Since war in Ukraine began, Europe has struggled to develop a unified response to reduce the purchase of Russian oil (USO) (XLE). First Germany was a holdout; however, in recent weeks Hungary has become the major road block to passing an EU-wide Russian oil import embargo. Wednesday, Hungary’s foreign minister Peter Szijjarto said discussing an embargo “would run the serious danger of dismantling European unity.”
Hungary has said that reconfiguring its Szazhalombatta refinery to run non-Russian crude, and boosting pipeline capacity to import non-Russian crude, would come at a cost of ~$725m. In 2021, Europe purchased ~3.4mb/d of Russian oil and oil products, which at current prices would cost ~$375m per day. However, rather than working towards a solution that would cost ~2 days worth of Russian oil payments, Hungary’s minister went on to say, “this problem was created by the European Commission, so the solution must be also proposed by the European Commission.”
Hungary was by no means the largest importer of Russian oil in 2021, in absolute terms or as a percentage of imports. Hungary was ~40% dependent on Russian oil in 2021; however, the more highly dependent members of the EU, namely Lithuania, Finland and Poland, all have access to seaborne oil markets and can more easily swap suppliers. Those countries dependent on the Druzhba pipeline for supplies, including Hungary, Slovakia, and the Czech Republic face greater challenges in sourcing alternative crude supplies.
Were Europe to move forward with an EU-wide ban, the volumes of Russian oil traveling through the Druzhba pipe would likely be shut in. Removing ~1mb/d of supplies from global markets. However, on the eve of the European Council meeting, it does not appear as though an embargo is imminent. An opinion voiced by EU Commission President Von der Leyen Tuesday.