By Egidio Inguscio – LIPR Ambassador Of Peace based in Italy
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.
Draghi immediately condemned Russia’s attack on Ukraine on Thursday morning, describing it as “unjustified and unjustifiable”. Later, 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”. For all these reasons, 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. Food prices are also likely to be affected in Italy, which imports a majority of its wheat and corn.
“A new phase full of risks has opened up that requires all representatives of the production sectors and workers to make the maximum contribution to social cohesion. We must prepare ourselves to face a situation of profound instability.
Moscow’s response to the EU sanctions may push up gas and oil prices again, as we are already seeing in these hours. The increase in the cost of energy also has an impact on all means of production and transport”, said Confagricoltura President Massimiliano Giansanti.
“A further tightening by Moscow of agri-food imports from EU member states, which are set to reach €7 billion in 2020, cannot be ruled out. We risk not having the necessary quantities of fertilizers available for the next harvests. And the blockade of activity in the port of Odessa could cause the international grain market to collapse. Farmers will continue to do their utmost to ensure the continuity of production cycles and the regularity of deliveries”, assured the president of Confagricoltura. “However, we are asking EU institutions and our government for extraordinary support measures that are appropriate to the gravity of the situation. We expect a clear indication from today’s extraordinary European Council meeting”.
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.
And then, there is also wine. According to ISTAT data, processed by Federvini, Russia, Italy’s tenth largest wine market, saw imports of Italian wines, in the first 11 months of 2021, at 152.3 million euros, +20.7% compared to 2020. And Ukraine, in the same period, recorded imports of 57.4 million Euros. These are important numbers, bearing in mind that December is missing, which on average, due to the end-of-year holidays, is worth almost twice as much as other months. And the concern of the sector is high, as Vittorio Cino, general manager of Federvini, explained to WineNews: “these are important markets, especially Russia, which have grown in recent years. At the end of the year there will have been an exchange, in terms of exports of Italian wines, of 250 million euros, two thirds from Russia and a third from Ukraine. Significant markets, especially for sparkling wines, which in Russia is one of the most successful products”.
Premier Mario Draghi said that the knock-on effects of Russia’s invasion of Ukraine were set to have a major impact on the Italian economy and, with the energy sector a particular concern, it may be necessary to reopen coal-fired power plans to meet the nation’s energy demands. Reopening coal plants would be a huge setback to Italy’s efforts to cut its greenhouse-gas emissions and do its bit to address the climate crisis.
“Over the last few days the European Union has shown its determination and unity (regarding sanctions on Russia),” he said as he reported to the Lower House on the Ukraine crisis. “We are ready for even tougher measures if they should not turn out to be sufficient. “The sanctions that we have approved and those that we may approve in the future, oblige us to consider the impact on our economy with great attention.
“The greatest concern regards the energy section, which has already been hit by price increases in recent months. “About 45% of the gas that we import comes from Russia, up from 27% 10 years ago. “It could be necessary to reopen coal plans to cover eventual shortfalls in the immediate term”. He added that his executive was ready to adopt more measures to soften the impact of soaring energy prices on households and businesses.
Moreover, as the war intensifies in Kyiv, Ukraine has been getting support from some countries, such as Italy, on its call to remove Russia from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) banking system.
Italy and Cyprus extended their support to Ukraine’s call and urged the world to cut off Russia from SWIFT– a network that enables smooth cross-border financial transactions. Ukraine’s President Volodymyr Zelenskyy stated that he held a telephonic conversation with Italy’s Prime Minister Mario Draghi during which the latter supported Kyiv’s call to remove Moscow from SWIFT.
