Official: Brussels leaves Hungary and Slovakia to handle Lukoil sanctions alone

The European Commission has refused to mediate between Hungary, Slovakia, and Ukraine regarding the sanctions Kyiv imposed on the Russian oil company Lukoil, according to an EU spokesperson on Friday. This decision leaves the two EU member states without any external support from Brussels.

No immediate threat to energy security

The Commission concluded that immediate consultations were unnecessary, as the sanctions on Lukoil do not pose a threat to European energy security. According to the spokesperson, the sanctions do not affect oil transit via the Druzhba pipeline, as long as Lukoil is not the official owner of the oil being transported, Index reports.

In June, Ukraine imposed sanctions on Lukoil, banning the company from operating in the country. Hungary and Slovakia had previously expressed concern that these sanctions jeopardize their energy supplies, but the Commission found no reason to intervene.

Hungary’s solution to Lukoil sanctions

Photo: MTVA/Bizományosi: Róka László

Hungary provided the Commission with additional information on the issue, which it will review, the Hungarian News Agency (MTI) reports. Meanwhile, Hungary’s MOL Group has worked out a potential solution, agreeing to take over the oil shipments directly from the Russia-Ukraine border. However, this would raise the price of oil by around EUR 1.50 per barrel due to the increased transportation costs.

Hungarian minister Gergely Gulyás noted that while the agreement could be acceptable to Ukraine, it will only be finalised once all contracts are signed. He expects this to happen by early autumn.

Sanctions threaten Hungary and Slovakia’s oil supply

Ukraine’s sanctions on Lukoil have complicated Hungary and Slovakia’s ability to import Russian oil, a key supply route for both countries. Hungary imports 70% of its oil from Russia, with about half of that coming from Lukoil. This amounts to 2 million tons of crude annually, covering one-third of Hungary’s oil imports.

Foreign Minister Péter Szijjártó remarked that Ukraine’s goal is to cut off one of the Kremlin’s primary revenue streams, especially crucial over two years into Russia’s full-scale invasion of Ukraine. However, Hungary’s dependence on Russian oil raises fears of supply shortages.

Reliance on the Druzhba pipeline

Druzhba pipeline. Photo: Creative Commons CC BY-SA 3.0

The Lukoil sanctions could lead to significant supply issues for Hungary and Slovakia. Currently, both nations rely heavily on the Druzhba pipeline for their oil imports, with MOL Group operating refineries in both countries. In the medium term, this could impact energy prices and availability, with Hungary seeking alternative routes through Croatia via the Adriatic pipeline, which does not operate at full capacity.

Despite these challenges, MOL’s CEO Zsolt Hernádi remains cautiously optimistic, stating that a fuel shortage is not expected. He noted, however, that replacing Lukoil’s vast oil supply, given its significant storage capacity, would not be easy.

Alternatives and concerns for future supply

Hernádi acknowledged that while oil can be supplied from Croatia, Slovakia and the Czech Republic would face greater challenges if the Druzhba pipeline were to stop operating. The Adriatic pipeline is not a perfect alternative; it has never been run at full capacity, and Croatian authorities have already raised transportation prices. They could halt deliveries at any time due to maintenance issues, raising concerns about the reliability of this supply route.

Hernádi emphasised that Lukoil, as Russia’s second-largest oil producer, holds a dominant position in the market. It has the ability to ship large quantities of oil quickly and has vast storage capacity, making it difficult to find a suitable replacement. Despite the challenges, Hernádi does not foresee a fuel crisis in Hungary, although a complete shutdown of the Druzhba pipeline would leave only one viable supply route.

Read also:

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• Hungary slams Ukraine for Lukoil ban only because Russia asked them to?