How Hungary and Slovakia might retaliate against Ukraine for sanctioning Lukoil

Kyiv has expanded sanctions against the Russian company Lukoil. While previously Ukrainian sanctions against this company only affected financial operations, a transit ban has recently been added. This decision has angered Hungary and Slovakia.

There have even been threats to stop energy and fuel supplies to Ukraine and to block the European Union's approval of new payments to Kyiv. Read more about the possible consequences of this decision for Ukraine in the article by Olena Lapenko, a DiXi Group General Manager of security and resilience - Oil war with Orban and Fico: What strengthening energy sanctions will bring Ukraine. The Lukoil oil transit ban works as follows: Ukraine's Ukrtransnafta gets requested by European customers, but it has no right to transport any volumes if it sees a contract with Lukoil.

Advertisement: Similarly, the EU, in its latest sanctions package, has banned the re-export of Russian liquefied gas. Ukraine's main goal is to reduce the revenues of the aggressor country.

After all, all the money the Kremlin receives as profit is invested in the war. This step by Ukraine complements attacks on oil refineries, oil storage facilities and export terminals. Operational data from the Center for Research on Energy and Clean Air (CREA) shows that Russians are still receiving nearly EUR300 million a day from oil sales and slightly less from oil product sales.

Depriving Russia of these revenues is one of Ukraine's key tasks. However, these sanctions also have a downside. This step immediately affected those EU countries that remain dependent on pipeline supplies of Russian oil - Hungary and Slovakia.

According to Hungarian Foreign Minister Peter Szijjarto, the new Ukrainian sanctions have led to a suspension of oil transit, which "fundamentally threatens the energy supply security of Hungary and Slovakia." Unfortunately, the Ukrainian side did not pay enough attention to the informational support of its actions. It is not surprising that foreign media are spreading information that these sanctions are allegedly Ukraine's revenge for Hungarian Prime Minister Viktor Orban's visit to Moscow.

Questions are also being raised about why the sanctions are imposed only against Lukoil and not other Russian companies. In a situation where we are demanding a full oil and gas embargo from the EU, our willingness to ensure the transit of Russian oil seems strange. However, the imposed sanctions are political in nature and therefore cannot be regulated by standard economic rules.

Moreover, the arguments voiced by the Hungarian top diplomat are not always correct. In particular, the Hungarian operator MOL has the technical capability to source oil from the Mediterranean market, for example, through the Croatian Adria terminal. Therefore, the collapse of "Orbanomics" can be avoided.

The situation is similar in Slovakia, as this country has only one refinery, which is part of the same Hungarian MOL structure. Therefore, the option with the Croatian terminal also works here. The Ukrainian side has also repeatedly warned of its intentions to strengthen sanctions, so Hungary and Slovakia had enough time to prepare for the new realities.

For these reasons, filing a complaint against Ukraine in either the EU arbitration or the WTO dispute resolution body does not currently seem like a reliable scenario for Hungary and Slovakia. These countries will most likely use political pressure as the main tool of influence, trying to veto important EU initiatives for Ukraine, including the provision of financial assistance. This will not be the first attempt by Hungary to abuse the right of veto, but it may provoke strong opposition from other EU countries.

The main thing is that Kyiv communicates its arguments to European capitals and gains their support.

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