Ukraine backs Russian oil loophole for Hungary

KYIV — Millions of barrels of Russian oil now have a green light from Ukraine to flow to the EU as part of a deal with Hungary, ending a months-long standoff over new Kyiv oil sanctions.

The deal will see Russian energy firm Lukoil, whose products are currently barred from entering Ukraine, sell its oil instead to Hungary’s MOL energy giant, which can then ship it through Ukraine to the EU.

“The MOL company announced that they are currently the owners of the product transiting through Ukraine and we are happy with that,” Ukrainian Prime Minister Denys Shmyhal said Tuesday, responding to a question from POLITICO. “This is not a Russian company, this is [the] MOL company that transits its product through the Ukrainian system.”

Ukraine over the summer barred Lukoil products from crossing its borders, alarming Hungary and Slovakia, which both receive Russian oil via a pipeline across Ukraine.

In a statement, MOL said it will “take over ownership of the affected volumes of crude oil at the Belarus-Ukraine border” starting Monday.

Hungarian government spokesman Zoltan Kovacs praised the workaround. “We welcome the solution coming from MOL. It is a technological solution,” he said.

The proposal was initially revealed by Gergely Gulyás, an official in Hungarian PM Viktor Orbán’s private office, who said last month that Budapest was pushing for the swap.

“As soon as we can sign the contracts with the Ukrainian side, they will take effect,” he said, adding that it would cost an additional $1.50 per barrel to secure transit outside of previous agreements.

While Hungary initially claimed the Lukoil restrictions would cause a fuel crisis at home, the EU has repeatedly refused to intervene, saying oil flows have continued at prior levels. Meanwhile, EU countries expressed frustration that Budapest was effectively cashing in on Russian energy while the rest of the continent had to divest.

Hungary is allowed to import Russian oil based on a sanctions carveout it received two years ago. The exception was meant as a temporary measure, but Hungary has actually increased oil imports via the Ukrainian pipeline by 50 percent since 2021. MOL has also seen profits soar to record levels. Budapest, which is facing an economic crisis, has benefited from the hefty taxes the company pays.

Hungary and neighboring Slovakia also appear to be pushing for a similar agreement that would allow them to continue to import Russian gas via Ukraine when a transit contract expires at the end of this year.