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EU In For Long-Haul On Russian Oil Ban

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By Alexandra Brzozowski and Kira Taylor

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(EurActiv) — Hungary is digging in its heels, and the prospect of the sixth sanction package against Russia, including a ban on imports of Russian oil, being approved before the EU summit on Monday (30 May) is decreasing, EURACTIV understands.

According to EU diplomats, the rest of the package is ready to go, and – if Hungary dropped its opposition – could be implemented quickly.

For the past month, however, Budapest has argued that halting Russian oil imports would be too big of a blow to its economy since the landlocked country cannot easily access oil from elsewhere.

The package goes well beyond the agreement by EU leaders to phase out Russian fossil fuels “as soon as possible”, Hungarian President Viktor Orbán wrote in a letter to European Council President Charles Michel earlier this week, asking him to not discuss sanctions as part of summit agenda.

“If adopted, the proposed sanctions would immediately cause serious supply disruptions in Hungary and undermine our vital energy security interests,” Orbán wrote.

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“In addition, they would increase fuel prices by approximately 55-60% at a time when energy prices are already at a 40-year high,” he continued.

Hungary said it needs up to four years to shift away from Russian crude oil, requiring investments of about €750 million to upgrade refineries and expand a pipeline bringing oil from Croatia.

It also said the longer-term conversion of its economy away from Russian oil could cost as much as €18 billion, and it is looking to the EU to provide the funds for such a transition.

At the moment, most of Hungary’s oil comes from the Russian-supplied Druzhba pipeline that runs through Slovakia, the Czech Republic and Hungary. These three landlocked EU countries would have the biggest problem finding alternative oil supplies and have voiced objections to an oil embargo.

The European Commission has been working hard to get Hungary onside. In its plan to phase out Russian fossil fuels, it included extra sources of funding that could be channelled through the COVID-19 Recovery and Resilience Fund to help EU countries wean themselves off Russian gas.

The Commission’s proposal also lifted certain “do no significant harm” criteria, which would allow additional investment into fossil fuel infrastructure. The EU executive estimates that an extra €1.5-2 billion is needed across the EU for oil and €10 billion for gas.

“Given the situation in which we need to be able to also do some investment in oil and gas infrastructure […] the regulation allows a limited and targeted derogation from the do no significant harm principle only for these objectives,” an EU official said.

Under the proposal, Hungary could access €345-346 million of funding, according to an EU official – however, this comes to under half of the €750 million sum Hungary has demanded for its upgrade.

Moreover, the channelling of much of this money through the COVID-19 fund presents a significant problem for Budapest, since Hungary’s portion of the money is currently frozen due to it not meeting the criteria for rule of law.

According to Orbán, the Commission’s plan is not enough. In his letter to Michel, he slammed the proposal, saying that it does not provide extra help for landlocked EU countries, and gives no indication of the “modalities and the timing” of finance to help diversify fossil fuel infrastructure.

Orbán also emphasised that the recovery funds would be problematic, arguing that these are “not equally accessible”.

However, there are concerns that giving in to Hungary would lower the standards around rule of law and that, were Hungary actively compensated for the oil ban, other countries would also have a claim for compensation.

Meanwhile, Budapest has made it clear that it does not want sanctions to be addressed at the meeting next week. EU diplomats have said that the sanctions risk ‘blowing up’ the EU summit discussions.

In his letter to Michel, Orbán wrote, “Hungary is not in a position to agree on the 6th sanctions package until the negotiations succeed in resolving all the outstanding issues. Solutions must come before sanctions.”

Alternatives to an outright oil ban

If Hungary were not to support the sixth package as it is, there are alternatives that could allow it to pass. For instance, leaders could choose to:

  • Split the package and pass it without the oil ban. However, this risks being a public admission of failure and there is pressure from Ukraine to agree to an oil ban which is unlikely to pass.
  • Only sanction sea-borne energy deliveries, not pipeline oil, which Hungary relies on. However, this would disproportionately hit certain EU countries and mean varying fuel prices across Europe.
  • Apply a tariff to Russian oil to make it more expensive to import and use the revenues to rebuild Ukraine. This would incentivise diversifying supplies away from Russia, but the tariff would likely be passed on to consumers and worsen the energy crisis.

Although EU ambassadors are due to meet on Sunday (29 May) to thrash out a potential eleventh-hour agreement before the summit, it looks increasingly unlikely a deal could be reached.

Budapest’s opposition has left many other EU member states frustrated, particularly the Baltics, Poland and the Nordics, EURACTIV understands.

“Hungary has received commitments for everything that was technically and practically reasonable, but if they want to trade with war criminals, that’s their choice,” a disgruntled Eastern European diplomat said.

EU sanctions require unanimous agreement, but EURACTIV understands that some EU officials have been looking into legal options on how to bypass potential blockages.

One such option includes EU member states imposing sanctions bilaterally on Moscow.

Asked whether moving forward on the sanctions package with the EU26, without Hungary, would be an option, the EU diplomat said “technically everything is possible, it’s also politically possible”.

However, EU officials said such an option would be a ‘last resort’ since it would damage the sense of unity the bloc wants to project to Moscow.

EURACTIV understands that there might be a certain sympathy, especially on the European Commission’s side, to pursue negotiations on the package as it is as long as it takes to convince Hungary, even if this takes until the next EU summit, given the oil ban would not come into force for six to eight months time.

Many hawkish member states also favour moving forward with a complete package rather than risking showing EU disunity by moving with only parts of it.

Moreover, avoiding an agreement on an outright ban on Russian oil may not go down well in Ukraine.

“How many more weeks will the EU try to agree on a sixth package?” Ukraine’s President Volodymyr Zelenskyy said in a recent address, adding that Moscow was receiving a billion euros a day from the EU for energy supplies.

“Pressure on Russia is literally a matter of saving lives. And every day of procrastination, weakness, various disputes or proposals to ‘pacify’ the aggressor at the expense of the victim merely means more Ukrainians being killed,” he added.

Zelenskyy’s comments were also clearly targeted at Hungary.

“Of course, I am grateful to those friends who are advocating new sanctions. But where do the people blocking this sixth package get their power from? Why are they allowed to hold such power?” he asked.

EurActiv

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