Oil Hits $108 as Middle East Crisis Threatens Italian Wallets and Businesses

Oil prices have broken through the $100-per-barrel threshold for the first time since July 2022, a development that threatens to drive up inflation across Europe and Italy at a moment when households and businesses were just beginning to recover from the energy shocks of 2022-2024. The surge—which saw WTI crude climb 15% to $104.90 and Brent advance 17% to $108.50—is a direct consequence of the escalating conflict between the United States, Israel, and Iran, now in its second week.

Why This Matters

• Fuel and heating costs will rise sharply: Oil above $100 typically adds 0.6-0.7% to inflation, compounding the cost-of-living pressures facing Italian families.

• Manufacturing and export competitiveness at risk: Italy's energy-intensive industries face both higher production costs and logistical uncertainty as shipping insurance premiums soar.

• G7 emergency intervention underway: Finance ministers are meeting today at 14:30 Italy time to discuss releasing 300-400 million barrels from strategic reserves—a measure used only five times in history.

• Market volatility expected to continue: Analysts warn prices could reach $120 per barrel if the conflict extends beyond a few weeks.

The Geopolitical Trigger: Hormuz Blockade and Infrastructure Attacks

The immediate catalyst for the price explosion is the effective closure of the Strait of Hormuz, the narrow waterway through which roughly 20 million barrels per day normally pass—approximately one-fifth of global oil supply and a critical artery for liquefied natural gas exports. Iranian forces have threatened to target Gulf oil facilities if attacks on their own energy infrastructure continue, a threat that has already materialized with drone strikes on Saudi and Emirati installations.

According to the International Energy Agency, alternative pipeline routes can handle a maximum of 4 million barrels daily, leaving a massive shortfall. Qatar, Kuwait, and the United Arab Emirates have all announced precautionary production cuts or halts, citing security concerns. Goldman Sachs estimates that Iran alone produces 3.5 million barrels per day plus 800,000 of condensate—roughly 4% of global output—half of which was destined for export before hostilities began.

The conflict, dubbed "Operation Epic Fury" by the United States, began on February 28 and has already resulted in the reported death of Iran's Supreme Leader, Ayatollah Ali Khamenei. President Donald Trump has stated the campaign could last "several weeks," dismissing concerns about oil prices as "a small price to pay for the peace and security of the USA and the world." He added that prices will "fall rapidly with the end of the destruction of Iran's nuclear threat," a projection that energy traders view with skepticism.

Emergency Response: G7 Considers Historic Reserve Release

In response to the crisis, G7 finance ministers are convening today in an online session to coordinate the release of strategic petroleum reserves. According to the Financial Times, at least three member states—including the United States—have signaled support for deploying 300-400 million barrels, equivalent to 25-30% of the total 1.2 billion barrels held collectively by members of the International Energy Agency.

This mechanism has been activated only five times in history: twice following Russia's invasion of Ukraine, once during the first Gulf War, after Hurricane Katrina, and during Libya's production collapse. The move is designed to flood the market with supply and dampen speculative price surges, though its effectiveness depends heavily on both the volume released and the duration of the conflict.

As of this writing, no formal decision has been announced. Sources familiar with the discussions indicate that agreement remains incomplete, with debate centering on the total quantity and the distribution formula among participating nations.

What This Means for Italian Households and Businesses

For residents and enterprises in Italy, the consequences of sustained triple-digit oil prices extend far beyond the pump.

Inflation acceleration: The Italy National Institute of Statistics (ISTAT) has previously documented how energy shocks transmit rapidly through the economy. A barrel of oil above $100 translates into higher costs for gasoline, diesel, home heating oil, and jet fuel. But the second-order effects are equally severe: transportation costs rise, pushing up prices for food, consumer goods, and services. Economists estimate that each 10% increase in oil prices shaves 0.1-0.2% off GDP in advanced importing economies.

Manufacturing under pressure: Italy's industrial sector, which depends heavily on energy-intensive processes and exports, faces a dual shock. Production costs increase while global demand softens due to higher inflation and tighter monetary policy elsewhere. The country's export-oriented manufacturers—textiles, machinery, automotive components—now confront both rising input costs and elevated shipping insurance premiums. Insurers are demanding higher rates to cover vessels transiting conflict zones, adding another layer of unpredictability to supply chains.

Monetary policy dilemma: The European Central Bank had been signaling a gradual easing of interest rates as inflation approached target levels. Sustained energy price increases complicate that calculus, potentially delaying rate cuts and keeping borrowing costs elevated for Italian businesses and mortgage holders. Inflation expectations in the Eurozone have already climbed to their highest levels since July 2024, a signal that markets are pricing in persistent price pressures.

