Scenari 2023 in Italy and the world.

Below is the transcript of the first part of the “Scenari 2023” webinar.

Matteo Rivolta interviewed the geopolitical analyst Dario Fabbri.

In the second part of the webinar Matteo focused on the best business strategies to apply in 2023, to keep growing despite the crisis on the doorstep.

The recording of the second part of the webinar can be found at this link: "Scenari2023" webinar, Part Two

MR: Good morning Dario, and thank you for agreeing to this conversation. This year we SMEs have been hit by a strong inflationary surge and a serious energy crisis. There have been dizzying cost increases weighing on companies' cash and on their 2022 accounts. What are the prospects for the cost of energy in 2023?

DF: Good morning Matteo, and thank you for inviting me.

The point will be to see where we stand in March. If it is a very cold month and storage is almost empty, we would risk prices going through the roof if Russia cut off its supply to us. If that doesn't happen, prices will stay higher. Much higher, obviously, than what we were used to until a year ago, but still sustainable.

Then the problem would become next year. Because with empty storage and a very unpredictable Russia, supplies will need to be managed.

We will have to look for other sources of supply, and by sources I mean countries, not so much sources of energy in this sense. And it won't be easy at all. If we take, for example, the agreement we signed with Algeria a few months ago, it is an agreement that will clearly increase supply to us, but it isn't enough.

So we will have to look for other countries to draw from. With the risk that in a year the price will be even higher.

The most worrying scenario in my view will be 2024, while taking for granted that, as they say in English, “ things have to get worse to get better ”, that is, things will get worse in the short term before they improve.

Because we can imagine that in four or five years, faced with a scenario like this, the chain of investments under the PNRR, the national recovery plan, should help ease prices somewhat over the medium to long term. But that is much more complicated than actually achieving the ecological transition.

But in the short term, as I said, I expect higher prices and greater difficulty with gas supply, more in 2024 than right away in 2023.

Unless, and I'll close on this, it is a cold winter, cold especially through to March; then the risks for the price of gas would be great.

The Tarvisio plant, in the province of Udine, where Russian gas arrives.

So is the TAP, which starts in Azerbaijan and arrives in Puglia, working at full capacity? Is it serving us? Is it useful?

Yes, it is working at full capacity, and at the moment, with Russian supply shrinking, it is one of our main sources of supply, and there is a lot of thought about expanding it.

The point is that Azerbaijan, where that gas comes from, isn't willing to increase supply beyond a certain level.

And this is the issue that applies to all the other countries too; we became so dependent on Russian gas because Russia sold it to us at a price that was almost always the same.

Partly because the pipelines worked and were the fastest way, geographically too, to reach our country. And partly because Russia is in an area full of resources to be exploited towards the West, towards us. Other countries, from Algeria to Azerbaijan, less so; Qatar has other geopolitical priorities, and that counts for a lot.

Add to that the fact that gas from Qatar by sea always costs much more, as does American gas, and if one day we were to take Iranian gas on a large scale we would be drawing on the largest gas field in the world, but it would still arrive only by sea from Iran, in the absence of a pipeline, still to be built from scratch, that would reach Europe from Italy.

So, to answer the question, Matteo, can the TAP be expanded, and is it working at full capacity right now? I think the key point is Azerbaijan, where the gas comes from.

Map of the TAP.

What do you think of the controversy building up around the regasification ship at Piombino; is it understandable? And here too, is the regasification ship something that can help us?

Honestly, I don't understand the controversy over the regasification terminal; it is part of the “ not in my backyard ” issue.

In fact the regasification terminals are only at sea. Other countries have them on land, just as for years there was debate about the TAP destroying the ecosystem and landscape of Puglia, and it didn't happen.

Everyone has regasification terminals, literally on land; it is hard to see why we can only have them at sea, and only after a long debate at that.

At the moment we need them partly for Qatari gas and partly for American gas, which is arriving on our shores.

And then, obviously, here too it costs more; gas by sea always costs more, it isn't comparable to the cost of gas by land. What arrives by sea is much more expensive.

And this is the point of the whole affair; it was right to give up Russian gas given the current international situation. But we have to get it into our heads that without it we will always pay more for gas than before.

The regasification ship at Piombino, province of Livorno.

