Hungary faces oil crisis as Ukraine tightens sanctions on Russia
Russian giant Lukoil's deliveries of oil to Hungary have been halted after Kyiv tightened sanctions on the company. Budapest faces a problem, as it relies on Russian oil for 70% of its needs, half of which are met by Lukoil. The race against time has begun.
11:56 AM EDT, July 22, 2024
Russian oil contracted by Lukoil is not flowing to Hungary. This is the result of Kyiv tightening sanctions. In June 2024, the National Security and Defense Council of Ukraine (NSDC) added a ban on transit through its territory to the existing restrictions. As a result, Russian oil supplied through the southern branch of the Druzhba (Friendship) pipeline cannot be delivered to Hungary.
This is a serious problem for Budapest. Ilona Gizińska, a researcher and expert on Hungary at the think tank Centre for Eastern Studies, told Politico that Ukrainian sanctions could create a serious situation in Hungary. She suggested that Hungarians could face exorbitant energy prices and power shortages within just "weeks" if a solution to this situation is not found.
A report by the think tank Centre for Research on Energy and Clean Air shows that in just April of this year, Hungary spent nearly 273 million dollars on Russian oil and gas. This demonstrates how dependent Hungary is on Russian energy supplies.
Viktor Katona, the chief oil analyst at the intelligence company Kpler, emphasized that "any long-term suspension of supplies would force regional refineries to tap into reserves, exhaust them, and in the meantime seek some diplomatic solution to the problem."
One possible solution could be to increase imports from Rosneft, notes Gizińska. Hungary could also increase deliveries from Croatia via the Adria pipeline.
As PIE expert Kamil Lipiński told money.pl, oil reserves are crucial for national security. EU member states are required to maintain oil reserves at a level of 90 days of average daily net imports or 61 days of average daily domestic consumption, whichever value is higher.
- In the case of Hungary, which last year imported about 120,000 barrels of oil per day, this means maintaining oil reserves at 10.8 million barrels. According to JODI data, co-authored by organizations such as OPEC and IEA, Hungarian reserves amounted to over 11 million barrels at the end of the year, which is nearly 80 days of work for Hungarian refineries - explained Kamil Lipiński.
If the Hungarian public does not panic, no threats to the continuity of supply at gas stations in Hungary are expected - assesses the expert.
He adds that restricting Russian supplies might raise fuel prices in Hungary to the EU average and reduce consumption, which could further facilitate ensuring Hungary's supply security.
As we wrote on money.pl, Hungary can also increase deliveries from the sea. They have shares in oil fields in Azerbaijan. The problem is that this requires time and is more costly than importing Russian crude via pipelines.
