In June, the G7 agreed to provide Ukraine with a USD 50 bln loan, in which the EU and America would each provide USD 20 bln, with Great Britain, Japan, and Canada splitting the remaining USD 10 bln. The loan was to be repaid with future revenue from the sale of roughly EUR 260 bln in frozen Russian gold and currency reserves, most of which are held at Euroclear, the Belgian central security depository.
As a condition of the agreement, the United States demanded assurance the assets would remain frozen to ensure a steady flow of income to service the loan. To that end, the European Commission proposed extending the sanctions, freezing the assets from the current six-month period to 36 months. However, Prime Minister Viktor Orbán is currently blocking such an extension, wanting to delay a decision until after the U.S. presidential election on Nov. 5.
Because the EU’s alternative plan relies on provisions that expire at the end of the year, the bloc is now scrambling to provide Ukraine with this support in 2024. By 2025, the continued functioning of Ukraine will face a shortfall of USD 38 bln, according to the IMF.
Meanwhile, Hungary has proceeded with its workaround to ensure a continuous supply of crude from Russia. On Sep. 9, oil and gas company MOL announced that it had concluded agreements to take over ownership of the crude supply from Russia’s Lukoil at the Belarus-Ukraine border as it passes through the Druzhba pipeline.
“The MOL company announced that they are currently the owners of the product transiting through Ukraine, and we are happy with that,” Ukrainian Prime Minister Denys Shmyhal told the website Politico. According to MOL Group’s downstream VP Gabriel Szabó, the new arrangement provides a “sustainable solution” that would contribute to the security of supply in Hungary and Slovakia.
Being landlocked, the two countries were granted a temporary exemption to an EU-wide ban on Russian oil arriving via pipeline. While it was supposed to seek alternatives in the interim period, Hungary has actually increased oil imports via the Ukrainian pipeline by 50% since 2021. Since MOL’s record profits have contributed more significant tax revenue to Orbán’s government, some analysts and EU officials have accused Budapest of effectively war profiteering off the cheap crude.
Hungary has also been insistent about maintaining its supply of gas from Russia, even striking new deals since the invasion of Ukraine began. Yet, a gas transit agreement between Russia’s Gazprom and Ukraine is set to expire at the end of the year.
“In case gas transit from Russia via Ukraine is halted, replacement supplies must be found primarily with alternative suppliers,” Czech Industry and Trade Minister Jozef Síkela said in a statement on September 5.
Síkela urged his counterparts in Hungary, Slovakia, and Austria, alongside Estonia’s Kadri Simson, the EC’s current Energy Commissioner, to seek alternatives once the gas transit agreement expires. He suggested that reverse gas flows through his country could replace the 40-42 million cubic meters of Russian gas flowing daily through Ukraine.
He emphasized that Russian gas must not be allowed into Europe through the back door. “Russia repeatedly demonstrated that it is an unreliable trading partner willing to use energy supplies as a weapon to disrupt and destabilize our energy market and the entire economy,” Sikela said in his statement. “It is clear that nothing will change for the duration of its aggression against Ukraine.”
It was appropriate that Czech Industry and Trade Minister Jozef Síkela was speaking on the gas transit issue, as he had long been tipped to become the European Union’s next Energy Commissioner. He was, in fact, nominated on Sep. 17 by European Commission President Ursula von der Leyen for the International Partnerships portfolio, a role that oversees the EU’s development policy and international cooperation. At the same time, Hungary’s Olivér Várhelyi was named as the pick for Commissioner for Health and Animal Welfare. The new EU Commission College of Commissioners (effectively von der Leyen’s cabinet) is expected to take office by the end of the year, following a series of European Parliament hearings for the candidates and a vote of approval.
This article was first published in the Budapest Business Journal print issue of September 20, 2024.
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