OK, so to sum up, there is no problem with the availability of gas, with the quantity of gas to keep our companies running. But there will be a problem with the purchase price?

Exactly. Unless, as I said, this winter turns out particularly cold, in which case we would also have a problem with gas, with actual quantity, between the end of February and March; but there will be a price problem, and we will pay more for it.

The next question is about the shock event of 2022, Russia's invasion of Ukraine. It was a shock because most people didn't believe it was possible to witness a traditional war with tanks, missiles and infantry in 2022, especially in Europe. Not least because Lviv is 900 kilometres from Trieste.

And the questions people ask most often are when it will end and above all how it will end. Of course it's easy to talk in the warmth of our offices. But these are certainly the most frequent questions today: when will it end and how will it end?

They seem to me entirely legitimate questions, but I have to say that literally nobody knows when it will end or how it will end. Nobody at all, not even the parties directly involved: the Russians don't know, the Ukrainians don't know.

We are now in a phase of the war in which the Russians have annexed the oblasts of Kherson, Zaporizhzhia, Donetsk and Luhansk, the Donbas together with the southern part of Ukraine; I imagine you all know by now that a couple of months ago they were annexed, complete with a ceremony and an attempt to hold on to them.

It is clear to the Russians that rather than conquering new ground and wresting it from the Ukrainians, the aim had to be to keep what they have taken so far. And they aren't managing even that.

Because the news this week is that the Russians are leaving the city of Kherson, which was in fact the only regional capital of the four territories they control in the four oblasts I mentioned.

Kherson back in Ukrainian hands after the withdrawal of Russian troops.

A withdrawal under combat conditions is really very complicated, because you expose yourself to enemy fire, so it is done with great caution. But it is happening now; it has been announced and it is under way.

What does that mean? That the Russians are positioning themselves on the southern bank of the Dnipro river, moving south from the city of Kherson, and in this way they are trying to save the lives of many of their soldiers, because for some weeks they had in effect been shut in a pocket between the city and the river, from which they could neither get out, escape nor fight to regain ground.

And perhaps there is something else too: by positioning themselves on the southern bank of the river, the Russians are signalling their willingness to talk, to negotiate. And this is the main point. Russia wants negotiations at the moment not because it has discovered some diplomatic route to resolving the affair, hardly, after invading Ukraine, but because it is in difficulty, like the poker player who plays a game and wins a few hands at first.

But then what happens? He starts to lose, and at a certain point in the game he starts to bluff.

The best way for Russia to salvage what it can at this stage is negotiation, because in that case it already accepts today that it will have to give back part of the territories it now occupies.

From the Russian point of view there is nothing legal about it. As we all know by now, it has come round to the idea of having to give them back, but only if negotiations started now, since it still controls about 17–18% of Ukraine's national territory, including the Crimean peninsula. And it has held that since 2014.

Russia says: if we negotiate now we can give up a third of this, but we still keep a good slice of the Donbas.

Coming to the solution, this is the negotiation the Americans are also pushing for; talks between Americans and Russians are already under way, because the Americans are in favour of negotiation.

Why do the Americans want negotiations? Not because they have fallen in love with the Russians. If anything, quite the opposite…

For two reasons, though. The first is that, although it remains very unlikely, the nuclear option is still possible. That is, if Russia really ended up with its back to the wall, nobody can rule out that it would press the red button.

Of course, the Americans want to avoid finding themselves fighting a war that at that point would be conventional and would involve an American response in a war on Ukrainian territory.

At the moment, as we know, they are very busy with military aid, with training Ukrainian troops, with the mobile satellites supplied by Elon Musk, with military intelligence and with weapons, and so on. But fighting a conventional war on the ground is another matter, and they want to spare themselves that.

The second reason is that they are convinced that without the direct intervention of the United States, which is what they don't want to do, Ukraine won't manage to recover all the territories the Russians have taken, so it might as well negotiate.

The point is that the Ukrainians, at the moment, don't agree at all and are asking the United States and the wider West for more weapons, because they say: right now, when we are regaining ground, when we are inflicting defeats on Russia, tactical but important, you can't force us to the negotiating table, because that would destroy our momentum.

