A strong Hungary is Independent from Russia, not from EU

We have a date. January 1, 2015 when the gas can start to flow from Hungary to Ukraine. This according to reports from a meeting held between Hungary’s Prime Minister Viktor Orban and Germany’s Chancellor Angela Merkel. Hungary needs until then to keep pumping gas from Russia, through Ukraine into Hungary – thus it can’t do any reverse flow to help the Ukrainian’s out.

I think I was too charitable on a piece I published a few weeks ago about Hungary suspending gas to Ukraine. I said this would only take a few weeks – this assumption was from earlier reports stating this was the time needed to ship gas to Hungary.  Magically, that’s not the case. I always try to take the conservative view and be generous to the Hungarian position, but I see this may result in under emphasizing Hungary’s dependency on Russia.

The gas that will be shipped to Ukraine in January 2015 will come via the new pipeline with Slovakia – which Orban emphasized will need to be non-Russian gas. Although, it remains a question of why the current (artificial) arrangement of gas coming from Austria being shipped to Ukraine does not work. Mind you, it is hard to separate gas molecules, so it becomes a technical (or even a slight-of-hand) question of who’s gas ends up in Ukraine. If Hungary is stopping reverse flows to Ukraine for this long of a duration, to accept Russian gas, then the capacity used should be reduced in order to facilitate west-east reverse flows. But apparently, this was not part of the deal between the Russians and Hungarians.  This longer duration amplifies my earlier comments of Hungary being constrained by the Russians.

The question remaining unresolved is whether Hungary is punishing Ukraine on purpose, or the Russians  forced Hungary to stop  assistance to Ukraine. Since my last article I’ve had conversations with people that brings up this dilemma, but my original analysis still stands. In either case, significant explanations must be given – beyond putting Hungary first, as claimed by Orban, as to why Hungary does not assist Ukraine.

If my assumption in my first article on Hungary still stands, a financially weak Hungary is dependent on Russian good will, then the EU must shape its internal policies to account for Hungary being in the Russian camp.

I recently was asked by a Hungarian official why everyone thought Hungary was doing what Russia wanted in the EU. He simply refused to accept this and viewed Russia as a threat to Hungary. I have no doubt his comments and belief were genuine. However, there are two levels of cooperation with the Russians. The first is ‘positive’ in building an energy system. This includes South Stream and expanding Paks – both highly promoted by the Orban government. The second level is ‘negative’ and actively works against EU positions. This means punishing an enemy of Russia (Ukraine), in both of its support against sanctions on Russia and cutting gas off to Ukraine. Since this is the case, it is fair to ask how Hungary is meeting its EU commitments. Because at the end of the day – the Hungarian people still view the EU as a more positive partner than Russia. Thus it is the Hungarian government that pursues, for its own agenda, alignment with Russia.

But even if we consider there is a grey area in Hungary cutting off gas to Ukraine, the main question is whether Hungary was forced into this position, so Russia could advance its position in an EU member state, or does Hungary have another agenda in using its gas and its interconnector pipelines for political and economic ends? In either case, the position Hungary has taken projects weakness and not strength which Orban constantly promotes. A weak Hungary is a danger for both the EU and its neighbors. Its now time for Hungary to get back in line with the EU energy security policy and not be the outlier. And here is why:

If Hungary is forced/willing to use its geographic position in east-west gas transit for political and economic means what other components of CEE/SEE energy security apparatus will Hungary use to project its power? At CEU we recently had Radu Dudau from Bucharest University give a lecture of energy in the Black Sea region. He pointed out that the Hungarian government with its large holding in MOL, and its ownership stake in Croatia INA provides a leverage point the Russians can play.  Thus, if Russia can pressure and/or Hungary willingly blocks gas to Ukraine, how will other energy projects be treated by Budapest.

I think this Moscow-Budapest-MOL-INA connection was a great point. Because as Professor Dudau stated, if Russia has influence through Hungary and MOL, then any LNG terminal in Croatia, whether INA or MOL owned, becomes operationally dependent on Moscow and Budapest deals.  Thus Russia indirectly controls the gas market in the Southeast and in Eastern Europe. Any efforts to build gas independency from Russia is thwarted because Moscow has leverage in Budapest which is willing/forced to accept how the network and the Croatian LNG terminal operate. Russia has been actively seeking to secure control in Croatia’s energy sector for years, and now it may have a willing partner.

It may be more profitable for the Hungarians to  be reimbursed by Russia for any LNG losses (or preventing it being built). The huge debt Hungary is taking on to expand Paks nuclear plant with the Russian loan, already places Hungary into a weaker position.  Russia can leverage this over Croatian LNG. In addition, the constant drive for lower electricity and gas prices in Hungary only feeds the country’s vulnerability to Russian influence. Hungary is dependent on cheaper and cheaper gas to keep consumer rates low. To get lower rates, it becomes more servile towards Russia to get it. Not the strong and proud Hungary Orban claims is being built. The emerging energy and economic weakness of Hungary undermines attempts to increase energy security and independence from Russian gas.  All of the southeast and eastern Europe are exposed to Russian influence through Hungary – if Hungary chooses to support Russian policies in the region. The gas wars can spread beyond the Russian/Ukraine border and enter the EU. I believe this has already happened. Hungary needs to resume gas exports to Ukraine, and stop supporting Russia’s position.

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As a concluding note (because this is very cool), I’ve written this in Lesvos, Greece while at the University of the Aegean. I’m looking right now across the Aegean Sea to Turkey. I can see it on the horizon. A revised Nabucco is essential for breaking the Russian grip. The EU needs to be very clear in sinking South Stream and building alternatives to Russian gas. Both Turkey and Greece are essential in making this happen. But more importantly, a strong and independent Hungary is the most important. It should be made very clear to the Hungarian government, just as my Hungarian acquaintance told me, that Hungary does not serve Russia. It is up to the Hungarian government leadership to ensure its independence and alignment with EU policies. Being a good neighbor would be a good first step to rectify poor policy choices. Let the gas flow to Ukraine!