The Hungarian government's objections could delay EU sanctions on Russian oil

May 13. 2022. – 12:39 PM

The Hungarian government's objections could delay EU sanctions on Russian oil
MOL's oil refinery in Százhalombatta – Photo: Attila Kisbenedek / AFP

It looks like the EU’s proposed sanctions against Russian oil import may be delayed after all. The unnamed EU diplomats who spoke with Bloomberg said that following the Hungarian government’s determined refusal of their quick introduction, more and more member countries think that the sanctions should be reconsidered.

The sanctions would hit the Russian economy at its most sensitive point, given that the vast majority of Russia’s income is provided by the country’s crude oil and natural gas exports into the EU. The move would be a two-edged sword, however, as providing substitutes for these energy sources would be difficult and more expensive in some countries.

Péter Szijjártó seems to have hinted at how much this would cost in an interview with a Spanish newspaper, Politico reports.

According to the Minister of Foreign Affairs, recalibrating Hungarian refineries optimized for Russian oil would take four years and cost 550 million Euros. In addition, it could cost about €200 million to expand the Adriatic oil pipeline so it could function with a higher capacity and thus replace the lost Russian oil.

Although Szijjártó did not talk about this as a concrete offer, the statement could perhaps be interpreted as a hint that the Hungarian side would negotiate with the EU on the basis of this €750 million cost – and the four-year grace period. (Although it is likely that the Hungarian side would also try to use the negotiations to ensure that the EU will not use the Rule of Law Mechanism to restrict the Hungarian government's access to the funds it is supposed to receive as a member state.)

The President of the European Commission has already tried convincing the Hungarian government in person to accept the sanctions in their current form, but Ursula von der Leyen’s meeting with Viktor Orbán did not produce a result.

The Hungarian government has signaled several times that such a decision would have catastrophic consequences for the country, since replacing the imports from Russia with alternative sources would be difficult.

Speaking with Telex, the CEO of the Hungarian oil and gas giant MOL, Zsolt Hernádi has also confirmed the consequences of such a move.

During the debate on the oil sanctions, Orbán also said that as Hungary is lacking its own seaport, it would be more difficult to import from other countries – even in the more flexible oil market, but this is particularly true for natural gas, which is technically mostly obtained in liquefied form from alternative sources. Orbán’s comment about the sea (saying that Hungary did have a sea and a port at one time, but “it was taken away from us”) was not too popular in Croatia.

In order for the sanctions package that includes the oil embargo to be approved, the heads of state of all 27 member states must vote on it unanimously at the European Council. The Foreign Ministers of EU member states will be meeting next Monday in Brussels, and this may be an important chapter in the discussions about the sanctions.

According to the proposal, Hungary and Slovakia would receive an exemption until the beginning of 2024, while the Czech Republic’s deadline would be extended until June of the same year. This would mean that they would be allowed to continue buying Russian oil until the above mentioned dates. The oil is still arriving to these former socialist countries via the pipelines established during Soviet times. Earlier this week, the Hungarian government indicated that the only case in which it would not block the sanctions' approval would be if the imports of oil through pipelines were exempted from the package.

According to Telex’s information, there are three possible scenarios:

  • the whole EU package may still be put to a vote early next week, risking a Hungarian veto,
  • the member states may pass the majority of the sixth package, but leave the oil sanctions part to be discussed at the end of May. However, given that this sixth round of sanctions was basically about oil in the press, that would be quite unpleasant.
  • In case of Hungary’s veto, the whole decision might be postponed until the end of May, which would also be a sign of weakness and dissension.

The diplomats who spoke with Bloomberg also agreed that delaying the sanctions on Russian oil would signal the weakness of the European Union.

The sanctions package also includes blocking six more Russian banks from the SWIFT system, and it would also further narrow the possibility of cooperation with Russian companies in other areas of business as well.

The EU is looking to be independent of Russian oil by 2027. This oil currently provides a quarter of the oil needs of 27 countries. The distribution however, is very uneven: according to data acquired by Reuters, in 2020, 34 percent of the oil used in Germany was Russian, while 96 percent of Slovakia’s oil needs were covered with Russian imports. In the case of Hungary, this number is 58 percent.

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