There is something fishy about the Ukraine sanctions on Lukoil's deliveries to Hungary and Slovakia

Ukraine's recent partial restriction on the operation of the Russian Druzhba oil pipeline has sparked a big row between the war-torn country and Hungary and Slovakia, who say they have been cut off from their Russian oil supplies, which were permitted by the EU as an exception to the twin oil embargos imposed on December 5, 2022 and February 5, 2023.

The row has escalated as some partners are questioning whether Kyiv's actions are driven by commercial rather than state interests.

Despite the ongoing war, many Ukrainians were surprised to learn that Russian oil continues to be transported across Ukrainian territory to the EU, inadvertently funding Russia's war machine.

The new Ukrainian sanctions only affect the supply of oil to Central Europe by the privately owned Russian oil company Lukoil, which accounts for 40% of the supply to Hungary and Slovakia. The remaining oil is delivered by the Russian state-owned companies Rosneft and Tatneft.

The fact that Russia’s largest privately owned oil company, which is nominally independent of the Kremlin, was sanctioned but two of Russia’s biggest state-owned companies were not has already raised eyebrows.

The supply of oil through the southern branch of the Druzhba pipeline, running through Ukraine to Slovakia, Hungary and Czechia, has been continuous and almost uninterrupted since February 2022, according to Sergiy Sydorenko, co-founder and co-editor of European Pravda and a former Ukrainian minister.

He claims, and others corroborate, that the supplies of oil to Hungary and Slovakia have not been affected by the new Ukrainian sanctions at all; Rosneft and Tatneft have simply stepped up their volumes and the total amount delivered to Hungary and Slovakia has remained unaffected.

During negotiations in Brussels over the terms of the twin oil sanctions in 2022, the EU decided to grant an exception for the route to the heart of Europe. This exception allowed the refineries in Czechia, Slovakia and Hungary to temporarily receive oil through Druzhba and sell petroleum products made from Russian oil on the EU market. These products were also supplied to Ukraine, including gasoline and diesel used by the Ukrainian army, which was in short supply after Russia destroyed all of Ukraine’s refining capacity early in the war.

The Central European countries lacked alternative oil sources, were suffering from regional diesel shortages and needed to upgrade their refineries to process non-Russian oil, if they could find a supplier.

Initially, the Druzhba pipeline was supposed either to have stopped completely on January 1 or to have reduced its throughput if new agreements had been reached, so the supplies to Central Europe are due to change anyway, says Sydorenko writing in European Pravda.

And a beginning to those changes was already in hand. The Czech refinery, owned by the Polish group PKN Orlen, announced it would stop consuming Russian oil entirely, having secured an additional supply via the expanded Trieste-Ingolstadt Transalpine Pipeline coming from the south.

Similarly, in Slovakia and Hungary refineries in Bratislava and Százhalombatta were set to receive increased supplies from the Adria Pipeline from the Croatian island of Krk. These refineries, owned by the Hungarian group MOL, planned to source at least 60% of their oil from Adria starting next year.

By 2025, a new reality was expected: Slovakia and Hungary's refineries would no longer be solely reliant on Druzhba oil. Over the past year, the Bratislava refinery received 30% of its oil from Adria, with a similar situation in Százhalombatta. Nevertheless, up to 70% of the oil still transited through Ukraine, with 40% supplied by Lukoil and the remainder by state-owned Rosneft and Tatneft.

Ukraine's recent decision to halt Lukoil's supply, while placing no restrictions on Rosneft and Tatneft, has raised questions, says Sydorenko. The Ukrainian government has not explained this selective restriction, and there have been no comments from Brussels, suggesting a lack of coordination with European institutions. Kyiv’s decision to impose sanctions also came out of left field for the Slovak and Hungarian governments.

The Slovak and Hungarian governments have raised the issue in Brussels, seeking EU mechanisms against Ukraine, which have been rebuffed. For instance, the Bratislava refinery relies on Druzhba for 70% of its supply, with 40% of that being Lukoil oil. Ukraine's decision thus affected about a quarter of the refinery's supply – a headache but not a disaster.

Naftogaz, Ukraine’s national oil and gas company, has also publicly said that in fact the oil flowing through the pipelines has not been diminished at all, stating that Lukoil oil has been entirely replaced with supplies from the two other Russian companies.

Sydorenko also suggests that Slovakia's approach in Brussels contrasts markedly with Hungary's. While Hungary frequently vetos EU decisions on Ukrainian matters in the EU and Nato in Russia’s favour, such as linking the latest veto on payment for delivered weapons to the Ukraine conflict, the Slovak government under Prime Minister Robert Fico has not vetoed EU decisions regarding Ukraine, despite Fico’s pro-Russian rhetoric. Fico maintains good relations with Ukraine and has been involved in energy projects and arms supplies, which are not publicly disclosed.