The seazone 92 consolidation as mentioned is an issue, but to me it is the sheer fact that a battleship and a cruiser are irreplaceable to the British, literally. Destroyers and Transports are what the British will funnel into their build for the first 4-5 rounds while also spending in the Middle East/Africa. A big buy for the British is an Airbase for Gibraltar or Egypt, maybe a Carrier. Allowing them to keep a Battleship and a Cruiser gives them a Nucleus to their fleet that they could never have until round 4+. Replacing those two units is the entire UK2 purchase. However, replacing SZ109 and SZ106 while costing relatively the same, can be replaced in bites that SZ110 cannot be done in.
Killing capital ships is massive, this is reflected not just in Germany’s opening turn but also the UK’s and Japan’s, the reason you do Taranto is because allowing the Italian BB to live gives their fleet a nucleus that is very hard to knock down once it is stacked up. Killing the British BB off of Malaya is also a huge reason J1’s are done, that BB can become the Nucleus of an Anzac defense in 54 or can become the Nucleus off of Egypt around Round 3, both of these options are thorns in the side of the Axis.
I think you also overestimate how much this helps Italy, even if this stops Taranto (which if you play with a bid is not guaranteed) it just means that the UK is free to crush Tobruk turn 1, even if your fighter from Hungary flies down to defend UK has 73% odds in Tobruk. I would do like the other guys said and maybe find a way of leaving 111 instead so that you can positively chase it down.