Hungary hardened its public stance against a European Union embargo on Russian imports, saying it would withdraw its veto threat only if its imports via pipelines are excluded.
With a majority of Hungary’s crude supplies arriving via pipeline, the comments on Wednesday from Foreign Minister Peter Szijjarto poured cold water on a frantic round of negotiations to cajole Prime Minister Viktor Orban to lift his opposition to the proposed ban.
Szijjarto said European Commission President Ursula von der Leyen’s trip to Budapest on Monday to meet Orban and a call to the Hungarian leader by French President Emmanuel Macron on energy security a day later had done nothing to break the impasse.
“These talks made it clear to us that Brussels, or the European Commission, doesn’t have a proposal that would deal with the nuclear-bomb effect that an oil embargo against Russia would have on the Hungarian economy,” Szijjarto said. “If Brussels is serious about introducing this embargo, then that’s only possible if shipments via pipelines are excluded.”
EU foreign ministers are scheduled to meet on Monday in Brussels, where they would likely discuss the sanctions plan if a deal isn’t reached before then.
It wasn’t immediately clear whether Hungary, which cultivated close ties with Russian President Vladimir Putin before he invaded Ukraine, was asking the EU to exclude all pipeline imports from Russia or only Hungary’s share. Earlier, the government in Budapest had asked for a permanent exemption for its crude imports via pipelines.
Landlocked Hungary would need billions of dollars to overhaul refineries that now process Russian crude, to expand pipeline capacity from Croatia’s Adriatic coast, and for investments in other areas to wean Hungary off of Russian energy supplies, Szijjarto said. He said the best way forward was for EU sanctions to only target Russian crude imports via tankers.
In the sixth sanctions package against Russia over its invasion of Ukraine, the EU is proposing to ban Russian crude oil over the next six months and refined fuels by early January. The EU had previously offered Hungary and Slovakia until the end of 2024 to comply with the sanctions and the Czech Republic until June of the same year since they are heavily reliant on Russian crude.
The EU’s executive arm is also set to bolster renewables and energy savings goals as part of a 195 billion-euro ($205 billion) plan to end its dependency on Russian fossil fuels by 2027, according to people familiar with the deliberations.
Orban’s dilemma is also political, as agreeing to oil sanctions ultimately may jepardize the ability to sustain price caps on fuel as well as a decade-old subsidy on household utilities—both flagship policies of Orban that helped him win a fifth term in elections last month.
While Hungary has a chance of securing further concessions, it must tread carefully that its hardball tactics don’t backfire, according to Kaspar Hense, a portfolio manager who helps manage $20 billion at Bluebay Asset Management.
If Hungary can’t be convinced to eventually give up its veto threat, then there’s a “high likelihood” that the rest of the EU could ultimately decide to voluntarily go ahead with the Russian oil embargo, marginalizing Orban and depriving the country of significant funding for its energy industry.
“Hungary is being somewhat short-sighted by just looking at the short-term repercussions of the oil sanctions and not seeing that this has more legs on the EU funding side,” Hense said by phone, referring to bloc’s the energy-security package. “It’d be a pity for countries to miss out on that.”