Will the Iran conflict end Meloni’s long Italian honeymoon?
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But the repercussions of the US-Israeli attacks on Iran launched on February 28 are exposing a number of vulnerabilities in the Italian economy, which analysts say risks weakening Meloni’s standing among business and voters.
The yield spread between Italian benchmark BTP bonds and equivalent German Bunds, a key indicator of investor confidence in Italy, fell below 60 basis points at the beginning of this year, its lowest level since 2008.
This so-called “spread” has widened by more than 20 basis points in the last two weeks. International oil and gas prices also rose during the same period, putting money into the pockets of companies and families in a country whose energy needs are heavily dependent on imports.
The following five graphs highlight Meloni’s increasing headaches:
1/ HIGHER FAT, HIGHER BTP YIELD
This chart combines three variables: oil prices, the 10-year BTP yield and the BTP-Bund spread. With its massive public debt, Italy tends to suffer more than other euro zone countries in times of global instability when markets shift into risk-aversion mode or markets fear high interest rates. The rise in Italy’s borrowing costs comes as the government has failed to reduce the budget deficit to 3% of national output as targeted last year, leaving Rome facing an EU disciplinary procedure that restricts Meloni’s freedom to spend ahead of 2027 elections.
2/ INCREASE IN GAS PRICES INCREASE IN ELECTRICITY BILLS
Italy’s energy system, unlike its peers such as France and Spain, relies heavily on gas-fired generation; This means that any increase in gas prices is quickly reflected in the electricity bills of businesses and households.
This is a big problem for a government that bases some of its credibility in Italy on calming a domestic energy crisis triggered by Russia’s invasion of Ukraine in 2022.
3/ PRODUCTION TROUBLE MAY DEEPEN
Italy’s manufacturing sector has been struggling for the past three years, dragging down the growth performance of the euro zone’s third-largest economy.
However, industrial groups, Meloni’s core constituency, especially in the northern regions, have so far backed the government. Will they continue to do so if energy costs and geopolitical risks remain high and external demand weakens?
4/ SPRAY FERTILIZER ON AGRICULTURAL SURFACES
The collapse of traffic in the Strait of Hormuz and supply chain disruptions in the Gulf countries are also harming Italian agriculture, which is heavily dependent on imported fertilizer, and threatens the country’s famous agri-food industry.
Coldiretti, Italy’s main farm lobby, which works closely with Meloni, warned this month that fertilizer shortages “are already critical (and) risks worsened by supply disruptions and further price increases.”
The price of nitrogen-based urea, one of the world’s most widely used fertilizers, has increased since the attack on Iran.
Italy’s agricultural exports are also suffering. Coldiretti estimates that more than 100 million euros ($114.69 million) in losses have already been incurred in the floriculture sector in Sicily’s southern region alone, with more than 2,000 containers of plants and flowers destined for Gulf markets becoming stuck in transit.
5/ TOURISM
Italian tourism organizations are alarmed as the conflicts in the Middle East negatively affect air transportation to and from the region.
According to data from the Italian tourism agency ENIT, last year more than half a million travelers came to Italy from Gulf countries such as Saudi Arabia, the UAE, Kuwait, Oman, Bahrain and Qatar, most of whom were big spenders. This figure increased by 18.3% compared to 2024.
A report last year by payment company Nexi on tourist spending in Italy showed that travelers from the Arabian Peninsula are spending nearly 1,000 euros per credit card in 2024, doubling compared to 2022; This is more than twice the average for foreign visitors.
Also Read: West Asia war: Key Qatar, Iran, Abu Dhabi and Saudi energy facilities targeted so far
The decline in the number of wealthy visitors to the Gulf could be partially offset by arrivals from other regions, but Fiavet, the Italian association of travel agents, estimated on March 11 that the loss had reached 38,800 euros per agency.
It was stated that the total revenue loss in the sector, limited to missed reservations for Easter and spring holidays, exceeded 222 million euros and only 17% of travelers accepted alternative destinations. ($1 = 0.8719 euros)
