In Claws of Kremlin Bear: Hungary’s Russian Dependence Illness

Frans_Snyders_-_Greyhound_hunting_a_bear
Frans Snyders: Greyhound Hunting a Bear (betweem 1600-1657) // Public domain

The war in Ukraine put many Eastern European countries, among them Hungary, in the hot seat. With the Western world providing strong financial and military support for Ukraine and emphasizing the unlawfulness of the invasion, the allies of Russia must reassess their relationship with Moscow. However, in the case of Hungary it is more than diplomatic maneuvering and general foreign policy that defines its relationship with Russia.

Moscow is crucial for Hungary’s energy stability and this bond cannot be simply broken or easily mitigated. The spectacular phenomena of Hungary’s Russian dependence has deep roots in history and economy. It is a more than 60 years old process that unfolded into today’s geopolitical status quo that allows Moscow to keep Budapest on a tight leash.

The foundations of the strong geopolitical Russian dependence were laid down in the era of Communism by the Kádár regime, lobbying for Soviet oil. The first black drops reached Hungary through the Friendship I. pipeline in September of 1963.

With direct access to crude oil through the Soviet pipeline, the state put an immense emphasis on establishing an adequate infrastructure for receiving and making use of the Soviet oil: both the Tiszai Vegyi Kombinát[1] (TVK) petrochemical and the Dunai Kőolajipari Vállalat[2] (DKV) petroleum refining companies were initiated in the middle of the ‘60s; two institutions of utmost economic importance for the country. From 1973, DKV produced two-thirds of the processed petroleum products and the Hungarian oil and chemical industry began to really depend on the Soviet Union in the 1970s.

Turning to natural gas, the remarkable decline of the Hungarian gas production in the ‘80s, contributed vastly to making the Hungarian economy strongly dependent on Soviet energy sources. The fall of Communism in 1989 led to a spike in consumption by retail users in the following two decades, while domestic gas production declined by 35% in the same period, deepening the reliance on Russian import.

Today, Hungary’s domestic output  only accounts for the sixth of the consumption, strengthening the reliance on Russian imports. With the construction of high-capacity Soviet-Hungarian natural gas and crude oil pipelines, long-term transport contracts with the Soviet Union, lack of domestic production and alternative sources, Hungary started digging its own grave and laid the foundations for its own energy dependence in the era of Communism.

After the Soviet bloc broke apart, Hungary didn’t commit itself to developing an infrastructure for importing crude oil from alternative sources. Pipeline supplies were significantly cheaper than importing oil via tanker, furthermore it would have been a technically challenging and capital-consuming process to retrofit its refineries to handle different sorts of oil from other sources. The easiest way shortly became the only way for Hungary, the energy policies of the past vividly define today’s  energy affairs.

Hungary’s current state of energy security may be well addressed rather as a state of energy insecurity, highly vulnerable to Moscow’s strategic deliberations. The engine of the nation’s industrial and transport sectors is still fueled by the gasoline and diesel produced in local refineries from Russian oil, while the Russian gas deliveries have a fundamental role in producing electricity with gas totaling up to nearly one fifth of the country’s  electricity output and being used in vast amounts by domestic households for heating, hot water supply and cooking.

The country receives 65% of its crude oil and 85% of its natural gas through Russian deliveries. Yet, the government seems to be consciously ignoring the harms of being Russia’s geopolitical puppet through continuous pro-Russian measures. A compelling example of the Orbán regime’s consistently Moscow-friendly policy is the long-term gas supply deal that was closed  with Russia at the end of September 2021.

This measure prevents the import of gas from other sources in terms of the 15-year contract. Budapest willingly resigned from the diversification of the supplies and sources of natural gas and decided for an even stronger reliance on Russia.

The war in Ukraine demonstrated the gravity of Hungary’s energy dependence on Russia, and seeking possible alternatives is on the agenda of the Hungarian government. Because of the country’s energy mix based around crude oil, natural gas and nuclear power (all of them being realized with vast amounts of Russian deliveries or technology), alternatives are framed around the mentioned sources.

Currently, the renewal of Croatian liquefied natural gas and the construction of the Italian-Slovenian interconnector seem as rational options, however the latter could only be realized by financial support of the EU’s RRP found, making the case of Hungary even more complicated. The fund was blocked by Brussels due to rule of law concerns related to systematic irregularities involving corruption and fraud in the allocation of public funds.

We can approach the problem from another perspective, namely from Paks, home of Hungary’s only nuclear plant. Nuclear energy creates the illusion of having its own replacement battery as an alternative to being tied to the Russian pipelines. The Paks nuclear plant accounts for about half of the country’s electricity and the government is expressing constant support for building another two new power reactors. However, the fuel is to be supplied by Rosatom, a Russian state corporation that puts Hungary back to the starting point of diversifying the supplies and easing independence.

