Hungary and Slovakia asked the European Union (EU) to help convince Ukraine to reinstate the transit of a major Russian oil supplier to eastern Europe.

Budapest and Bratislava are ready to take Ukraine to court to resolve the issue absent an agreement, Hungarian Foreign Minister Peter Szijjarto said after a gathering of EU foreign ministers in Brussels on Monday. Kyiv last month hardened sanctions against Lukoil PJSC, effectively prohibiting the firm from using Ukraine as a transit country for its crude.

Energy is seen as potential leverage over Hungarian Prime Minister Viktor Orban, who has been a thorn in Ukraine’s side for repeatedly seeking to veto or dilute EU sanctions against Russia over its military invasion. Hungary and Slovakia have received exemptions from EU energy sanctions.

Hungary is seeking a so-called consultation where the European Commission has three days to find a resolution on behalf of affected EU member states, Szijjarto said. If the EU executive fails, Hungary and Slovakia will ask an arbitration court to rule on the matter, he said, adding that he considered Ukraine’s actions as a violation of the country’s association agreement with the 27-member bloc.

“Hungary and Slovakia have initiated a consultation before court of arbitration proceedings due to Ukraine’s partial ban of crude oil transit,” Szijjarto told reporters. He said Ukrainian Foreign Minister Dmytro Kuleba, who joined the EU meeting by video link, denied Kyiv was responsible for the halt in Lukoil shipments.

While neither Hungary or Slovakia is likely to face a fuel shortage - alternative routes including via Croatia are available - already elevated costs at pumps may rise further, according to Tamas Pletser, an energy analyst at Erste Group in Budapest. 

That may threaten Hungary’s budget revenue from a special tax Mol pays on Russian crude profits, which was expanded earlier this month to plug fiscal holes. Mol has a refinery in Hungary and Slovakia. 

“This would pose a problem for the government, since the special tax on Mol is serious income,” Pletser said in reference to the Budapest-based Hungarian energy company that has a refinery in Hungary and Slovakia. “Plus it would not be possible to push vehicle fuel product prices below the regional average,” he said, in reference to a key political goal for Orban.

It’s unclear what sympathy Hungary can count on in Brussels, where ministers on Monday discussed a potential boycott of an informal meeting next month which Budapest is scheduled to host as part of its rotating EU presidency. No decision was made on Monday on the location of that gathering but Szijjarto said there’s a chance it may take place in Brussels rather than in the Hungarian capital.

Western allies have been incensed by Orban’s decision to use the largely administrative EU role to elevate his own profile and meet with Russian President Vladimir Putin as part of a self-styled peace mission on Ukraine - without the consent of Kyiv or Brussels.

Hungary wants Lukoil shipments to resume quickly to avoid harming the economy, Szijjarto said. He said Hungary receives around two million tonnes of crude from Lukoil annually, accounting for a third of its total imports, while Slovakia gets around 2.5 million tonnes, equivalent to 45% of its imports.

Slovak Prime Minister Robert Fico, who survived an assassination attempt in May, worked the phones over the weekend, calling his Ukrainian counterpart Denys Shmyhal to seek a resolution. He also warned him that Ukraine’s sanction on Lukoil may also jeopardise Slovakia’s supply of diesel to Ukraine - which he said accounted for a tenth of the war-torn nation’s deliveries.

Szijjarto also said Hungary was a major exporter of electricity to Ukraine, though he stopped short of saying that Budapest was considering cutting off those deliveries in retaliation for Kyiv’s move.

  - Bloomberg