Don't hold your breath for Central Europe to give up Russian oil any time soon

Hungary and Slovakia’s reluctance to quit Russian oil is consistent with their broader defence of continued economic ties with Russia.

WHAT: The Czech Republic, Hungary and Slovakia still rely greatly on Russian oil imports.

WHY: This is because of infrastructure and refining constraints, and in the case of Hungary and Slovakia at least, a lack of political will.

WHAT NEXT: MOL says it could not run its refineries without Russian oil until the end of 2026 at the earliest, while the Czech Republic is on track for a faster transition from Russian crude next year.

The Czech Republic, Hungary and Slovakia still rely greatly on Russian oil imports, attracting criticism from the EU authorities and other members of the bloc that they are not doing enough to diversify their supply. This is partly the result of infrastructure and refining constraints, but there is a lack of will in Bratislava and Budapest to end this dependence.

The EU introduced an embargo on Russian oil imports in December 2022, as well as the export within the bloc of any petroleum fuels produced from Russian crude. The bloc followed this up two months later with a ban on Russian petroleum product imports.

A number of countries were granted exemptions, however, in light of their high dependence on Russian oil and petroleum products. Croatia was permitted to carry on importing Russian vacuum gas oil until the end of 2023, while Bulgaria was authorised to continue bringing ashore Russian oil by ship until the end of this year, though its government brought forward the end of the exemption to March.

However, while Bulgaria and Croatia ended their reliance on Russian oil products, the same cannot be said of the Czech Republic, Hungary and Slovakia, which also secured exemptions to EU sanctions. They continue to import large quantities of Russian crude, and Hungary and Slovakia – which have tried to block sanctions against Russia and aid to Ukraine – have also resisted calls to curb these supplies.

The EU has limited recourse to force the three Central European countries to wean themselves off Russian oil. In its final approval of the Russian oil sanctions last year, the European Council described the exemptions as only “temporary,” but they have no fixed end date. The EU’s foreign policy chief, which will be former Estonian Prime Minister Kaja Kallas from November, can propose a deadline with the support of the European Commission. But the decision will need to be approved by the European Council, where the leader of the affected country could block it.

The Czech Republic, Hungary and Slovakia receive their Russian oil via the southern leg of the Soviet-built Druzhba (Friendship) pipeline system that runs through Ukraine. Hungary received 4.8mn tonnes (96,000 barrels per day) of Russian crude in 2023, covering more than 60% of its total oil needs, while Slovakia received 4.6mn tonnes, or over 70% of its total, and the Czech Republic 4.2mn tonnes, or around 65%.

In addition, the Czech Republic also receives fuel from Slovakia that has been processed from Russian oil, under an exemption granted to the latter’s government that is due to expire this December, having already received a one-year extension.

Tensions flare over Ukrainian transit

The three countries’ high level of dependence on Russian oil was brought to the fore this summer when Ukraine imposed sanctions on Russian oil supplier Lukoil, halting the transit of the company’s crude through its territory. Hungary and Slovakia warned the move risked triggering a regional fuel crisis, with an aide to Hungary’s Prime Minister Viktor Orban accusing Kyiv of blackmail.

The European Commission declined to intervene in the dispute, with EU Commissioner for Trade Valdis Dombrovskis stating in a letter to Budapest and Bratislava that the two countries had adequate alternative options for oil supply. He also criticised them for not doing enough to diversify away from Russian oil, noting that “a significant number [of EU member state representatives] … questioned why Hungary and Slovakia had apparently not yet explored alternatives so far”, the Financial Times reported on August 1. 

Hungarian Foreign Minister Peter Szijjarto responded by going as far as to suggest that Brussels’ refusal to help indicated it had orchestrated the disruption in its supply. He implied that Kyiv may have acted on EU orders in imposing the sanctions, in response to Hungary and Slovakia’s opposition to arm transfers to Ukraine.

The dispute ended when Hungarian state-owned MOL, the owner of Hungary’s sole refinery and Slovakia’s only refinery, reached an alternative transit agreement for oil transit through Ukraine, whereby the company would take ownership of the oil at the Belarus-Ukraine border.

Despite the very public row, Russian oil flow through Ukraine to Central Europe did not appear to be affected in the months following Kyiv’s introduction of sanctions on Lukoil, as other Russian suppliers made up for the loss by boosting their own supply. Russian oil supplies through Ukraine to the EU reached 1.1mn tonnes in July and 770,000 tonnes in August, the Moscow-based Vedomosti newspaper reported on October 9, citing Russian energy ministry data. This marked an increase from 540,000 tonnes transported in June and 768,000 tonnes in May.

It is unclear why Kyiv chose to sanction Lukoil rather than other state-owned Russian oil suppliers using Ukraine as a transit route, nor why Bratislava and Budapest exaggerated the impact of the sanctions. This could indicate that Ukraine was sending “a warning shot” to Hungary over its pro-Russia stance, as Hungarian financial newspaper Portfolio said. 

