Prime Minister Orbán says Hungary cannot agree to this sanction package. Why not?
Stopping importing Russian oil is an “atomic bomb on the Hungarian economy,” Orbán said. Hungary receives 65 percent of its oil from Russia, via the Druzhba pipeline from Russia, according to the government. Because the country is not located by the sea, alternative oil supplies by ship are not an option, the Hungarian government said. On Wednesday, Hungarian Foreign Minister Péter Szijjártó said he wanted a complete exception to pipeline oil deliveries, after Prime Minister Orbán previously demanded a five-year transition period.
Hungary does have another option, the Adria pipeline. It runs to the Croatian coast, where oil arrives by ship. But because the processing process of this oil differs from the Russian oil that Hungarian refineries normally work with, this requires technological innovation. According to the Hungarians, that comes with a hefty price tag. The oil company MOL, of which the Hungarian state is a major shareholder, estimates the costs at 480 to 670 million euros.
Moreover, Hungary is not the only country that has expressed objections to the ambitious sanctions package. The Czech Republic and Slovakia also have no access to the sea and are also dependent on the Druzhba pipeline. Slovakia even receives 95 percent of its oil from Russia. The European Commission will meet these countries, according to the preliminary plans: instead of the original transition period of six months, the Czech Republic will have until June 2024 to switch, Slovakia and Hungary until the end of 2024. But that does not go far enough for Orbán.
Is the economic damage really as great as the Hungarian government predicts?
According to experts, that ‘atomic bomb’ is not that bad. The economic necessity of Russian oil is exaggerated by Orbán, said Wojciech Konończuk, deputy director of the Center for Eastern Studies in Warsaw. “It’s a matter of political will.” It is in principle possible to stop with Russian oil within two years, also for Hungary. The technological possibilities are there, as is an alternative source: the Adria pipeline. “If Hungary only had the Druzhba leadership, it would be a different story.”
Milan Nic, researcher Central Europe at the German Council for Foreign Relations, underlines the importance of political will. But we should not erase Hungary’s economic reality. “Much more than the Czech Republic and Slovakia, Orbán has based its economic model on oil.” MOL has become the flagship of the Hungarian economy under Orbán. ‘MOL’s profit is important for Hungary.’ And without cheap Russian oil, that profit margin is in jeopardy.
Orbán owes its popularity in part to low energy costs through government regulation. Since November, there has also been a price freeze on petrol. During the April election campaign, Orbán reiterated that ordinary Hungarians should not bear the costs of the war in Ukraine. Keeping the price artificially low will cost MOL tons of money if the company forgoes oil from Russia, which is about a third cheaper than oil from other sources. Orbán is not only looking for financing for the transition, but wants to monetize this price difference for as long as possible.
The Hungarian economy as such is in less danger than Orbán would like the world to think, says Nic. ‘The low-cost economic model with which Orbán rules is under threat. He doesn’t want to stop with Russian oil, and if he has to, he thinks the EU should pay for it.’ The Hungarians raised their stakes in the political poker game with the European Commission on Wednesday. Through Minister Szijjártó they now say they want ‘hundreds of millions of dollars’. A Hungarian veto on the sanctions package would be historic, as Orbán has not previously blocked sanctions against Russia. Researcher Nic expects a deal to be reached eventually. ‘The big question is: how much will it cost?’
Is there something else behind Orbán’s strategy?
Orbán wants to sell his skin dearly in Brussels, and that has to do with the lack of other EU money. The European Commission is keeping a close eye on the corona recovery fund (7.2 billion euros) due to concerns about the rule of law. Recently, the so-called rule of law mechanism has also been deployed, which allows the Commission to freeze the flow of funds in the event of suspicions of improper use of EU money (such as corruption).
This is a double problem for Hungary: the country is a net recipient of the multi-year budget within the EU and is currently struggling with financial problems, partly because of a reckless fiscal policy to please voters before the elections in April. “The Hungarian government really needs money,” said former parliamentarian Zsuzsanna Szelényi. Today she is affiliated with the Democracy Institute in Budapest and conducts research on Hungarian politics.
According to those involved, matters such as the corona recovery fund remain separate from the oil issue in the negotiation room. “I doubt that,” says Szelényi. “On top of that, all the money they can get is welcome.” Due to the lack of transparency of the Hungarian government’s accounting, it ends up in a big pot, says Szelényi. Orbán knows that the EU operates by consensus and will continue to play the game hard. ‘This is a difficult position for the Commission. Because if you give Hungary extra money, how do you explain that to other countries?’