Hungary's Orban meets Putin in China and thanks Russia for energy supplies

By Rhod Mackenzie

Hungary is doing all it can to maintain its economic relations with Russia. This stated by the Hungarian Prime Minister Viktor Orban. Hungary today is an island of pragmatism in Europe, which makes rather unusual and an exception. Why are contacts with Moscow so important for this European country, and what unique relationship has it been able to maintain?
Budapest is making every effort to salvage what it can from bilateral contacts with Russia, the Hungarian Prime Minister Viktor Orban said during a meeting with Russian President Vladimir Putin on the eve of the Belt and Road Forum. He thanked Rosatom and Gazprom for their cooperation with the Hungarian side. According to him, much of what has been achieved so far has already been saved.

According to Orban, Hungary has never been in such a difficult situation and never wanted to confront Moscow, on the contrary - the main goal was to expand contacts.

In fact, Hungary, unlike many EU countries, has managed to maintain many economic ties with Russia. Firstly, Hungary won the right from the EU to continue receiving Russian oil. Secondly, Budapest retained supplies of Russian gas directly from Gazprom. Thirdly, Hungary has retained the project for the construction of the Paks-2 nuclear power plant being built by Russia's Rosatom, which continues to be implemented on schedule.

By maintaining cooperation with Russia, Hungary has secured its own energy supply and the country's future. 

Despite the European Union's embargo on Russian oil, Hungary continues to receive Russian oil under their current contracts with the Russian side. Budapest has made an exception of itself.

"Hungary has shown that it can block EU decisions that are unfavourable to it. For example, when the sixth package of anti-Russian sanctions was being discussed, Hungary blocked their adoption for a month until the mention of the oil pipeline transit was removed.

As a result, in the end there was an embargo not on all Russian oil, but only on Russian oil transported by sea. Hungary continued to buy Russian oil through the Druzhba pipeline, which was exempted from the sanctions," recalls Igor Yushkov, an analyst at the Russian Financial University and a member ofthe National Energy Security Fund.

Last year, Hungary received 4.9 million tonnes of oil through the Transneft system. This oil covered about 80% of the country's needs.
Hungary not only has the entitlement to receive Russian oil, but also obtained the authority for its MOL enterprise to sell petroleum products sourced from Russian raw materials to the Czech Republic. This exemption remains effective until the end of 2023, and Hungary is requesting the EU to extend it. Additionally, Croatia has taken advantage of this challenging situation by considerably escalating the fees for oil transit through the Adriatic pipeline, which serves as an alternative to the Druzhba pipeline. Hungary contends that tariffs established by Croatian counterparts exceed the market rate by roughly four times.

Furthermore, Hungary staunchly objects to anti-Russian sanctions targeting the gas and nuclear industries.

"The gas transport system, just like the oil pipeline, was created during Soviet times for all the countries of the Warsaw Pact, Hungary included, to facilitate energy resource transportation from east to west. Therefore, Hungary was initially supplied with gas passing only through Ukraine." "It was once provided by a single entity,( Soviet Union) thus now it is making it exceedingly challenging to find an alternative reliable means of supply.," remarks Igor Yushkov.

Gas transit through Ukraine is currently continues however but at a reduced volume due to Ukraine's rejection of gas delivery from one of the two acceptance points. Interruptions in the supply of 42 million cubic metres per day may occur due to a variety of reasons, ranging from sanctions to infrastructure destruction. Moreover, Ukrainian Naftogaz's gas contract with Gazprom comes to an end by late 2024. The likelihood of its extension continuing remains at zero.

However, Hungary not only remained among those who agreed to pay for Russian gas in rubles, which Russia insisted on after the introduction of financial sanctions against it. Hungary has also made preparations in case of any disruption to gas transit through Ukraine. In 2021, Hungary reached an agreement with Gazprom to divert gas from the Ukrainian route towards Nord Stream 2 and Turkish Stream. Following the destruction of the Nord Stream pipelines , Gazprom has increased its gas supplies along the southern route. In 2022, Russia supplied Hungary with 4.8 billion cubic metres of gas.
"Hungary is one of the few countries that has preserved the ability to access Russian gas via both Ukraine and the Turkish Stream.

