The energy crisis that has been caused by Russia’s 2022 invasion of Ukraine continued after Kyiv imposed in late June of this year a ban on oil from the Russian energy company Lukoil passing through Ukrainian territory. Getting an exemption from the otherwise EU-wide oil ban, Hungary and Slovakia have continued to receive oil shipments via the southern branch of the Soviet-built Druzhba (Friendship) pipeline crossing Ukraine, and Kyiv’s new ban on Lukoil, a key supplier to both countries, prompted Budapest and Bratislava to ask the European Commission last month to intervene. Other Russian companies, such as Rosneft and Tatneft, have continued pumping oil to both countries across Ukraine through Druzhba.
“The entire dispute is another proof that the energy crisis that has been fueled by Russia’s invasion of Ukraine continues, in Europe as well as at the global level,” Francesco Sassi, research fellow in energy geopolitics and markets at RIE in Bologna, Italy, told NE Global on August 6, adding that the very essence of the issue is in the role the EU has to play in resolving energy disputes between members and between the same members and key allies such as Ukraine.
“Details about the actual flows of Russian oil through the Druzhba pipeline to Central EU markets are rather scant, but still Budapest and Bratislava are calling EU authorities to intervene to protect their national interests and energy security as they have been granted permission to continue importing Russian oil (despite sanctions) because of their landlocked status. On the other hand, Brussels is stating that it is in the interest of both Hungary and Slovakia to find alternative oil suppliers and that there are plenty of opportunities in the market, including from Croatia,” Sassi explained.
“Hungary has clearly rejected the proposal, which inflated the political case even more. The situation falls into a scenario of quite modest oil prices, and yet in a bullish scenario for oil prices it could drive more pressure on the EU energy policymaking and strategies and create further wedges among member states,” the Italian energy analyst argued.
EU Trade Commissioner Valdis Dombrovskis said on August 2 that Ukraine has confirmed that ongoing oil transit operations to Hungary and Slovakia are not affected, as long as Lukoil is not owner of the oil. “At the same time, it is important to reduce dependency on energy from Russia,” he wrote on X.
Spoke with Minister Péter Szijjártó to get more details on energy supplies to Hungary, following up my letter to him yesterday.
Ukraine has confirmed that ongoing oil transit operations to 🇭🇺 🇸🇰 are not affected, as long as Lukoil is not owner of the oil.
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— Valdis Dombrovskis (@VDombrovskis) August 2, 2024
Despite the EU specifically calling on those countries to find alternative supplies, there has actually been a 2 percent increase in the amount of pipeline Russian crude they receive since the first half of 2021, according to DW.
Dombrovskis sent a letter to Budapest and Bratislava on August 1, indicating that the JANAF Adriatic pipeline in Croatia could provide alternative (non-Russian) capacity for Hungary and Slovakia.
Chris Weafer, CEO and General Director of Macro-Advisory, the leading independent strategic business consultancy in the Eurasia region, argued that Ukraine’s action to block the transit of Russian oil from Lukoil to Hungary and Slovakia is a very clear and direct response to both countries’ calls for peace talks with Russia and because they show relatively less support, than most other EU states, for continued EU aid to Kyiv.
“Both countries could get oil via Croatia and other transit countries, but (Hungarian) Prime Minister (Victor) Orban is refuting that option and calling the dispute with Kyiv a point of principle, i.e. that Ukraine should not deliberately take actions to damage the economic interests of EU states when the bloc is providing so much military and financial aid to support its economy,” Weafer explained, adding, “Of course, where there are principles there is money. Hungary and Slovakia get much cheaper oil from Lukoil and would have to pay a lot more for oil sourced elsewhere. They both want the cheaper oil.”
