The Ukraine – Why Italy is Treading Carefully

The situation in the Ukraine is still explosive. For now, nobody knows just what is going to happen. Russia may invade, then again, it may not. So far, indications are that Russia is readying its forces for invasion, even if Putin is denying this.

Italy, like the rest of the world, is watching and waiting with baited breath. The trouble is that the Ukraine situation poses more of a problem for Italy than for some other nations.

As well as Italy having extensive business interests there, the Boot is also on good terms with all the major protagonists.

Italy’s Trade with the Ukraine

Trade with the Ukraine is worth around €3.5 billion to Italy and is, or was, growing. Export of machinery to the Ukraine from Italy are worth €350 million.

Italian bank, Unicredit, for example, is a major lender in the Ukraine. Today, reports are appearing in Italy’s press that Unicredit has been closing branches in Crimea capital Sinferopoli and reducing opening hours in other areas of the nation. The closures are said to be temporary. In addition, Unicredit has limited the amount that can be withdrawn from its ATM machines.

War in the Ukraine could cause a major problem for Unicredit, as it could for the 500 or so Italian businesses operating in the country – that’s not to mention the potential loss of business for Italian companies exporting goods to the Ukraine.

The Gas Issue

Italy, on the other hand, imports around 30% of its gas from Russia and the gas pipeline passes though the Ukraine. If Russia were to interrupt the supply of gas, this could cause problems for Italy, though Italy is believed to be ready for such an eventuality and could source its gas from other suppliers. It is not clear what the cost of doing so would be though.

The fact that Italy is acting with great caution suggests that gas arriving from nations other than Russia may be more costly. If this is the case, energy costs in Italy could rise. They are high now, so higher energy costs could have an adverse effect on Italy’s businesses many of which are struggling in what are proving to be very hard times for enterprise in Italy.

The Putin Factor

On top of the commercial and energy interests, there’s the ‘Putin factor’. Former Italian prime minister Silvio Berlusconi is a great friend of Russian President Valdmir Putin and trade with Russia is worth a lot more than it is with the Ukraine. Should the world decide to levy sanctions on Russia in the event it invades the Ukraine, Italy will find itself in a complex position. If it supports the Ukraine, it risks losing business with Russia. This loss of business could be very damaging for Italy’s already very shaky economy and could even kill the economic recovery which is said to be taking place.

US Bases in Italy

As if the Ukraine situation were not complex enough for Italy, adding to the headaches will be Italy’s close friendship with the USA. Indeed, so close is the Italy-USA relationship that the US has quite a number of military bases in Italy. Bases which would play a major role in the event the USA decides to assist the Ukraine militarily in the event Russia decides to invade. Should this scenario become reality, Italy will have to make up its mind fairly quickly just where its loyalties lie.

In the meantime, Italy will sit on the fence, waiting and hoping that the Ukraine situation can be resolved peacefully.

Sources in Italian:

Yahoo finanza – Unicredit: chiude filiali in capitale Crimea e limita prelievi Bancomat

Europa – L’Ucraina è vicina. Perché la crisi a Kiev tocca l’Italia

 

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