Facts and implications around Ukraine sanctioning Lukoil are slowly getting clearer, despite a strong element of a 'fog of war'

HUNGARY - In Brief 02 Aug 2024 by Istvan Racz

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This has become a rather complicated story by now. In our next monthly report, due around mid-August, we are planning to give a more detailed rundown. Here, we would focus only on the main points. 1. It is difficult to establish even the basic facts, not even mentioning the reasons and the likely implications. This is because the players of the game, most importantly the EU Commission and the governments of Ukraine, Hungary and Slovakia have preferred so far to avoid transparent talk on the issue, leading to a considerable amount of misinformation.2. We now suspect why Lukoil has been selected as the sole Russian oil exporter through the Druzhba 2 oil pipeline for being sanctioned by Ukraine. Hungary and Slovakia, two arguably pro-Russia states buy oil from Lukoil, while Czechia and Poland (Czech Unipetrol is owned by Polish Orlen), two pro-Ukrainian states do not. So by selecting Lukoil, the problem was very practically directed at Hungary and Slovakia, leaving the other two states essentially unaffected.3. To the best of current knowledge, Ukraine's step to sanction Lukoil indeed convinced the latter to stop transiting oil through the Druzhba 2. Instead, they redirected two months' (July and August) volume of their oil exports to Hungary and Slovakia to (a) Russian seaport(s), from where the buyers can arrange shipment by sea to the Adriatic seaport of Omisalj, Croatia, and bring the oil up north through the Adria pipeline.4. In principle, Lukoil could have opted for changing the name tag on the shipment, so that a different company could have put their shipment through Druzhba. Alternatively, Hungary could take the ownership of the oil at the border between Russia a...