy bill weighs decisively on 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.
LNG is key
The Strait of Hormuz, through which about one-fifth of the world’s oil passes, is, as is well known, a systemic bottleneck. Bloomberg has documented how, in the days following the reciprocal attacks in the area, tanker traffic slowed significantly and futures on oil and diesel recorded movements large enough to trigger temporary trading suspensions. Even in the absence of a physical blockade, an increase in perceived risk immediately translates into a geopolitical premium on Brent, higher insurance costs, and rising shipping rates. Goldman Sachs further estimates that, in the event of a one-month disruption in the Strait of Hormuz, Brent could rise by up to $15 above its international equilibrium price. The same bank affirms, however, that oil prices tend to normalize relatively quickly if disruptions are temporary, as there is room for compensation through strategic reserves or increased OPEC+ supply, already promptly deployed. Problems could instead arise if uncertainty were to persist, a factor that in turn depends on the potential damage suffered by production facilities in the area.
For Italy, however, the decisive energy variable is not oil, but gas. Oil affects inflation and fuel prices, but gas is the central variable of the national energy system: although the share of renewables in the country is increasing, gas still fuels about 40 percent of electricity generation, is key for energy-intensive industries, and largely determines wholesale energy prices, as Italy has only very recently approved the new EU rules aimed at stabilizing prices through the introduction of so-called Contracts for Difference.
For these reasons, any assessment of the impact of the Iranian crisis on the national economy must start with the LNG market. In this market, unfortunately, margins for flexibility are more limited because, since Russia’s invasion of Ukraine halted gas flows to Europe, global liquefaction capacity has been almost entirely utilized. As about 20–25 percent of global LNG passes through the Strait of Hormuz, particularly from Qatar, any prolonged blockage or slowdown in shipments would have potentially more significant effects on gas than on oil. It follows that the news of the (hopefully temporary) closure of Qatar’s Ras Laffan facility—one of the largest liquefaction hubs in the world—creates considerable economic concern for Italy. Not so much in terms of volumes, but in terms of price.
Short and long term
In the short term, Italy appears relatively protected in terms of supply. A significant share of LNG deliveries for March 2026—including gas contracted by operators such as Edison—is already on vessels that departed Qatar before the escalation, reducing the immediate risk of physical disruption. Moreover, after the 2022 energy shock, storage levels are on average higher today (although 2026 appears to be a “critical” year on the downside in Europe), and diversification of supply sources has increased. However, the price of LNG formed on the European market (TTF) remains global and interconnected, having risen by 80 percent since the beginning of the crisis.
If this price does not fall back within a few days, the effects on the Italian economy could become significant through three channels.
First, growth. Higher energy costs compress the margins of energy-intensive companies—metallurgy, ceramics, chemicals, transport—and reduce households’ purchasing power. The energy shock translates into slower GDP growth through a combination of lower investment and weaker consumption.
Second, inflation. Energy enters directly into the price index and indirectly into production costs. If the increase proves persistent, it would within months generate widespread price hikes in intermediate goods, putting pressure on key industries such as construction and transport at a delicate moment, as they await reimbursements under the National Recovery and Resilience Plan (PNRR) that is nearing completion. Those reimbursements could then occur below cost in real terms. Moreover, if the energy shock were to persist, inflation expectations would more easily become unanchored, leaving the ECB with less room for rapid monetary easing, putting pressure on equities and credit, and creating difficulties for a country with high public debt such as Italy.
Finally, prolonged geopolitical instability would affect the trade balance and external vulnerability. Italy has regained a trade surplus partly thanks to the normalization of the energy bill after the 2022 peak. A structural increase in oil and gas prices would quickly erode this margin, pushing the balance back toward equilibrium or deficit. In a context of greater financial volatility, a deterioration in the external balance can itself influence perceptions of sovereign risk.
In summary, it is not the crisis in the Persian Gulf “today” that determines Italy’s vulnerability, but the possibility that it will persist over time, generating a risk premium on energy prices and influencing expectations and financial conditions. To be sure, compared with the Russia-Ukraine crisis, Italy is more resilient in terms of physical supply: greater diversification of gas sources, higher storage levels, and more structured European coordination avoid the scarcity problem that was very real in the spring of 2022. But this does not eliminate our vulnerability to global prices, which are formed in integrated markets and react in real time to geopolitical tensions.
The lesson, therefore, is that in this case the crisis does not spread through a direct channel proportional to its geographic distance, but rather as a function of its potential persistence. In an interconnected world and within an advanced productive system, it is not only the spatial dimension of a geopolitical shock that matters, but its unfolding over time.