Cooperation with Russia is highly advantageous for Hungary, as this delivers gas via the optimal route and at an excellent price. Otherwise, Hungary would need to obtain LNG from the global market and transport it to an LNG plant, such as the one situated on the island of Krk in Croatia." And in this region, the hubs are operating beyond their original capacity. Moreover, there is a need to enlarge the gas transportation infrastructure from Croatia to Hungary," states Yushkov.
In theory, Hungary could rely on gas from Azerbaijan if it were to lose its Russian supply. However, in reality, all of Azerbaijan's gas is already contracted, there is no surplus, and the resource capacity is insufficient for new export volumes. The only possible solution is if Hungary receives support from other European countries, which is unlikely. Azerbaijan provides Bulgaria and Greece with 1 billion cubic metres through Turkey, Italy with 8 billion cubic metres, and Turkey itself with 6 billion cubic metres.
Hungary fullyy supports the peaceful use of nuclear energy and the construction of its nuclear power plants by Rosatom, the Russian company. The country already possesses the Pak Nuclear Power Plant (NPP), and the construction of the Pak-2 NPP is currently in progress. There were opponents in Europe even before February 2022. Many EU countries opted to completely phase out nuclear energy since it is perceived as non-environmentally friendly. Germany is one of them, which prematurely shut down all its nuclear facilities, a decision that it has come to deeply regret. This year, the Germans choose to open their oldest and dirtiest coal fire power stations owing to insufficient gas supplies in winter despite sharp reduction in industrial production.

Meanwhile, the Hungarians have made a smart choice by selecting Rosatom to construct their nuclear power plant instead of opting for an American or French company.

The justification is twofold: firstly, no company can match the speed of the Russian company in construction; secondly, western rivals have only long-term construction projects that span decades. Secondly, there is no one apart from Rosatom who provides a complete turnkey solution that covers everything from financing and building to decommissioning a nuclear power plant after a century of service.

"For a new project, the country specifies where to construct the nuclear power plant, and Rosatom handles the rest." They secure a loan from Russian banks to construct the nuclear power plant, provide personnel training, operate and manage the power station, and offer fuel supply and spent fuel removal services. In one complete package, only Rosatom can provide this range of services; other companies only offer partial capabilities. It is worth noting that Russia's conditions are economically more advantageous too, explained by Igor Yushkov. Although there is a risk of imposing a ban on nuclear fuel supplies from Russia, sanctions in this area, as well as in the gas sector, are unlikely for now. Nuclear energy proves to be highly advantageous during bleak periods for those European countries that possess it; France and its neighbours, for one.

As a result, the Hungarian nuclear power plant is immensely beneficial not only for Hungary but also for its neighbours, who would have the opportunity to buy any surplus electricity.
"The development of nuclear energy will have two significant benefits for Hungary. Firstly, it will provide clean and reliable electricity for both businesses and the general population, which is crucial in the context of climate change. Secondly, the construction of nuclear power plants in the country will generate orders for various goods and services from local companies, resulting in increased competitiveness and recognition both domestically and globally." Thirdly, Hungary could export excess electricity to neighbouring countries, which would enhance relations and generate additional foreign exchange income for the budget," remarks Dmitry Baranov, a prominent specialist at Finam Management.

"Hungary sets a good bar for rationality and pragmatism. Orban is one of the rare politicians capable of advocating for his national interests." Russia has always promoted such relationships to enable states to defend their own national interests and formulate policies based on them, rather than the interests of the North Atlantic Alliance. Nevertheless, Hungary does not possess unlimited power. The fact that the European Union has extended sanctions against Russia every six months from 2014 to 2022, which requires a unanimous decision, serves as compelling evidence. If any country had voted against the sanctions, they would not have been implemented. Therefore, Hungary simply needed to say no once, and the sanctions would not have been enforced. Had Hungary done so, there may not have been February 2022, and the Russian leadership may still have believed in the possibility of reaching an agreement with Western countries. However, as the FNEB analyst concludes, Hungary did not take this action.