(Bloomberg) -- The European Union rebuffed concerns from Hungary and Slovakia over a decision by Ukraine to sanction a major Russian oil company and rejected for now their request for urgent consultations over the security of crude supplies.
European Commission Vice President Valdis Dombrovskis notified Hungary and Slovakia on Thursday that a preliminary analysis shows sanctions Ukraine introduced on Russia’s Lukoil PJSC in June don’t affect transit operations carried out by trading companies via the Druzhba pipeline as long as Lukoil isn’t the formal owner of the oil.
As the consignees of the oil, the traders involved in the transactions are considered by Ukraine to be the owners of the oil, according to two people familiar with the matter. One such company is Litasco SA, which is owned by Lukoil. Others are Tatneft-Europe AG, Blackford Corporation Ltd. and Normeston Trading SA.
Litasco isn’t under Ukrainian sanctions, Taras Kachka, Ukraine’s deputy economy minister, told Bloomberg.
In July, scheduled deliveries to Hungary and Slovakia where Litasco was indicated as the consignee were cancelled by the Russian side, the people said.
Dombrovskis discussed the transit issue with Ukrainian Prime Minister Denys Shmyhal in a phone call Thursday after Hungary and Slovakia rang alarm bells over the sanctions slapped by Kyiv on Lukoil. The two central European governments raised concerns over the security of supplies and called on the EU to help resolve the situation.
A commission spokesperson said the bloc’s analysis shows no immediate risk to the security of supply for the two countries and that the commission is now waiting for more details from Hungary and Slovakia.
Andriy Yermak, the chief of staff for Ukrainian President Volodymyr Zelenskiy, said that Ukraine hasn’t taken any steps to block transit of oil.
“Our partners need to know: Each dollar which Russia receives for gas and for oil, they contribute to the military machine, and of course for us it is important,” he said in a Bloomberg interview in Kyiv.
One issue that the EU’s executive arm is seeking to clarify is the status of the oil imported by the Hungarian company MOL. The trading firms selling the oil are considered the formal owners of the shipment.
“The commission services were informed that MOL set out in formal letters that Lukoil was indeed not the owner of the oil transported via Ukraine for the MOL Group. We would appreciate a confirmation from you that this is indeed the case,” Dombrovskis said in a letter to Budapest and Bratislava seen by Bloomberg.
He also noted that several member states asked about the availability of alternative supply routes for importing crude and “questioned why Hungary and Slovakia had apparently not explored alternatives so far.”
Hungary has been reluctant to diversify its oil supplies, claiming, without evidence, that costs would be significantly higher to import from alternatives like Croatia. Budapest’s reliance on Russian crude oil appears to have increased last year compared to 2021, according to Eurostat data.
--With assistance from Alberto Nardelli, Daryna Krasnolutska, Kateryna Chursina and Stuart Livingstone-Wallace.
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