Good news: accord reached on the oil embargo

HUNGARY - In Brief 31 May 2022 by Istvan Racz

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Early this morning, an accord has been reported to have been reached by the EU Council on the oil embargo against Russia. Hungary, Czechia and Slovakia will be allowed to temporarily continue to buy Russian oil through the southern flank of the Drushba (= Friendship !) pipeline. No deadline has been specified on this exemption, but it is meant to mean a 'short period', during which the countries affected are expected to implement the required investments to increase transportation capacities and adapt technology in their refineries. Hungary also received a guarantee for alternative ways of getting Russian oil for the period of the exemption if transportation through the Drushba pipeline is cut off. There is no word of any financial compensation from the EU to Hungary directly related to the embargo. Later on, lots of EU funds are likely to be distributed under the RePowerEU plan, to which EU decision makers intend to return on the next EU summit on June 23-24. Germany and Poland have undertaken to close down the northern flank of Drushba by end -2022. This way the embargo would reduce the EU's total purchases from Russia by about 90% compared to the situation before the war. This means higher Brent and WTI prices and lower prices of Russian oil. At present, the Brent-Urals price differential is between $35-36 per barrel, which for 50 million barrels per year is cca. $1.8bn. That is pretty much the minimum of Hungary's gain on buying Russian oil until its exemption ends. In view of this, we doubt that Hungary could get any financial compensation to cover the costs of the required investment, which is estimated in the range of €0.5-1bn in total. The extra cost of importe...