You will have noticed how in recent weeks the Americans, often through the press, have let statements leak in their newspapers and on television, as they often do, through anonymous messages from the CIA and the Pentagon that either invite Ukraine to negotiate or distance themselves from some of the manoeuvres under way. For example, they explained that the attack on the Kerch bridge a month ago was carried out by the Ukrainians alone, and the Americans not only knew nothing about it but weren't even in favour.

In the same way, the same anonymous officials told the press that it was the Ukrainians who killed Alexander Dugin's daughter. Here too the Pentagon said, “We had nothing to do with it.” And only a few days ago another anonymous statement came out from an American official saying that Zelensky must understand it is time to negotiate.

What can all this lead to?

Negotiations go on during a war, even in its most dramatic moments. And so in this one; that doesn't mean they necessarily lead to anything, and here too they might lead nowhere.

But there is a Russian need and an American will to negotiate, while the Ukrainian will isn't clear, at least for now, and we have to put ourselves in Zelensky's shoes. It's easy for us, in the warmth of our offices and our homes, to say that's enough now, the war has harmed us all, besides being obviously tragic and dramatic. It isn't the moment, it wasn't before. Let alone now.

Let's try to put ourselves in the shoes of the Ukrainians, who have suffered an invasion, massacres, torture and destruction. They have a country on its knees in terms of infrastructure; even before, neither the economy nor the infrastructure was in good shape. And now telling them, fine, or rather terrible, what's done is done… let's sit down and talk…

Is there a chance that a scenario of permanent guerrilla warfare could take shape?

Let's hope not. A low-intensity war can never be ruled out. What can be expected is a pause, without a ceasefire, due to the arrival of winter.

The arrival of winter should slow the hostilities, as should the sharp fall in ammunition and weapons, as well as the fatigue and attrition the two main armies, the Russian and the Ukrainian, have suffered so far.

Then, right or wrong, if the Americans said (hypothetically): “We are no longer taking part,” the war would end tomorrow by itself, because the Ukrainians would be unable to fight it in any way; but the Americans don't want to abandon Kyiv, and at the moment they are pressing for negotiations.

US Secretary of State Blinken and Defense Secretary Austin meet Ukrainian President Zelensky in Kyiv.

Let's come home. In Italy we have moved from the Draghi government to the Meloni government, thanks to the centre-right's victory in the elections.

On 15 June 2021, in your article for Luxury magazine, you wrote that “the first objective of the Draghi government was to obtain the funds of the so-called Recovery Fund, that is, the financing guaranteed by Germany through the issue of bonds by the European Commission. The prestigious figure of the former governor of the European Central Bank, Mario Draghi, should act as a guarantee for public opinion and the German government, as well as for the Dutch and the Austrians.”

With the new government, do we risk losing the money, or are the PNRR funds “so to speak” safe?

That depends a great deal on many factors.

Let me give an answer straight away that may be reassuring: one of the objectives of the Meloni government is the same as the Draghi government's, that is, to restart and so secure for Italy the funds planned under the PNRR, Next Generation EU, as the European institutions call it; and, as we know, we are the country that by volume should benefit from the largest amount of money in grants or loans, though, as we all know, in several instalments.

Former Prime Minister Mario Draghi hands the bell to the new Prime Minister Giorgia Meloni.

The point is that the Meloni government was elected not only for this but also to restructure our relationship with France and Germany. When Meloni says “Let's review the Stability Pact”, “Let's review the PNRR”, she is addressing Germany directly, because yes, we have Europe's money, but where does Europe get it from, given that Europe isn't a state? It needs the guarantee of a state, a solid state with a triple A rating on the financial markets, like Germany. When Italy wants to renegotiate this kind of agreement, it is Germany it turns to.

At the same time Italy fears that Germany may return to austerity and once again impose a squeeze on the disbursement of those funds.

At the same time Italy also wants to review its relationship with France.

Partly because there is the impression, from what Meloni herself and other members of the government have said in recent years, that Italy is something of a victim of predatory French industrial policies on our territory, and likewise in the Mediterranean, above all in Libya, where, as we know, Italy and France are on opposite sides.

Italy is in Tripoli, which is run by the Turks with Turkish soldiers and Qatari money.

France, on the other hand, was backing Cyrenaica until a while ago, together with the Russians, the Saudis and the Emirates.

For all these reasons we also want to review our relationship with France.

