Wednesday

1st Feb 2023

EU lobbies Hungary to break oil sanctions deadlock

  • Hungarian prime minister Viktor Orban said that updating the country's oil refineries and pipelines to process non-Russian oil would take up to five years and require a massive investment (Photo: Council of the European Union)
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Intense lobbying by top EU officials on Hungary to agree to the Russian oil embargo failed, despite EU Commission president Ursula von der Leyen having personally negotiated with Hungary's prime minister Viktor Orbán on Monday evening (9 May).

EU member states are struggling to agree on the sixth package of sanctions against Russia — with Hungary leading the opposition against a boycott on oil imports, proposed last week by the European Commission.

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France has said a deal on a proposed EU ban on Russian oil could be struck this week, despite opposition from Orbán, who has compared the plans to an "atomic bomb" on Hungary's economy.

French president Emmanuel Macron was due to hold a phone call with the Hungarian premier late on Tuesday.

Under the EU sanctions proposal, imports of crude would stop within six months and imports of refined products by the end of the year.

But Hungary and some other landlocked countries heavily-dependent on Russian oil are asking for extra flexibility to phase out Moscow's oil — amid concerns over the region's energy supply security and economic outlook.

Von der Leyen said both parties had "made progress" but there was still more to be discussed, after travelling to Budapest on Monday.

"The president went there to listen and search for solutions jointly with prime minister [Viktor] Orbán to solve Hungary's legitimate concerns when it comes to oil supply," commission spokesperson Eric Mamer said Tuesday.

The commission is expected to hold a videoconference with Orbán and other regional leaders after the "technical work" has made progress.

Hungary has been firmly opposed to an oil embargo, which Budapest has said would cause severe damage to the country's economy.

While Hungary has been the most vocal opponent of the sixth sanctions package, Slovakia, the Czech Republic, Bulgaria and Greece have also raised concerns over the proposal.

Orban's government can only support a proposal that guarantees the country will have access to the amount of oil needed to run the Hungarian economy, foreign minister Péter Szijjártó said on Tuesday in Brussels.

"The new planned sanctions would jeopardise the fragile and hard-fought united EU position on eliminating Europe's dependence on Russian energy sources while taking into account everyone's sensitivities," he added.

"The European Commission has now created a problem, our legitimate expectation is that it should propose a solution," he said.

Szijjártó said that before the adoption of the sanctions, serious infrastructure investment would be needed in Hungary, and the effects of the measure on the increased prices would also have to be addressed.

A flagship programme of the Orbán government is a cap on utility bills, which depends on the relatively low-cost Russian energy. Orbán also said that updating Hungary's oil refineries and pipelines to process non-Russian oil would take up to five years and require a massive investment.

Meanwhile, the EU has not approved the Covid-19 recovery fund to Hungary, due to corruption concerns, and the commission said the issue of unlocking the EU money was not mentioned between von der Leyen and Orbán.

EU dependency on Russian oil has decreased during the last five years, but Russia is still Europe's biggest oil supplier — covering about 37 percent of the EU's oil needs in 2020.

Germany, the Netherlands and Poland are the largest importers of Russian crude oil, according to the International Energy Agency, an intergovernmental body in Paris.

But landlocked EU countries such as Hungary, Slovakia and the Czech Republic are especially dependent on Russian crude oil because diversifying supplies is especially difficult for them.

EU ambassadors are due to meet on the issue in Brussels on Wednesday.

Concessions

These countries — Hungary, Slovakia and the Czech Republic — receive oil through pipelines coming from Russia and, thus, their refineries were designed to process mainly the Ural type crude oil.

Securing non-Russian oil supplies would probably force these countries to refurbish the refineries, spending millions of euros in lengthy projects.

Hungary and other eastern European states cover most of their crude imports via the Soviet-era Druzhba pipeline, which crosses Ukraine. One alternative route is the Adria pipeline from the Croatian coast.

The EU has considered making specific concessions to Hungary and Slovakia, which may have to complete the phase-out by the end of 2024.

But the Czech Republic could also get an exemption until mid-2024, according to EU diplomats.

Simone Tagliapietra, an energy expert at Brussels-based think tank Bruegel, said the "extended period" foreseen in the current proposal would make the oil embargo "absolutely viable" from the technical point of view.

But Tagliapietra said Hungary's opposition is linked to a lack of "political willingness," arguing Budapest may be seeking extra EU funds, or to get extra concessions under the rule of law procedure that was recently launched by the EU Commission to avoid the veto.

Oil and gas exports are Moscow's two main sources of income internationally — accounting for about 36 percent of Russia's total budget revenues in 2021.

Since Russia launched its invasion of Ukraine on 24 February, the EU's 27 member states have spent more than €24bn on Russian oil, according to the Centre for Research on Energy and Clean Air, an independent research organisation.

The US has already banned their imports, while the UK pledged to phase out Russian oil products by the end of the year.

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