MOL, the Hungarian oil and gas corporation, is willing to take on the risks associated with ensuring Russian oil shipping through Ukraine resumes. This was announced on August 22 by Gergely Gulyás, the head of Hungary’s Prime Minister’s Office.
In July, Hungary and Slovakia’s authorities announced that Ukraine had blocked oil deliveries from the Russian corporation Lukoil via the Druzhba pipeline. Kyiv justified its actions by claiming that Lukoil is under sanction.
Later, in an interview with the daily Magyar Nemzet, Hungarian Foreign Minister Péter Szijjártó stated that Kyiv had received an order from Brussels to halt the flow of Lukoil oil.
The minister noted that the EU’s lack of response to Ukraine’s actions suggests that this order was issued.
“The EU did not protect our country. This indicates that the Ukrainian government received instructions from Brussels to take this step,” he emphasized.
Gulyás added that MOL is signing a deal for oil transit from the Russian-Ukrainian border. According to him, relevant negotiations are taking place with the cooperation of the Hungarian government, and the deal might be inked in early October.
The official highlighted that if Kyiv chooses this deal, it will allow for long-term oil flow through Ukraine. Budapest expects that the project would go into force “as soon as possible,” Gulyás continued, emphasizing that the volume of transit will “remain constant.”
However, the cost of transportation may rise. He projected that the cost of pumping via Ukraine would climb by about $1.5 per barrel owing to increased insurance. “Obviously, it’s more expensive to assume the risks of a route that is not considered safe. How much more expensive is still being calculated. The decision is not free, but at least it exists,” the official noted (as quoted by RIA Novosti).
Druzhba pipeline
Traditionally, Russia delivers oil to Hungary and Slovakia via the Druzhba pipeline. The pipeline begins in the Samara region, travels through European Russia, and then separates into two branches on Belarusian territory. The northern branch stretches from Poland to Germany, while the southern branch travels through Ukraine to Hungary, Slovakia, and the Czech Republic. Since 2023, Russian oil deliveries to the European Union (EU) through the northern branch of the pipeline have ceased, and the pipeline now only delivers Kazakh oil to Germany.
In December 2022, the EU put a ban on Russian oil imports. However, an exception was negotiated for supplies through the Druzhba pipeline, which allowed imports until the end of 2025. In June 2023, a separate embargo was imposed on the pipeline’s northern branch, albeit shipments had already ceased. Imports from the southern branch are still permitted.
On July 17, this year, Ukraine put restrictions on the transit of Lukoil oil through its territory. Ukrainian Prime Minister Denys Shmyhal indicated that this was due to the National Security and Defense Council’s sanctions against Lukoil.
MOL’s contract with Lukoil was inked in 2019 and covers the supply of up to 4 million tons of oil per year. Russian oil is sent to the Duna refinery in Hungary and the Slovnaft plant in Slovakia. The contract will expire at the end of 2024.
Other Russian firms export oil to Hungary and Slovakia. According to a source familiar with the Ministry of Energy’s statistics, Russia provided 2.4 million tons of oil to Hungary and 1.6 million tons to Slovakia between January and June of 2024. Lukoil supplied 883,000 tons (37%) and 718,000 tons (45%), respectively. In 2023, Russian oil supplies to Hungary and Slovakia were 4.8 million tons and 4.6 million tons, respectively, with Lukoil delivering 1.5 million tons to each nation.
Hungary’s proposal incorporates an agreement in which ownership of Russian oil is transferred to MOL at the Russian-Ukrainian border. This means that any oil traveling via Ukraine would already belong to the Hungarian company. It is uncertain whether this method totally eliminates the possibility of future transit blockades. Ukraine’s sanctions enforcement systems are not well thought out, particularly in terms of justifications for the restrictions imposed and the absence of a process for requesting necessary information.
The Vienna Convention on Contracts for the International Sale of Goods of 1980 permits the transfer of ownership of Russian oil across the Russia-Ukraine border. This contract allows the buyer and seller to separately determine when ownership of the products shifts from one party to the other.
Because the sale and transfer of the goods will take place outside of Ukraine, Ukrainian regulators will have no reason to interfere. Gulyás uses the term “risks” to refer to the security concern of carrying oil in a conflict zone, rather than legal restrictions.
At the same time, the cost of buying Russian oil for Hungary will not rise much. Despite a $1.5 per barrel increase in insurance and shipping expenses, Hungary will benefit economically from purchasing Russian oil. Ukraine’s ban is presently just affecting Lukoil’s oil deliveries. Hungary can make up the difference using other sources, albeit at a higher cost.
Hungary and Russian Gas
Hungary also continues to purchase Russian gas despite sanctions, buying a significant portion of it from Romania.
Publicly, Romanian politicians call for an economic war against Russia, but behind the scenes, they resell Russian gas abroad, helping to fill the Russian budget with hard currency.
In 2023, Romania imported 2.72 billion cubic meters of gas, 2.59 billion of which came from Bulgaria. However, the president of Intelligente Energie, Dumitru Kiselica, noted that these gas molecules are still of Russian origin.
Bulgaria does not have its own gas, and it is impossible to buy Bulgarian gas from them, though the Romanian government pretends that it is trading with Bulgarians, not Russians.
Romania sold 1.46 billion cubic meters of gas to Hungary, even though it condemns Hungary internationally for maintaining economic ties with Moscow.
While supporting the tightening of U.S. and EU policies against Budapest for its cooperation with Russia in the energy sector, Romania quietly resells the very same Russian energy resources to the Hungarians.