Iran’s Threat To Hormuz Puts Cost Squeeze On Italy, Raises Stakes For Georgia Meloni – OpEd

Iran’s threats to shipping in the Straits of Hormuz has caused a surge in prices at Italian pumps and checkouts and led the government of Georgia Meloni to do a U-turn on its coal-replacement policy. 

The impact of the Hormuz choke-off were felt almost immediately in Italy—21% of its energy supplies transit through the Straits—as diesel prices jumped sharply in early March, by around a quarter in little more than a week, according to one analysis of the Hormuz disruption and Italy’s exposure – with petrol not far behind.

For families dependent on their cars, and for the small hauliers who keep Italy’s logistics chain moving, the effect has been immediate: filling a tank now costs noticeably more than it did in February, even before the summer holiday traffic has begun.

The shock is already visible in inflation figures. Headline consumer prices, which had been drifting towards the comfort zone after the post‑Ukraine spike, have moved back up to roughly 1.7 per cent year‑on‑year, with economists warning that inflation is once again “an energy and food story” rather than a tale of booming demand.

Food is the second front in this new squeeze. Farmers’ organisations and market traders report rising prices for fresh fruit and vegetables – strawberries, pears and seasonal produce among them – as higher diesel and fertiliser costs feed into the cost of getting goods from field to stall. The weekly shop is creeping up, especially for lower‑income households that spend a larger share of their income on food and fuel and have already exhausted the savings built up during the pandemic.

Confronted with this new energy shock, the government has reached for a familiar comfort blanket: coal. At the end of March it quietly postponed the phase‑out of coal‑fired power plants from 2025 to 2038, folding the move into a broader “energy bills” decree originally billed as a shield for households and firms.

On paper, coal plays only a marginal role in Italy’s power mix, now supplying a sliver of electricity compared with gas, which still accounts for more than 40 per cent of generation. Yet ministers insist that in a country that imports three‑quarters of its energy, and where more than a fifth of oil and gas volumes have traditionally passed through the Strait of Hormuz, keeping those plants available is an insurance policy against further shocks.

Around this coal reprieve, Rome has built a 3‑billion‑euro package designed to push down wholesale prices and, by extension, household tariffs. The decree compensates gas‑fired generators for carbon costs and narrows the gap between Italian gas prices and those at the Amsterdam TTF hub – technical measures that officials say will mean “real savings” for families and businesses compared with what they would otherwise have faced.

But environmental groups warn of higher long‑term costs, dirtier air around ageing plants in Brindisi, Civitavecchia and Sardinia, and yet another lost opportunity to accelerate renewables and storage.

For now, the central bank expects inflation to average in the mid‑twos this year – higher than last year though as yet hardly runaway – with the Iran‑driven energy spike the main culprit. The government is hoping its emergency measures will be enough to stave off a lasting spike in prices and wages.

Politically, however, the risk is less about the headline rate and more about how the pain is distributed and perceived. Meloni came to power promising to defend “ordinary Italians” from the fallout of global crises, and presented herself as a safe pair of hands after the turbulence of the pandemic years.

Iran’s blackmail and its impact on prices is real enough but as pressure on the forecourts and in supermarkets continues, one of the most stable and internationally respected Italian governments of recent decades will inevitably come under domestic pressure. 

She was therefore pretty sharp in getting down to the Gulf states, flipping through Saudi Arabia, the UAE and Oman in 48 hours in early April, to show her solidarity and shore up Italy’s energy security. She needed to look like she was dealing actively with the crisis.

Because time is short. If energy‑led inflation remains elevated into next year, and if Italians come to see higher diesel, dearer groceries and a dirtier power mix as the hallmarks of her response to the Iran crisis, Meloni may find that the political capital spent in her early promises of protection has been spent faster than she imagined.

A war in the Gulf, fought thousands of miles from Rome, is thus poised to become a very domestic test of her claim to be the leader who can keep Italy warm, moving – and solvent – when the world turns cold.