Ukraine Leverages Oil and Gas Transport: Exempt from Sanctions, Hungary and Slovakia Are Heavily Dependent on Russian Oil and Gas

 

     Recently, Ukraine blocked Russia’s Lukoil from transporting oil from Russia through Ukraine to Hungary and Slovakia. Ukraine is calling it a sanction. It is speculated that Ukraine is retaliating against its leader Viktor Orban for traveling to Russia to meet with Putin. Hungary accused Ukraine of “blackmail” and endangering its energy security. The Kyiv Independent notes that “Hungary and Slovakia were exempt from the EU’s Russian oil sanctions in 2022, which made up 65-70% of supplies to Hungarian oil refiner Mol and its Slovakian subsidiary Slovnaft in May 2024.” Hungary reached out to the EU for help, but the EU determined that there was no immediate threat. They report that that “Russian oil transit through Druzbha did not drop last month. Lukoil is instead selling its crude to non-sanctioned Russian companies like Rosneft and Tatneft.” Thus, there is no immediate threat.

     Both Hungary and Slovakia, but especially Hungary, have been pointed out as being very vulnerable due to being overly dependent on Russian oil, gas, and nuclear fuel and thus open to Russian blackmail. Ukraine has not explained why the sanctions have only targeted Lukoi and not other Russian oil companies. Some think it is setting a precedent to block other Russian oil suppliers. Before the ban, Lukoil was providing about a third of the Hungarian oil supply and 45% of the Slovakian supply. Kyiv Independent noted: “The company earned a total of $13 billion in profits last year. In total, Russia’s oil sector earned $180 billion from exports, fueling Moscow’s war machine.”

I would not characterize Ukraine’s moves as blackmail so much as to point out that they have legitimate reasons to try and slow an economic war machine directed against their country. The G7 sanctions against Russian oil are being undermined by sales to Europe, particularly these two countries, and they need to work on finding alternative supplies, says Ukraine, who wants tighter overall sanctions. Pipelines through Croatia or Poland are possibilities. Hungary says fees are too high through the Croatian Adria pipeline, but others say they can negotiate lower rates. Apparently, there is enough capacity available in the Croatian pipeline to cover all of Hungary’s Mol refinery needs. Oil and gas transported through Ukraine rely on electricity for pumps to pump the oil and compressors to compress the gas. Electricity facilities have been and continue to be major targets for Russian strikes, which are against international rules. Ukraine has been much more measured in striking mainly Russian fuel depots and other infrastructure that is more directly related to Russia’s war effort. According to the Kyiv Independent:

“Hungary has pledged to provide detailed explanations to the EC on why it will not fully switch to the Adria pipeline or other options, an EC spokesperson told the Kyiv Independent.”

“The objective of diversification away from Russian fossil fuels should be actively pursued,” the EC said.”

The question should be asked: Is Hungary slow walking moving away from Russian oil supply? The answer is likely to be yes.

 

Ukraine’s Incursion Into Russia’s Kursk Region and Its Control of the Sudzha Natural Gas Metering Station

     Earlier this week Ukrainian forces advanced into Russia’s Kursk region in a surprise attack and now apparently control its Sudzha gas metering station and presumably the valves to turn off Russian gas flow through it. Thus far, after a day or two the drops in flow have been small. It is unclear what Ukraine intends to do if it can hold its position there. Perhaps nothing, since its goal was not control of gas valves. Ukraine has said that the raid and taking of Russian territory is meant to improve its negotiating position in possible future peace talks. They also noted that it would scare Russians and make them less confident in their leader. It has also been speculated that Russia’s Gazprom will use the cross-border raid, which may involve 135 square miles of Russian territory being taken by Ukraine, as a pretext to stop transporting gas through Ukraine to Europe (166 square miles in the latest reporting). Others say that Ukraine could cut off the gas supply to Europe. Thus. It is unclear what will happen. Ukraine wants to tighten sanctions. Russia wants to sell oil and gas to fund its war effort.

     The Sudzha Gas Metering Station has been described as “the only entry point into Ukraine's gas transportation system through which Russian gas is transited to Europe.” Since Ukraine still collects transport fees for the transport of gas through its territory, it is less likely to turn the valves off long-term. It seems likely that the current row with Hungary and Slovakia will be temporary. About half of Russian gas exports to Europe pass through the Sudzha station. Last year that amounted to 14.65 billion cubic meters (513 BCF) or about 1.4BCF per day. Ukraine considers that Russia could act preemptively and cut off supplies through the station. Of course, Ukraine could also cut supplies running through its territory at other points so there is no real military or strategic advantage to control the station. Some Ukrainians believe Russia will cut Gazprom exports and try to blame Ukraine so the situation could be complicated. The Slovakian economy minister is concerned about supply disruption. Many, however, do not think the metering station has anything to do with the incursion.

 

 

References:

Orban’s arguments crumble in Lukoil spat with Ukraine. Dominic Culverwell. Kyiv  Independent. August 8, 2024. Orban’s arguments crumble in Lukoil spat with Ukraine (msn.com)

Russian energy giant Gazprom may use fighting near Sudzha in Kursk Oblast as pretext to stop gas transit – Reuters.  Economichna Pravda. Ukrainska Pravda. August 8, 2024. Russian energy giant Gazprom may use fighting near Sudzha in Kursk Oblast as pretext to stop gas transit – Reuters (msn.com)

Russian gas transit route to Europe via Ukraine is functioning, minister says. Reuters. August 8, 2024. Russian gas transit route to Europe via Ukraine is functioning, minister says (msn.com)

Ukraine gains control of Sudzha gas station – The Washington Post. Artur Kryzhnyi. Ukrainska Pravda. August 8, 2024. Ukraine gains control of Sudzha gas station – The Washington Post (msn.com)

Ukraine Breaks Silence on Kursk Raid Objectives. Isabel van Brugen. Newsweek. August 8, 2024. Ukraine Breaks Silence on Kursk Raid Objectives (msn.com)

Kursk breakthrough: Why Sudzha 'gas valve' is important and what can threaten nuclear power plant. Vladyslav Seleznov, Danylo Kramarenko, and Kateryna Shkarlat. RBC Ukraine. August 9, 2024. Kursk breakthrough: Why Sudzha 'gas valve' is important and what can threaten nuclear power plant (msn.com)