Amid Iran war, sharp decline hits Italian trade with Arab countries

The US-Israeli war on Iran that erupted in the Gulf in recent months has cast a shadow over trade relations between Italy and Arab countries, at a time when companies were already facing a highly volatile economic environment due to rising energy costs, disrupted supply chains and growing geopolitical risks.

The Arab region is particularly important to the Italian economy, given its close trade and investment ties and the diversity of sectors that rely on its markets.

Amid continued uncertainty over the course of the Iran war, concerns have emerged that regional unrest could put additional pressure on Italian companies, particularly small and medium-sized enterprises, and their ability to maintain a presence in foreign markets.

During the first four months of the war, Italian exports to the United Arab Emirates recorded their largest decline, falling by 879 million euros, or 27.3%.

Kuwait ranked second, with a decline of 649 million euros (-73.6%), followed by Qatar, where exports fell by 345 million euros (-52.2%).

Italian exports to Iraq also fell by 129 million euros (-40.7%), to Iran by 70 million euros (-52.6%), and to Bahrain by 55 million euros (-51.2%), according to data from the Italian Confederation of Craft Trades and Small and Medium-sized Enterprises.

Francesco Angeloni, scientific coordinator of the Mediterranean Observatory at the Saint Pius V Institute for Political Studies in Rome, said that "the decline in Italian exports to Middle Eastern countries is not an isolated phenomenon but falls within a context of tension for the macroeconomy".

"The Italian National Institute of Statistics documented an increase in the inflation rate in August to 3.3% year on year, the highest level since September 2023, driven by rising energy prices, as the Gulf war, which is causing exports to erode, is pushing up fuel and other prices," Angeloni told The New Arab.

He described what is happening as "a double blow to exporting companies that are losing export revenues from Middle Eastern markets while experiencing inflation in production and shipping costs".

"The repercussions that could affect small and micro manufacturing companies could translate into job cuts or business closures, particularly in the fashion, furniture and industrial machinery sectors," he noted.

He explained that "the national labour market in Italy remains relatively resilient so far, with the unemployment rate falling to 5.8% in July".

However, he added that "we are dealing with a figure that portrays the situation before the latest effects of the war, which are fully affecting production".

"If the decline in exports becomes entrenched, the impact on employment in areas known for craft and artisanal industries may take some time to emerge, as is usually the case in crises linked to external demand," he said.

Angeloni further pointed out that "the government's approach in this context is based on two pillars, extending the reduction in fuel duties, a measure that the Italian Confederation of Craft Trades and Small and Medium-sized Enterprises considers insufficient".

"The second move involves discussions with the Italian Trade Agency ICE, the financial and marketing services agency for international trade SIMEST, and the Italian Export Credit Agency SACE to strengthen the financial resources and international marketing of exporting companies," he said. "These measures are moving in the right direction, but it is difficult for them alone to be enough to offset the repercussions of a geopolitical shock of this magnitude".

"These data confirm for us, from a geopolitical perspective, a familiar lesson: instability in the Gulf will not remain confined to the region but will spread through value chains to reach local Italian economies, often faster than trade policy can respond to it," he added.

"The evidence shows that we need a structural strategy to diversify markets, for example, by strengthening the presence in entities such as the Mercosur bloc (the Southern Common Market), which is growing during the same period, rather than relying only on emergency interventions on the energy front," the prominent Italian expert concluded.

The Italian Confederation of Craft Trades and Small and Medium-sized Enterprises said in an analysis issued last week that Italian companies are paying the highest price for the Gulf war, with their exports to the Middle East recording a sharp decline during the first four months of the war, between March and June 2026.

According to the analysis, the value of Italian exports to the Middle East reached 26.4 billion euros but fell by 2.2 billion euros during the war, a year-on-year decline of 22.7%.

This is the largest decline among all European countries, with Italy alone accounting for 46.1% of the total decline in European Union exports to Middle Eastern countries.

Article translated from Arabic by Afrah Almatwari. To read the original, click here.