Rising Costs for Slovakia and Hungary as They Continue Russian Oil Imports Despite Sanctions

• Slovakia and Hungary to continue importing Russian oil from Lukoil despite Ukrainian sanctions.
• The new contract will increase costs by approximately $1.50 per barrel due to heightened security risks.
• Lukoil will no longer be responsible for transporting oil beyond the Russia-Ukraine border; MOL will take over.

Continued Russian Oil Imports Despite Sanctions to Cost More for Slovakia and Hungary

Slovakia and Hungary have decided to continue importing Russian oil from Lukoil, even as new Ukrainian sanctions come into effect. These sanctions, which were tightened in early July, have complicated the logistics and increased the costs of oil imports for these countries.

Rising Costs Due to New Contract Terms

Under the new agreement, which is set to take effect this autumn, Hungarian oil company MOL will take over the responsibility for transporting oil from the Ukraine-Russia border to Hungary. Previously, Lukoil managed the transportation all the way to the Ukrainian-Hungarian border. This change will result in an increase in costs by approximately $1.50 per barrel due to the added security risks and higher insurance premiums.

Lukáš Kovanda, the chief economist at Trinity Bank, explained that while the supply chain remains largely unchanged, the financial burden will increase. “Nothing fundamentally changes; Russian oil will continue to flow through the southern branch of the Druzhba pipeline. However, the shift in transportation responsibility will add to the overall costs.”

Temporary Halt in Oil Deliveries

Since the beginning of July, when the stricter Ukrainian sanctions were implemented, Lukoil temporarily halted its oil deliveries to Hungary and Slovakia. During this period, MOL has been fulfilling its oil needs through short-term contracts with traders not affected by the sanctions. Kovanda noted that Lukoil ceased deliveries at the end of June, fearing the potential confiscation of its oil by Ukraine under the new sanctions regime.

Looking Ahead

Despite the increased costs, both Slovakia and Hungary have opted to continue their oil imports from Lukoil, underscoring the importance of this supply chain to their energy security. The situation highlights the ongoing challenges that these countries face in balancing economic interests with geopolitical pressures.