On May 4th European Commission president Ursula von der Leyen outlined a sixth package of sanctions against Russia upon its ongoing military invasion of Ukraine. The details of the proposed new measures are still being negotiated and will need unanimous approval by the 27 member states before being deployed. This time, together with asset freezes and individual travel bans, they include something that has been causing a heated debate in Europe: energy. The Commission wished to have all EU countries banning with immediate effect Russian oil, which accounts for 25% of oil imports to the European Union. However, a few countries claimed they would not be able to disentangle from Moscow oil imports that easily, meaning the initial draft of the ban was changed into a phased-in embargo over six months.
Business as usual
This compromise is still not enough for Hungary, one of the countries seeking exemptions. Secretary of State Zoltán Kovács said Budapest is ready to veto the “unacceptable” EU proposal. A position confirmed by Foreign Minister Péter Szijjártó, according to whom, “Hungary’s energy supply cannot be endangered, because no one can expect us to allow the price of this war to be paid by Hungarians and it is currently physically impossible for Hungary and its economy to function without Russian oil”. He added that his country will not support European sanctions “making the transport of natural gas or oil from Russia to Hungary impossible”. Hungary received a significant share of its oil products imports from Russia in 2021 and it is almost 100% dependent for fuel on Russian crude oil delivered through the old, world’s longest, Druzhba pipeline.
On top of its reluctance to stop buying oil from Moscow, Hungary is the only country in the Visegrád Group (V4) with no intention to quit or reduce Russian gas and without any plan to replace it. On the contrary, PM Viktor Orbán is determined to keep Budapest fossil fuels ties with Moscow rock solid and believes Gazprom will never cut gas to his country. As stressed by Minister Szijjártó, “85% of our gas supply comes from Russia, and 65% of our oil supply comes from Russia. This is being determined by infrastructure. This is not for fun. We have not chosen the situation”. He also hinted that Orbán government will agree joining a Russian payment scheme backed by the Kremlin. It requires opening two bank accounts with Gazprombank: one in US dollars or Euros and one in Russian rubles. The proceeds of sales are paid in foreign currency, which is then converted by Gazprombank into the ruble account.
Escape routes
An unlikely ally for Budapest in requesting exemptions to the proposed Russian oil ban is Slovakia, which is also connected to the Druzhba pipeline. As stated by Economics Minister Richard Sulík on May 3rd, Bratislava’s dependence from the Soviet-built infrastructure means that up to six years would be needed to end the flow of oil from Russia by converting refineries to process crude oil from other sources. “We will insist on the exemption, for sure,” Sulík confirmed. Slovakia is also heavily dependent on Russian gas, which covers 85% of its national needs, but seems to be in a better position than neighboring Hungary and Czechia. PM Eduard Heger’s administration began a process to diversify its supplies and is planning to go further to detach itself from Gazprom. Even though the country is landlocked with no direct access to a regasification plant, Bratislava is currently purchasing LNG delivered in the Croatian terminal of Krk.
Another country asking for a special treatment regarding the planned phasing-out of Russian oil is Czechia. “We are ready to support the oil sanctions given we will have some postponement until capacity is increased in oil pipelines which can deliver oil to our country”, said PM Peter Fiala. This process, however, might take up to three years and it involves increasing the capacity of the existing Transalpine (TAL) pipeline, bringing crude oil to Prague from Italy through Austria and Germany.
Gas is another concern. To this day, the country purchases 98% of it from Russia. This explains why there have been speculations in the press that Czechia, like Hungary, would be interested in joining the Russian payment scheme once its current contract with Gazprom expires. Meanwhile, Fiala is buying precious time. In a recent visit to Warsaw, he discussed with his counterpart Mateusz Morawiecki the possibility of resuming construction of the Stork II pipeline between the two countries. This would be a key infrastructure in order to dump Russian gas supplies and Prague has been negotiating its resumption with the European Commission. At the same time, on May 1st Czechia has begun importing LNG from the US via Croatia and is considering getting more liquefied natural gas from the regasification plants operating along the Baltic coast, in Poland and Germany.
Wanted: energy independence
Since Wednesday April 27th, Russia halted gas supply towards Poland via the Yamal pipeline, owned by state-run moloch Gazprom. It is Moscow retaliation against Poland (and Bulgaria) for the refusal of both countries to pay their Russian gas in rubles, as requested by Vladimir Putin. The Polish PM Mateusz Morawiecki compared the Kremlin’s decision to “putting a pistol to our heads”. However, he also stressed how “Poland has now become independent from the gas of the Russian Federation”. His statement might sound over-optimistic as Poland still imported 53% of its gas directly from Russia in the first quarter of 2022, while covering the remaining 47% with locally extracted gas and liquefied natural gas (LNG) from abroad. However, this is bound to change soon due to two new pipelines: the Poland-Lithuania Gas Connector (GIPL), which is already operational from May 1st, as well as the Baltic Pipe whose opening is scheduled for September this year. The latter will be passing under the North Sea, allowing Poland to bypass Russia and buy gas from Norway. Together with a bigger share of LNG brought via ship from Australia, the US and Qatar to the Polish terminal of Świnoujście, the new pipelines might help the country to steer clear of Gazprom.
It isn’t just about the gas, which contributed to barely 10% of the country energy mix in 2020. In the early days of the Ukraine war, Poland banned the import of Russian hard coal. It was a bold decision for Warsaw that has been trying to phase out of fossil fuels only by 2049 and is still relying on coal and lignite to cover 71% of its national energy needs. And 15 out of 100 chunks of coal burned in Polish households last year had come from Russia. Replacing Russian oil is going to be a tough job, as Warsaw imported 66% of it from Moscow in 2020, but the country did not request exemptions to Brussels. Much will depend on the growth of renewable sources, whose share of the national energy mix is now 17%, while the completion of Poland’s first nuclear power plant by 2033 might be crucial in the long term.
V4 No More?
Phasing out Russian oil and gas will be a bumpy, winding road for Warsaw, and the energy bills are likely to skyrocket, but the country seems determined to go ahead. This position is in stark contrast with Hungary’s, whose PM does not want to jeopardize his connections with Russia, and widens the recent gap between the two countries. Orbán has long been at odds with Brussels and this new disagreement with the EU would further isolate Hungary, especially if the country will be the only one vetoing the planned Russian oil embargo. Within an already disintegrating V4 Group, Prague and Bratislava have so far been on Warsaw’s side, backing all sanctions against Moscow since the beginning of the war as well as distancing themselves from Budapest in the process. Czechia and Slovakia have expressed no intention to veto the ban on Russian gas, only asking for exemptions, but need to decide whether they have the willingness (and the strength) for a shift away from Putin’s energy supplies.
Cover Photo: Michal Fludra / NurPhoto via AFP.
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