(Bloomberg) -- Hungary called on the European Union to broker a solution with Ukraine after Kyiv decided to bar the transit of crude from a major Russian oil supplier.
The European Commission has convened a so-called trade committee meeting for Wednesday to discuss the standoff, which Hungary and Slovakia argue threatens their energy security.
Ukraine has hardened sanctions against Lukoil PJSC over Russia’s invasion, effectively prohibiting the company from using the war-torn country as a transit route for its product. Hungary and Slovakia, both landlocked nations that obtained exemptions from EU energy sanctions on Russia, get a third and more than 40% of their crude supplies from Lukoil, respectively.
The EU executive has started gathering evidence and will monitor oil flows, Energy Commissioner Kadri Simson said, warning about the Kremlin’s potential role in the escalating dispute.
“The most important aspect of this is that we have to be ready for unilateral decision potentially made by Russia,” Simson said in an interview in Bucharest on Wednesday. “They are not a trustworthy trading partner.”
The dispute puts the EU in an uncomfortable position, with officials and leaders around the bloc frustrated by Hungarian Prime Minister Viktor Orban’s years-long effort to dilute or stop Western aid to Ukraine and sanctions on Russia.
“We count on the European Commission and we expect them to stand up,” Foreign Minister Peter Szijjarto said in an interview in Bucharest. He reiterated that Hungary would move on to a dispute-settlement mechanism if the EU can’t find a solution.
Fitch Ratings warned on Wednesday that refineries in Slovakia and Hungary, both controlled by Hungarian energy company Mol Nyrt., face significant credit risk if the stoppage persists.
Slovak President Peter Pellegrini criticized Ukraine’s decision to halt the transit and warned of reciprocal measures if the situation persists, the Dennik N newspaper reported.
EU partners were incensed by Orban’s decision earlier this month to use the bloc’s rotating presidency, currently helmed by Hungary, to go on a self-styled “peace mission” and hold talks with the likes of Russian President Vladimir Putin and Chinese President Xi Jinping — without the consent of Kyiv or Brussels.
There are also questions about how much of an energy security issue the Lukoil cutoff poses versus how much of a political issue it is for Orban, who is seen as the closest European leader to the Kremlin.
Hungary has doubled down on Russian energy since Moscow’s 2022 invasion of Ukraine while EU partners have moved to find alternative supplies.
Simson said she was convinced that Hungary and Slovakia started to diversify “two years ago because it was just a matter of time before these types of complications arise.”
Ukrainian Deputy Energy Minister Roman Andarak, on Tuesday pushed back against the notion that Kyiv had endangered the energy security of another country, calling it “market manipulation.”
“We ensure the transit of any transport by any company that’s not under sanctions,” Andarak told Bloomberg. “Lukoil has been under sanctions for several years now.”
--With assistance from Veronika Gulyas, Ewa Krukowska and Andrea Dudik.
(Updates with comments from EU Energy Commissioner starting in fourth paragraph, Fitch in seventh)
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