EU Stalemate Deepens on Russian Oil Embargo as Hungary Digs In

The European Union is increasingly unlikely to approve a ban on Russian oil when the bloc’s leaders meet next week as Hungary continues to oppose the measure, according to people familiar with the matter.

Hungarian Prime Minister Viktor Orban had said several weeks earlier that it would take a summit of European leaders to forge an oil embargo deal, but his government is signaling now that any progress will likely slip to next month at the earliest, said the people, who asked for anonymity to describe discussions between member states.

The EU has been stalled for several weeks over a European Commission proposal to phase out Russian oil by early 2023 as part of a sixth package of sanctions over Moscow’s invasion of Ukraine.

In an effort to break the stalemate, the bloc’s executive arm offered Hungary and Slovakia until the end of 2024 to comply with the phase-out, and the Czech Republic until June of the same year. Budapest indicated that at least 770 million euros ($810 million) would be needed to revamp its oil industry, including investments on infrastructure in Croatia, plus an unspecified amount of additional funds to adapt to potential gas price spikes.

The commission, as part of a broader strategy to wean Europe off Russian energy, outlined infrastructure investment needs of up to 2 billion euros, but even that potential investment has yet to move the needle.

Talks between the commission and Hungary are ongoing and could still lead to a breakthrough before leaders meet for a two-day summit in Brussels next week.

“I am optimistic about a sixth sanction package” Dutch Prime Minister Mark Rutte said in parliament on Monday, and answered “yes” when asked if he expects an oil boycott next week. “But I have been saying that for weeks,” he added.

Repeated Demands

Hungary again listed its demands on oil at a closed-door ministerial meeting in Brussels on Monday, calling for solutions first, and sanctions afterward, according to an official familiar with the discussions. The issue will likely both overshadow and poison next week’s summit, the official said.

Budapest’s position appears to be hardening not softening, another person said.

“We’re not seers but the Hungarian government’s position is clear and we stick by it,” Hungarian government spokesman Zoltan Kovacs told Bloomberg.

Hungary’s Justice Minister Judit Varga told reporters on Monday that Hungary needed to see a long-term strategy in place, which included investments in terminals and pipelines in other member states.

Some member states have suggested carving out oil from the sanctions package, which also includes proposals to cut more banks from the international payments system SWIFT, a ban on providing consultancy services to Russian entities, restrictions on real estate purchases in the EU and adding more people the bloc’s sanctions list.

Others have suggested that the other 26 EU members could agree to an oil ban outside the bloc’s framework and without Hungarian participation.

“If the commission president says we’ll do it as 26 without Hungary, then that’s a course of action that I would always support,” German Economy Minister Robert Habeck said Monday in an interview with Deutschlandfunk radio. “But I haven’t yet heard this from the EU and I’m prepared to let the EU take the lead on this. I expect what will happen, as is always the case in Europe, is that some countries will effectively get special rights.”

Whittling Away

One of the people said the worry with such ideas is that they could weaken the package further and could lead to other member states to seek exemptions. A proposal to ban tankers from shipping Russian oil to third countries anywhere in the world was dropped earlier this month after Greece objected to that provision.

Landlocked Hungary had previously insisted that any restrictions on Russian oil should focus on sea-borne supplies -- and exempt pipelines -- for Budapest to back the ban. Foreign Minister Peter Szijjarto has said that 15 billion to 18 billion euros would be needed to revamp his country’s energy security.

Hungary has one of the lowest fuel prices in Europe, thanks to a cap on prices that are largely made possible by state subsidies and cheap supplies from Russia.