Hungary — Who’s Laughing Now?

It would be downright comical if it were not so serious.

For much of the past 29 months of Russia’s all-out war against Ukraine, Hungary’s Viktor Orbán has delighted in pro-Kremlin contrarianism, chiding President Zelenskyy and his people throughout their fight for national survival, while doing cut-price energy deals with the Russian aggressor.

This culminated in Orbán’s grandstanding (to the European Union’s fury) as a peacemaker, shuttling between Kyiv, Moscow, Beijing, and Mar-a-Lago.

Ukrainian patience seems to have snapped on July 18. On that day, Hungary and Slovakia (whose Kremlin-friendly government was elected last year) said they were not receiving Russian crude from Lukoil, a major supplier after Ukraine sanctioned the company last month.

Riled by Kyiv’s decision, Budapest and Bratislava are now calling on the EU to take action against Ukraine. The Brussels officials so often pilloried by Orbán would need a heart of stone not to enjoy the moment, just a little.

They will also have noted that Hungary once again blocked €6bn ($6.5bn) in EU military aid to Ukraine at a meeting on July 22.

Hungary’s Foreign Minister Péter Szijjártó nonetheless called Ukraine’s decision, “incomprehensible, unacceptable and unfriendly, ” while Prime Minister Orbán complained that his country was facing an imminent energy crunch.

His cantankerous Slovak counterpart, Robert Fico, called his Ukrainian counterpart on July 20 to say his country was being held hostage to a Ukrainian-Russian dispute. No doubt Ukrainian Prime Minister Denys Shmyhal said he knew exactly how Fico felt.

The cut in supplies to Slovakia was doubly painful for Hungary since the country’s main refinery is owned by Budapest-based MOL, which is Hungary’s most profitable firm. It is likely to raise fuel prices in both countries, with all the political costs that may entail.

Beyond the pain and the anger, there are a few questions that need to be asked and some conclusions that should be drawn.

Data published by the Finland-based Centre for Research and Clean Air (CREA), show that last year Ukraine transited 14.6m tonnes of oil via the Druzhba (Friendship) pipeline to EU buyers including in Hungary and Slovakia.

Another 5.5 million tonnes were shipped in the first half of 2024, and around half of these volumes were sold by privately-owned Lukoil company.

The rest was transited by other Russian producers including Tatneft, Gazprom Neft, Russneft, and a few other smaller outfits.

Although Lukoil was the main recipient of the estimated $6bn revenue last year (calculated based on the reported transit volumes and last year’s oil prices), implicitly, aiding the Russian state in its role as the country’s biggest taxpayer, the question still remains why Ukraine did not halt all flows and only imposed a partial ban.

With less than half of last year’s volumes left to ship via the Druzhba network, which was designed to transport a maximum of 56.4m tonnes, it is possible Ukraine’s cost of transit might now be much higher than the revenue it receives from transmission tariffs.

The cuts beg some tough questions for both Orbán and Fico. Media reports say the Ukrainian decision would have been known in June. Why then did Orbán fail to spot the problem and find a solution when he visited Ukraine at the beginning of July?

In truth, both countries have had a long time to make other arrangements and have failed to do so.

Hungary along with a few other Central and Eastern European countries such as Slovakia, the Czech Republic, Poland, and Bulgaria won a temporary exemption to the EU oil import ban that took effect in 2023.

Unlike Bulgaria, Poland, and Germany, which halted imports this year, or the Czech Republic which is working to cut reliance with a new pipeline to allow imports from Western countries, Hungary instead increased imports from Russia.

It imported 56% more Russian oil in the first six months of 2024, compared to the same period in 2021, according to CREA data, in absolute disregard of EU commitments.

Why? Not because it lacked alternatives. At any point, Hungary could simply have substituted its Russian offtakes with seaborne imports secured via Croatian or Italian ports, and could thereby have aided landlocked Slovakia, with its MOL Group Slovnaft refinery.

Why didn’t it? A market source told this author that Russia’s Lukoil had been selling oil to Hungary at a 20% discount to the Urals spot price, although it is unclear whether this discounted price was still on offer at the time of the Ukrainian curtailment.

Given the confidentiality of price-related information, it is impossible to confirm it directly with the buyers but, in hindsight, it may explain the Hungarian government’s ability to control consumer fuel prices and ultimately secure votes.

It is unclear what solution might be found.

If Hungary and Slovakia truly wish to avoid the spillover from Russia’s war of aggression, they should place fuel security above the discounted prices offered by their Kremlin friends and make alternative arrangements.

It is doubtful that they will. Since the two countries are the biggest proponents for the extension of the Russian gas transit contract via Ukraine from 2025, it is hard to believe they intend to make any serious change in policy at all.

Aura Sabadus is a senior energy journalist writing for Independent Commodity Intelligence Services (ICIS), a London-based global energy and petrochemicals news and market data provider. She is also a Non-resident Senior Fellow with the Democratic Resilience Program at the Center for European Policy Analysis (CEPA).

Europe’s Edge is CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America. All opinions expressed on Europe’s Edge are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.