The Orbán regime, rather than seeing harm in the overwhelming Russian presence in the energy industry, focuses on potential. Namely it is the cheap gas that helps the ruling party Fidesz to maintain low energy prices for households. The Prime Minister Viktor Orbán put an immense emphasis on cheap energy in his first term and the government implemented price cuts, which was a contributing factor for bargaining voters with lower power bills, ultimately winning the 2014 elections with an overwhelming majority.

Furthermore, many right-wing government-linked organizations profit from the alliance with Russia. The state-owned MVM Group electricity giant donated half billion Hungarian forints to the nominally independent Civil Unity Forum, a government friendly NGO, echoing the values of Fidesz, including hostility to EU and opposition politicians.

The case of the Matthias Corvinus Collegium is worth mentioning as well. MCC is a highly selective residential college, serving to create a strong-right wing intellectual layer in Hungary. MCC is not only closely linked to the government but it indeed is the government’s most important asset for producing a strong nationalist and conservative ideology. The MCC’s board is led by Balázs Orbán (no relation to the prime minister), who is fulfilling a dual mission. First, acting as a state secretary, second overseeing the institution’s work and freshly received aid from the government in form of property, cash injections and shares.

The private educational institution is a 10% stakeholder of MOL petrol company, the second key actor of Hungarian energy policies besides MVM.  Taken together, Russian energy is crucial for the government to maintain a secure voter base and to keep the production of their own right-wing worldview rolling, fulfilling the purpose of soft propaganda for the ruling party.

The heritage of the Soviet Union is the Russian pipeline infrastructure that is pumping the crude oil and natural gas into the country as if Hungary was a remote body part of Russia. With no real alternatives to Russian supplies, nor diversification of the energy mix with foreign imports or prospects of easing the Russian presence in the nuclear sector, the operation of the country stays heavily reliant on its relations to Russia.

Fidesz is desperately sticking to his Eastern ally and making an advantage of the situation, however further escalation of the Ukraine War might challenge the validity of its consistent pro Russia measures. Hungary must remain an ally to Russia to ensure it’s energetic and primary energy carrier imports, however the Russian aggression is strongly opposed by both the EU and United States.

Because Hungary cannot grow apart from Russia due to the need for the country’s imports, there is a low, however valid chance for Hungary for a diplomatic isolation with many countries of the Western bloc which, consequently, would shock the country’s economy to its core. With no short term solution on the horizon, Hungary’s road to mitigating its independence from Russia seems long and bumpy, yet one thing is clear.

The government must take considerate but immediate action to diversify primary energy carrier supplies, and make nuclear strategic alliances beyond Russia, to ensure energy stability and increase independence. In the current status quo, Hungary stays trapped, thirsty for Russian crude oil and natural gas, in the claws of the Kremlin Bear.


References

  1. https://www.theguardian.com/environment/2011/mar/03/1970s-oil-price-shock
  2. https://dea.lib.unideb.hu/dea/bitstream/handle/2437/6632/kajati_dolgozat.pdf?sequence=4&isAllowed=y
  3. https://energyeducation.ca › encyclopedia › Oil_crisis_of_…
  4. https://nrgreport.com/cikk/2022/06/10/hogyan-valt-exportorbol-foldgaz-importfuggove-magyarorszag/
  5. https://enpol2000.hu › index2
  6. https://dailynewshungary.com/is-there-a-way-for-hungary-to-reduce-its-dependency-on-russian-energy/
  7. https://theconversation.com/europe-is-determined-to-cut-fossil-fuel-ties-with-russia-even-though-getting-hungary-on-board-wont-be-easy-182502
  8. https://dailynewshungary.com/can-hungarian-households-substitute-russian-gas/
  9. https://www.dw.com/en/warsaw-and-budapest-split-over-russian-energy-ties/a-61595947
  10. https://ies.lublin.pl/en/comments/consistent-increase-in-hungarys-energy-dependence-on-russia/
  11. https://www.politico.eu/article/eu-european-commission-rule-law-mechanism-hungary-funds/
  12. https://carnegiemoscow.org/commentary/62829
  13. https://www.politico.eu/article/hungary-energy-dalliance-with-russia/
  14. https://www.nytimes.com/2022/05/19/world/europe/hungary-russia-oil.html
  15. https://www.nytimes.com/2021/06/28/world/europe/hungary-orban-university.html

[1] Mol Petrolkémia Zrt.

[2] Mol Danube Refinery


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