Iran war drives energy cost surge, Italian industry group warns of up to €21bn hit for firms in 2026

The energy shock triggered by the war in Iran could push Italian industry back to the levels of strain seen in 2022, with an estimated impact of up to €21 billion in additional energy costs. That is according to Confindustria, Italy’s main enterprises federation, which in its latest monthly outlook describes a “worsened scenario” for the economy, marked by rising costs, weakening confidence and tighter financial conditions.

Under a relatively optimistic scenario – with the conflict ending by June and oil averaging $110 per barrel – manufacturing firms would face around €7 billion in additional costs compared to 2025. If the war were to last throughout 2026, however, with oil at $140, the bill could climb to €21 billion. In that case, energy costs would account for 7.6% of total production costs, close to the critical levels reached in 2022 (8.3%).

Competitiveness under pressure

Higher energy prices risk eroding the competitiveness of Italian firms both within the EU and globally, particularly as energy remains cheaper in other regions, notably in the Americas. Oil prices have stayed above $100 per barrel in April, driven by tensions in the Middle East, while gas prices, though slightly easing from March peaks, remain well above late-2025 levels.

Exchange rates are adding to the pressure: a stronger dollar – hovering around 1.16 against the euro – is limiting any relief from energy imports for eurozone economies.

Confidence dips as borrowing costs rise

The impact of the crisis is already visible in key economic indicators. Household confidence is falling, pointing to weaker consumption ahead, while sovereign bond yields have risen across Europe. In Italy, yields climbed to 4.02% in late March before easing slightly in April.

Borrowing costs for businesses are also expected to increase further, as the European Central Bank is anticipated to raise interest rates in response to rising inflation across the euro area.

Industry fragile, services losing momentum

The broader economic outlook remains weak. Industrial production rose just 0.1% in February, insufficient to offset January’s decline, leaving a 0.5% contraction for the first quarter. The improvement in the manufacturing PMI (51.3 in March) appears largely driven by precautionary stockpiling, as firms anticipate further price increases.

The services sector is also showing signs of slowdown. After a strong start to 2026, supported by foreign tourism, the composite PMI fell into contraction territory in March (48.8), reflecting weakening demand.

Exports exposed to geopolitical risks

On the external front, Italian exports rebounded in February (+2.2% in volume terms), supported by strong demand from the United States (+8%). However, new tariffs and ongoing geopolitical tensions risk undermining this recovery.

Around €22 billion in exports to Gulf countries are particularly exposed, alongside critical supply chains involving aluminium and fertilisers. In this context, the war in Iran is emerging not only as an energy shock but as a broader systemic risk for both the Italian and European economies.

The original of this article in Italian by our partner FocusEurope.it can be found here.

Caption: Italian Foreign Minister Antonio Tajani (2-L) speaks during a video conference in the Crisis Unit with ambassadors from the Gulf countries involved in the conflict with Iran, in Rome, Italy, 7 March 2026. EPA/RICCARDO ANTIMIANI