Russia-Ukraine war: all the risks for Italy from gas to grain

The decisive week has begun. In the coming days, according to many analysts, we will be able to understand whether Russia is really going to invade Ukraine, unleashing a war, or if tensions will subside thanks to the pressure exerted by the NATO countries and Kiev's decision to renounce its entry into the Atlantic alliance. All eyes are focused on Wednesday 16 February, the day on which, according to US intelligence, Moscow could give orders to its troops massed on the border to invade Ukraine. The forecasts are not encouraging, so much so that in recent days many governments – including the Italian one – have advised their citizens present in Ukraine to leave the country. 

"We are in the midst of a risk of military conflict, of a war in Eastern Europe, and it is Russia that is responsible for it. I appeal to President Putin: untie the noose around Ukraine's neck. He joins us on the road that leads to the preservation of peace in Europe. And don't underestimate the power of democracy,” said German President Frank-Walter Steinmeier in his inaugural speech after re-election. 

But what if a war really breaks out in Ukraine and what would be the consequences for Italy? Two questions that many have begun to ask themselves, trying to understand what the dangers could be for a highly exposed country like ours which therefore risks paying a very high price.

Russia-Ukraine war: the risks on the markets

The possible conflict in Ukraine has already unleashed panic in the markets. The Vix index, also known as the "fear index", which measures market volatility, soared by 30,99% today, while stock exchanges around the world move in bright red, with the Ftse Mib recording one of the worst international performances, losing more than 3% of its value. The spread rose sharply, reaching 171 basis points in the morning, rising to the highest since June 2020, while the price of raw materials, gas and oil above all, skyrocketed. The price of gas, in particular, has soared 10% above $85 per megawatt hour in Amsterdam. 

Russia-Ukraine war: gas risks

50% of non-European imports to the Union come from Russia. ISPI, the Institute for International Political Studies, explains that "since mid-2021 Russian gas supplies to Europe have been lower than expected (-25%, even -40% in January), and also for this reason the spot prices of natural gas in Europe have almost quintupled in one year”, causing the by now well-known high bills.

We should find ourselves faced with "a common pain half joy", but in reality Italy is one of the countries that is suffering the most from this situation. Why? Because “among the large countries of the European Union, Italy is by far the most dependent on Moscow”, ISPI informs. 

A statement that becomes clearer by looking at the national numbers. According to official data provided by Mise-DgSaie, in 2021 our country consumed 76,1 billion cubic meters of natural gas, 5,1 more than in 2020. National production, equal to 3,34 billion cubic meters, covered 4,6% of demand. The rest (72,7 billion cubic meters) we imported. From where? With 29 billion cubic meters (+2,3% on 2020), Russia is still the main country of origin of our gas, followed by Algeria with 21 billion cubic meters.

To compare with other states, ISPI has created an index that measures the degree of vulnerability of each country to a possible interruption (or reduction) of gas supplies from Russia based on the amount of gas imports coming from Moscow. According to this index, on a scale ranging from a minimum of zero to a maximum of 31, Italy reaches a 19% vulnerability, placing itself in sixth place (together with Austria) immediately behind the Eastern European countries. And the other big EU states? Germany scores a value of 12, "still quite high", comments ISPI. France is doing much better, reaching a value of 3, much lower than the others thanks to nuclear power and liquefied natural gas imports.

In this context, the Italian Government published on Sunday Pitesai, the Plan for the sustainable energy transition of suitable areas, which aims to increase Italian gas production in order to counter the expensive energy. The main points of the project include a substantial stop to new permits for oil, the resumption of gas exploration and extraction on land and in the Italian offshore. According to the auspices of the Executive, the resumption of extractions could lead to a doubling of Italian production, thus reaching around 10% of the national requirement, but for hopes to turn into reality, it will take time. Which means that, in the event of a further reduction in supplies from Russia due to the war in Ukraine, Pitesai would be of little use.

Russia-Ukraine war: the risks on oil

A discourse similar to that made for gas is also valid for oil. To date, Russia is the EU's leading trading partner, with a market share of around 25%. For Italy, Moscow is the fourth largest supplier of oil in absolute terms. It is therefore easy to understand why the escalation of tensions between Russia and Ukraine has increased the price of black gold. This morning the American WTI touched 95 dollars a barrel to then settle at 92.93, while the European Brent currently stands at 94.63 dollars a barrel after having exceeded 96 dollars. 

In addition to the obvious repercussions on the cost of fuel, the increase in oil prices could further complicate the inflationary picture, causing a rise in the prices of other goods, especially those transported by trucks and vans, and jeopardizing the post-pandemic economic recovery.

Russia-Ukraine War: Wheat and Corn

It's not just energy that worries Italy. The winds of war in Ukraine have sent international prices soaring wheat for bread and corn for animal feed. In one week, prices rose by 4,5% and 5% respectively. To certify it is the analysis of Coldiretti on the weekly closing of the futures market of the Chicago commodity exchange which represents the world benchmark for agricultural raw materials which are at their highest values ​​for the decade. "What is worrying - says the association - is the fact that the conflict could damage the infrastructures and block shipments from the ports of the Black Sea with a collapse of availability on world markets and the concrete risk of famine and social tensions". 

In fact, Ukraine produces about 36 million tons of corn for animal feed (5th place in the world) and 25 million tons of soft wheat for the production of bread (7th place in the world). Kiev also ranks third as the world's grain exporter while Russia is in first place. Together, the two nations guarantee about 1/3 of world trade.

It is a question, Coldiretti continues, of "a global emergency that directly affects Italy, which is a country with a deficit and even imports 64% of its wheat needs for the production of bread and biscuits. In 2021 - reports the association led by Ettore Prandini - more than 120 million kilos of grain arrived from Ukraine and about 100 million kilos of grain from Russia which, moreover, has already announced that it will limit its exports of wheat from 15 February to 30 June. A situation determined by the disappearance in the last decade in Italy of one wheat field out of five with the loss of almost half a million cultivated hectares”.