Hungary faces energy crisis as Ukraine tightens Russian oil sanctions

Russian giant Lukoil's oil deliveries to Hungary were halted after Kyiv tightened sanctions on the company. Budapest has 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.

Due to Kyiv tightening sanctions, Russian oil contracted by Lukoil is not flowing to Hungary. In June 2024, the National Security and Defense Council of Ukraine (NSDC) implemented a ban on transit through its territory, adding 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 severe 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 severe 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 Centre for Research on Energy and Clean Air shows that in April of this year, Hungary spent nearly CAD 365 million on Russian oil and gas. This shows 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 seek diplomatic solutions.

One possible solution could be to increase imports from Rosneft, notes Gizińska. Hungary could 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 90 days of average daily net imports or 61 days of average daily domestic consumption, whichever is higher.

- In the case of Hungary, which imported about 120,000 barrels of oil per day last year, this means maintaining oil reserves at 10.8 million barrels. According to JODI data, co-authored by organizations such as OPEC and the IEA, at the end of the year, Hungarian reserves amounted to over 11 million barrels – this 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 about money.pl, Hungary can also increase sea deliveries. They have shares in oil fields in Azerbaijan. However, this requires time and is more costly than importing Russian crude via pipelines.