European Central: Hungary Wins Row Over Russian Oil
Anton Petrus
It is no secret that energy prices have been going up and European Union member states are struggling to end their dependence on Russian energy. The cost of energy has been soaring yet the European Union is motivated to stop buying Russian energy as soon as possible to avoid financing Russia’s invasion of Ukraine. In early May the European Union proposed banning Russian crude oil within six months and refined oil products by the end of 2022 but granting exemptions to member states such as Slovakia and Hungary which would be allowed to buy Russian oil until the end of 2023. Hungarian President Viktor Orban however has pushed back and insisted that this is not long enough. President Orban has also avoided Russia cutting off energy exports to Hungary which has occurred to member states such as Poland, Bulgaria, and the Netherlands. Russian President Vladimir Putin has insisted that EU member states now pay for energy in Russian Rubles. Member states have resisted as the European Union points out that member states are allowed to pay for energy in Euros and no provision states that member states are legally obligated to pay in Rubles.
President Orban got his way and is almost completely exempt from the EU’s Russian oil embargo. Kovacs, a spokesperson for the Hungarian government stated that 65 percent of oil and 85 percent of natural gas in Hungary are imported from Russia. 19 months would be a relatively short period of time in order to find alternative energy sources. The European Union still views the plan as a success as there will be a 90 percent reduction in Russian oil imports to the bloc. This is the sixth round of sanctions against Russia since the invasion started on February 24th. The European Union hoped to pass the ban on Russian oil far sooner as European Commission President Von Der Leyen originally announced this proposal May 4th. This however did not happen as the plan was not passed until May 30th, over 3 weeks later.
European Union officials also recognize that there is the risk that Hungary’s Russian energy imports may not last as long as President Orban may hope. Hungary is a landlocked nation with no ports to be able to get energy delivered via oil tankers. Instead, the country receives energy through the southern Druzhba pipeline which runs directly through Ukraine. EU officials reasonably point out that fighting in Ukraine risks damaging the pipeline which would cut off Russian exports to Hungary whether or not President Orban wants to participate in the sixth round of sanctions. The European Union is preparing for this scenario and will be able to supply Hungary with energy if something were to happen to the Druzhba pipeline.
While the European Union is ambitious in attempting to end energy dependency on Russia, there is also the risk that the bloc is burdening itself with higher energy costs meanwhile other nations may increase how much energy they buy in Russia. An example is China which plans on increasing how much energy it imports from Russia with a 30 year contract with the China National Petroleum Company. The European Union may be causing energy prices to continue to soar for consumers within the bloc meanwhile Russia continues to earn money to finance its “special military operation” in Ukraine. Simultaneously, potential energy sources to replace Russian energy imports such as American liquified natural gas is typically more costly. Nonetheless, LNG facilities are being constructed in Greece to import energy from the United States, Algeria, and Qatar. The European Union is also hoping it can use its economic power as a bloc to negotiate better prices.
Russia has weighed in on the matter and says that the EU’s plan may harm the bloc’s economy. However, as this statement may be motivated by Russia’s own financial interests in the matter the European Union would be acting sensibly to not take everything the Kremlin says at face value. This is particularly true as Russia’s foreign ministry attempted to blame the EU completely for global food and energy issues even though it is apparent that Russia is responsible for Ukraine being unable to export wheat currently sitting in storage. Russia may see a 15 percent contraction of the national GDP by the end of this year according to the Institute of International Finance as a consequence of sanctions that the Western world has placed on Russia.
As has been said countless times over the past several months, time will tell if the sanctions against Russia do indeed work. In the meantime, the European Union has to come up with ways to battle inflation in order to help protect consumers. While some can afford to pay a little more to help Ukraine, there are also millions still struggling across the bloc. These price increases can mean the difference between being able to afford proper nutrition and whether some families will be able to afford to heat their homes the next winter. The economies of member states were starting to recover last year from the pandemic, and many were counting on further recovery this year. President Orban may appear stubborn and may be resented for not being willing to take one for the team, but this is his version of looking out for Hungarian consumers. Eastern European Union member states are generally less well off than those in the west, and the war in Ukraine is yet another hurdle to economic convergence within the EU. For President Orban, it seems to be too much. Hungary has experienced large-scale emigration since joining the EU which may persist as long as wages are lower in Hungary than in other member states. In Orban’s opinion, continuing to import Russian oil outweighs the cons.