Budget strain: The Italian government may face renewed pressure to intervene with subsidies or tax relief to cushion consumers and businesses, placing additional strain on public finances at a time when debt servicing costs remain elevated. The spread between Italian 10-year bonds and German Bunds widened sharply to 83.2 basis points on Monday morning, the widest since June 2025, with Italy's yield climbing to 3.74%—the highest since May of last year. This reflects investor anxiety about fiscal sustainability in an environment of rising energy costs and potential economic slowdown.

Natural Gas and Broader Energy Contagion

The crisis is not confined to crude oil. Natural gas futures on Amsterdam's TTF exchange surged 20% to €64 per megawatt-hour in morning trading, reaching levels not seen since 2022. The connection is both direct—liquefied natural gas shipments also transit Hormuz—and indirect, as utilities and industrial users scramble to secure alternative energy sources, driving up demand across all fossil fuels.

This development is particularly concerning for Italy, which relies heavily on natural gas for electricity generation and industrial processes. The country has made significant progress diversifying its gas supply since the 2022 Russia-Ukraine crisis, increasing imports from Algeria, Azerbaijan, and via LNG terminals. However, a sustained spike in global LNG prices would still feed through to electricity bills and industrial energy contracts.

Strategic Uncertainty: Can the Market Be Stabilized?

Traders and analysts remain divided on whether the emergency measures under discussion will be sufficient to restore stability. Saudi Aramco has increased utilization of the Yanbu terminal on the Red Sea, which bypasses Hormuz entirely, and the company's shares have rallied on the Riyadh stock exchange as higher oil prices boost profit margins. However, experts note that even maximum utilization of Red Sea and overland pipelines cannot fully compensate for the Hormuz closure.

The U.S. Energy Secretary Chris Wright sought to reassure markets, stating that Hormuz will reopen "soon" and that the world does not lack oil and gas. Yet his comments were accompanied by a stark warning: "China is about to lose the second of its three major oil suppliers." Iran, Venezuela, and Russia collectively account for roughly 40% of China's oil imports, according to estimates from Kpler. Beijing also sources approximately 50% of its crude from the Gulf region, a dependency shared by Japan and South Korea. Seoul is already exploring price cap mechanisms to manage reduced deliveries.

Bloomberg Economics analyst Ziad Daoud wrote in a recent report that "neither Iran, nor the United States and Israel are showing signs of de-escalation," and the current price of around $93 per barrel "does not fully express the ongoing risks." He projects prices should reach at least $108 per barrel given that mitigation measures—from Red Sea terminals to hopes of a short conflict—are "not convincing."

There is also considerable skepticism about logistical proposals floated by the Trump administration, including a convoy escort system to shepherd tankers out of the Gulf. Questions remain about the feasibility of such operations, the willingness of shipping companies and insurers to participate, and the risk of escalation if convoys come under attack.

Medium-Term Outlook: Infrastructure Destruction and Occupation Plans

Beyond the immediate supply shock, the destruction of Iranian energy infrastructure is ongoing and could constrain global supply for months or years. Reports suggest the United States is considering a ground operation to occupy Kharg Island, through which 90% of Iran's oil exports transit. Such a move would effectively take Iranian crude off the market for an extended period, removing roughly 1.5-2 million barrels per day of export capacity.

OPEC+ members have announced plans to increase joint production starting in April, though the communiqué conspicuously avoided any reference to the Iran conflict. Whether Saudi Arabia, the UAE, and other Gulf producers can or will compensate for lost Iranian and potentially Iraqi output remains uncertain, particularly given the security environment and the threat of further attacks on their own facilities.

A Test of Resilience

For Italy and the broader European economy, the current crisis represents a test of resilience built over the past four years. The lessons of 2022—diversification of supply, investment in renewables, strategic reserves, and demand management—are now being put into practice under battlefield conditions. Yet the scale and speed of this shock, combined with the geopolitical uncertainty surrounding its resolution, present challenges that policy tools may struggle to fully address.

In the short term, Italian consumers should prepare for higher fuel prices at the pump and increased heating costs as energy companies pass through the spike in wholesale prices. Businesses, particularly in logistics, manufacturing, and agriculture, will need to reassess cost structures and pricing strategies. And policymakers face the unenviable task of balancing inflation control with growth support, all while navigating the fiscal constraints imposed by elevated debt levels and rising borrowing costs.

The coming weeks will determine whether the G7 reserve release and diplomatic efforts can stabilize markets, or whether the world is entering a prolonged period of energy insecurity and elevated prices. For now, the reality is clear: the era of cheap, reliable energy supply from the Gulf has been interrupted, and the consequences are rippling through every corner of the Italian economy.