But this produces a basic error from the start, because you can't imagine pulling back from two such important relationships at the same time; above all, you can't have two enemies at once, like the Germans and the French. You need one on your side to join forces in dealing with the other.

And so, since it is with France that we have common objectives, the move would be to draw closer to France and form a common front, to stop Germany, by returning to austerity, from cutting off the flow of money planned under the PNRR.

In these early hours the Meloni government doesn't seem to be moving in this direction. It clashed first with France and then with Germany to draw an identity line on the migrant question. It seemed rather sterile to me, because to avoid taking in just over 200 migrants it reopened a diplomatic crisis with France in November, which isn't the season for landings and is in fact the end of it, because in a few days, a few weeks, the Mediterranean will no longer be navigable in makeshift boats that then need NGO intervention every time to bring people to our shores.

In my humble opinion, it would have been better not to dig in on this affair and to keep France close.

These are the main objectives of the Meloni government. In foreign policy we will have to see whether or not it manages to pursue them.

Do the US midterm elections strengthen America's image? It seemed tarnished to me because, I won't say they seemed on the brink of civil war, but the climate was certainly very heavy after the assault on Congress. In these elections, though, it seems to me the air has cooled and Americans are essentially thinking about doing business.

It seems to me that internal tensions have eased and that the civil-war climate is gone, as you rightly said, after the assault on the Capitol on 6 January 2021.

Because in recent years, and this is one of the main reasons, the United States has avoided throwing itself into new wars, after many decades spent fighting pointless ones.

One of them ended in 2021 in Afghanistan, and this eased the internal tension, although it remains; it is no longer on the threshold of civil war. I can't tell you whether they only want to do business, but they are still very focused on their main enemies (earlier I described what they are doing in Ukraine and what effect it is having on Russia).

At the same time, partly through the ban on semiconductors to Beijing, it is putting the People's Republic of China in serious difficulty. At the G20 summit in Bali, Xi Jinping will want to ask Biden for help, the suspension of that embargo.

US President Joe Biden with Chinese President Xi Jinping in Bali, Indonesia, at the latest G20 summit.

The Americans remain focused on the People's Republic; I would recall what happened last August when the Speaker of the House of Representatives, Nancy Pelosi, flew to Taipei.

In Taiwan the Americans remain the island's protectors against Communist China.

So this is a time of greater internal calm in the USA, and above all they are still out of reach for their two challengers: the Russians, needless to say, but the Chinese too are doing considerably worse than the Americans.

They are much worse off from many points of view: economic, structural, military and in terms of geopolitical position.

For all these reasons the Americans are now calmer, even though the internal climate is tense compared with a few years ago.

Thank you Dario for taking part in this interview. See you in February in person with our business-owner students at Luxury Academy's first live event.

Thank you, Matteo, it was a pleasure, and see you in the classroom in February!

Matteo Rivolta and Luxury Academy have organised a classroom course on 10 and 11 February in Milan (at the Hotel Principe di Savoia): Margini di Lusso.

Margini di Lusso is a brand-new live course, at the end of which you will have in hand a road map that will allow you to take on the high-end market, increasing your profits and margins without losing market share and sales.

The course modules are:

• Luxury Brand module : how to create or reposition a brand in the high end of the market.
• Luxury Marketing, ADS and Copywriting module : The marketing, the copy and the world of advertising of a luxury brand are the complete opposite of the marketing of a mainstream company. No sensationalist tones, aggressive and often ungrammatical copy, or ads destined to be banned by the social networks within two days.
• Luxury Sales module: The sale closes the circle of the investments made before it, but there are ways and ways of selling. Your salespeople can be aggressive, foaming at the mouth, giving the impression, especially at the end of the month and the end of the quarter, of representing a company in disarray that needs that particular sale to survive. On the course, instead, we will go into the idea of consultative selling, both remote (important for foreign clients) and in person.
• Export module : The Italian market will probably no longer be enough to meet your sales budgets. Exporting gives you access to markets that are essential for your company. If you don't export, this module will teach you how and where to start selling abroad; if you already export, it will help you increase your sales, through a set of shared “best practices”.

Dario Fabbri will be our guest and will give a talk on the changing world.

For more information and to sign up for the “Margini di Lusso” course, click here