Whatever the reasons for the developments, they have led to increased scrutiny over Central Europe’s lingering strong energy ties with Russia. 

Alternative import options, refinery upgrades

Hungary and Slovakia argue that they cannot do without Russian oil, pointing to a lack of available alternative options. 

The EU has called for Hungary’s MOL to make more use of the Adria pipeline which brings oil to Central Europe from the Omisalj oil terminal in Croatia. Yet the Hungarian side has ruled out this option, accusing Croatia of being an unreliable transit partner which has jacked up fees for the service fivefold since the start of the war in Ukraine. 

The Hungarian side has also called into question whether the Adria pipeline could really flow up to 12mn tonnes per year (tpy) (or 240,000 bpd) of oil, as claimed by its Croatian operator JANAF, arguing it has never been tested at this capacity for more than short periods. 

“In addition to the staggering transportation fees, the problem is that no one knows how much crude oil the Adria pipeline can actually carry,” CEO Zsolt Hernádi said in an interview with Hungary’s Index.hu on September 9. “The Croatians first promised to increase throughput with an investment. This has not happened so far, and yet they say they are able to deliver the quantity we and the Slovaks need. True, this has never been tried before. The results of tests lasting a few hours are multiplied and the whole year's performance is assumed from that.”

JANAF refutes this, though. “It is totally untrue that JANAF raised its fees in the past three years,” it said in a statement on August 3, according to Reuters. “JANAF is ready both technically and organisationally to supply the Central European refineries with enough quantities of oil for the full capacity work. That is why we hope that we would find a satisfying solution for the continuation of long-term partnership through open talks and cooperation.”

Regardless of which version is true, MOL has made clear it does not wish to give up Russian oil, stressing the need for multiple import options.

“The more supply routes, the greater the security of supply,” Hernádi told Index.hu. “And here it is not only about the energy security of Hungary, but also about the region. All options must be kept alive. If there was no Friendship pipeline, we wouldn't actually be in a very bad position.”

Slovakian Prime Minister Robert Fico has pointed to the harm that ending Russian oil imports would inflict on the Slovakian economy, ruling out alternative options as unfeasible.

The Czech Republic’s government appears more committed to phasing out Russian oil, and could do so by receiving more supplies via the Trans-Alpine (TAL) pipeline that begins at the Italian port of Trieste. But first the pipeline’s capacity should be expanded by 4mn tpy. But the project is not set to be completed until the summer of 2025, or later if it runs into delays.

Another obstacle to diversification is the fact that refineries in Central Europe were designed specifically to run on Russia’s sour Urals oil, and have to be upgraded to run on sweeter crude that is more readily available on the international market.

Some progress has already been made here. MOL estimates that it had already spent $170mn on making its refineries more flexible in terms of oil feedstock before the war in Ukraine. The company’s refineries are capable of processing 35% of oil from non-Russian sources. But it argues that raising this to 100% will take years. The plants will not be capable of operating independently of Russian oil until at least 2026, a MOL executive told S&P Global on October 11. And this does not necessarily mean the company intends to stop using Russian oil.

MOL estimates that making this transition would cost $500mn over the next two years.

The Czech Republic, meanwhile, has vowed to end Russian oil use by the middle of 2025. Only one of its two refineries, both owned by Poland’s Orlen, still uses Russian crude. Orlen said in August it was fully prepared to abandon Russian oil once the TAL expansion is completed, noting that tests confirmed that the Litvinov plant that still uses it can run only non-Russian crude only.

Gas supply

That Hungary and Slovakia appear reluctant to give up Russian oil is consistent with their broader defence of continued economic ties with Russia in spite of its invasion of Ukraine. The two countries are also among the largest remaining buyers of Russian gas in Europe, but that supply could be at risk at the end of the year, when Moscow and Kyiv’s long-term transit contract expires. The EU has taken a similar stance to this as it did with the summer disruption in Russian oil supplies – the European Commission has said it does not see an extension of the transit deal as necessary and has called for member states to do more to shift away from Russian gas.

To ensure that Russian gas still flows through Ukraine after this year, it has been proposed that European gas buyers could group together and take over ordered gas deliveries from Russia’s Gazprom at the Russia-Ukraine border. Alternatively, Azerbaijan has said it has been approached by the EU on taking over gas transit through Ukraine. Lacking spare production capacity and a means of pumping its gas to Ukraine other than through Russia, it is clear that it would remain Russian-origin molecules being transported, even if sold by Azerbaijan.

Either option will still require Ukraine and Russia to reach a gas border interconnection agreement sometime in the next two and a half months, which will be difficult as long as intense fighting continues.

Arguments made by Hungary and Slovakia against ending Russian gas imports are not without merit. By doing so they would violate long-term supply contracts with Gazprom, putting them at risk of legal percussions. Various EU member states made the same argument when opposing EU sanctions on Russian LNG imports. More importantly, it would also expose them to volatile spot gas prices, unless they were able to secure alternative gas supply on a long-term basis with stable pricing.

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