Hungary faces rising costs as Ukraine sanctions hit Orban's oil deals

This spells trouble for Prime Minister Viktor Orbán, who gained additional funds and maintained low gasoline prices in his country because of this, reports Politico. Experts believe that Ukraine's sanctions against Lukoil are a blow to the incomes extracted by Orbán's business circle in the gray zone.

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 793,000 short tons 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.

These solutions are all pricier for Hungary. That spells trouble for Orbán, who has used the discount to boost profits and suppress domestic fuel prices, 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.

"The country also sells its excess supplies at a healthy markup — a critical fact as Orbán struggles to balance the budget amid sluggish economic growth that has fueled an opposition movement.," Politico reports.

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

Honchar told the portal that Ukraine's sanctions against Lukoil are damaging the incomes extracted by Orbán's business circle in the gray market.

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

According to the portal, other EU countries' patience 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 temporary solution allowed these three countries to find alternative options.

Meanwhile, Budapest increased its imports of Russian gas via the Druzhba pipeline by 50 percent 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 question 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. "Obviously, this explains the 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 problematic time for Orbán. Last year, inflation rose to 17.5 percent, and this week, Hungary missed the deadline to pay a fine of 214 million dollars 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 Orbán, 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 Orbán's party, Fidesz, and then created a new political movement, Tisza, to dismantle Orbán's "mafia state" and bring the country closer to Ukraine.

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

The situation in Hungary will certainly change further by the next parliamentary elections in 2026. Ukraine may introduce more sanctions on Russian oil, and EU countries may press Hungary harder to abandon Russian oil. We read that Vladimir Putin may not be able to help Orbán forever.