(Bloomberg) -- Hungary has until September to resolve a dispute with Ukraine over the transit of crude from a major Russian oil supplier before fuel shortages set in, according to a senior minister.
Ukraine has sharpened sanctions against Lukoil PJSC over Russia’s invasion of Ukraine, effectively prohibiting the company from using the war-torn country as a transit route for its product. That’s hit Hungary and Slovakia, landlocked nations that obtained exemptions from European Union energy sanctions on Russia.
The refinery run by Mol Nyrt. near Budapest can’t immediately switch to fully processing non-Russian crude, so Hungary risks depleting its fuel reserves unless the spat is resolved via EU mediation or other means, said Gergely Gulyas, the minister in charge of the prime minister’s office. He accused Ukraine of “blackmail.”
“There is no reason to panic so far because reserves are high,” Gulyas told reporters on Friday. “The problem isn’t immediate, but we must find a solution by September.”
Hungarian Prime Minister Viktor Orban, who has maintained close ties with Russian President Vladimir Putin, has further antagonized Ukraine with a self-styled “peace mission” from Moscow to Beijing earlier this month. Gulyas claimed Ukraine was responding to Hungary’s push for a truce with the Lukoil measures.
Kyiv has sought to refute Hungary’s claims. While Lukoil is barred from transporting its oil through Ukraine because the company is under sanctions, the volumes of transit in July have “remained standard,” Oleksiy Chernyshov, chief executive officer of Ukrainian energy company Naftogaz, said this week.
“That means that there is no Lukoil oil there, but there is oil of other owners,” according to Chernyshov. Lukoil didn’t respond to a Bloomberg request for comment.
Hungary is exploring how it can use its leverage over Ukraine’s EU integration process or find some legal loophole to resolve the matter if EU mediation in the dispute fails, Gulyas said.
In addition to the Russian crude supplied by companies other than Lukoil, Hungary can look for increased deliveries from other sources from the Adriatic and elsewhere, the minister said.
Hungary told a meeting of EU diplomats earlier this week that it expects to receive 20% less crude than estimated demand in August if the transit ban stays in place, according to people familiar with discussions, who spoke on the condition of anonymity.
Replacing lost supplies with oil from other sources would come at a premium for Mol as transit fees on alternative routes including a Croatian pipeline already doubled, the people said. The Hungarian Foreign Ministry referred questions to Mol. The Hungarian energy company declined to comment.
Croatian oil pipeline operator JANAF d.d. said it has the potential capacity to satisfy the needs of Mol refineries.
--With assistance from Jasmina Kuzmanovic, Daryna Krasnolutska and Alberto Nardelli.
(Updates with details from 10th paragraph.)
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