Hungary's Orban faces economic woe as Ukraine sanctions bite

This spells trouble for Prime Minister Viktor Orban, who gained additional funds and maintained low gasoline prices in his country thanks to it, reports Politico. Experts believe that Ukraine's sanctions against Lukoil are a blow to the incomes extracted by Orban's business circle in the grey market.

The portal reminded that Ukraine halted oil supplies from the Russian company Lukoil in the second half of July. Despite this, Hungary and Slovakia received about 721,000 metric tonnes of oil in August, which does not differ significantly from the supply volumes in July and June, according to estimates by the EU and the energy market analysis service Argus Media.

According to Politico, there may be several reasons why the oil supply volumes have not decreased. Other Russian oil producers have not been subject to Ukrainian sanctions. Additionally, Lukoil may sell its crude at the border with Ukraine to another entity not subject to sanctions, and if necessary, Croatia offers an alternative supply route via its pipelines.

All these solutions are more expensive for Hungary, the portal informs.

Thanks to the reduced price of Russian oil, fuel prices in Hungary were among the lowest in Europe, and the country could sell the surplus crude with a high margin.

"It was crucial for Orban's attempts to balance the budget in a situation of declining economic growth, which fuels opposition sentiments," Politico reports.

According to Mykhailo Honchar, head of the Kyiv-based think tank CGS Strategy XXI, the oil received by Hungary from Lukoil was about 20 per cent cheaper than the market price.

Honchar told the portal that Ukraine's sanctions against Lukoil are a blow to the incomes extracted by Orban's business circle in the grey market.

In the current situation, Hungary will have to bear higher costs. - Purchasing through intermediaries or paying Ukraine additional sums for transit is more expensive. And using the Croatian pipeline would certainly be more costly - we read.

According to the portal, the patience of other EU countries with Hungary is running out. After Russia's full-scale invasion of Ukraine, Hungary was one of three countries, alongside Slovakia and the Czech Republic, that received exemptions from sanctions regarding oil supplies from Russia. This was meant to be a temporary solution, allowing these three countries to find alternative options.

Meanwhile, Budapest increased its imports of Russian gas via the Druzhba pipeline by 50 per cent compared to 2021 and signed new agreements for gas supply with Russian Gazprom. An EU diplomat told Politico that Hungary "had enough time to adapt." According to him, "it is a matter of will."

Olenna Lapenko, an expert from the Kyiv-based think tank DiXi Group, told the portal that although Hungary and Slovakia were obliged to diversify their oil supply sources, Kyiv saw no chances for these countries to stop buying Russian oil. - Of course, this explains Ukraine's introduction of sanctions against one of the largest Russian oil exporters - she noted.

Politico pointed out that the sanctions were introduced by Ukraine at a difficult time for Orban - last year, inflation rose to 17.5 per cent, and this week Hungary missed the deadline to pay a fine of $214 million, imposed by the European Court of Justice for violating rules regarding asylum seekers, allowing the EU to deduct this amount from future fund payouts for the country.

Meanwhile, the 61-year-old Orban, who has been ruling the country for over 10 years, stands before one of the biggest challenges of his political career. It concerns former MEP Peter Magyar, who once belonged to Orban's party, Fidesz, and then created a new political movement, Tisza, aimed at dismantling Orban's "mafia state" and bringing the country closer to Ukraine.

According to a Politico survey, Tisza currently enjoys 32 per cent support among respondents, while Fidesz has 43 per cent. According to Argus Media publisher John Gawthorp, Hungary currently receives oil transited through Ukraine from other Russian producers.

By the next parliamentary elections in 2026, the situation in Hungary will certainly change further. Ukraine may introduce more sanctions on Russian oil, and EU countries may start to press Hungary harder to abandon Russian oil. Vladimir Putin may not be able to help Orban forever - we read.