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Hungary’s Moscow gas plea: the ties and the (financial) bind

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Hungary’s Moscow gas plea: the ties and the (financial) bind

Hungary’s Moscow gas plea

WHAT’S HAPPENING?

On July 21, Hungarian Foreign Minister Peter Szijarto visited Moscow to request additional Russian gas supplies just days before the EU reached a deal on rationing winter gas use to mitigate dependence on Russian energy.

KEY INSIGHTS

– The additional gas deliveries are unlikely to stem growing popular discontent with Hungary’s leadership, although a domestic political shift remains highly improbable
– EU ties will continue to fray as Hungary persists in bucking its authority on energy issues, with Hungary’s economic dire straits giving the supranational body some leverage over domestic policy
– Hungary’s gas dependence will incentivize stronger ties with Moscow, giving Russia’s leadership the chance to achieve policy and rhetorical aims amid its extreme isolation

MORE GAS, LESS MONEY

Foreign Minister Peter Szijarto’s late July visit to Moscow followed the government commissioner for utility policy’s announcement that formerly subsidized and capped gas and electricity prices would increase sevenfold and fivefold, respectively, on the back of above-average consumption. It also follows days-long mass protests earlier in July over legislation that many fear would raise the tax rate on small businesses in the country.

Hungary’s economy is approximately 85% reliant on imported Russian gas. The Central European country was the sole EU member to openly oppose the recent EU plan to limit gas consumption, as well as one of the few countries granted an exemption from the EU Russian oil imports ban. In an unusual move for a foreign minister, Szijarto represented the country at discussions on the former. Hungary is currently facing severe economic challenges such as soaring inflation, a major currency devaluation and budget deficit, and the holdup of EU funding due to noncompliance with EU standards.

Hungary’s current leadership has long maintained close ties to Russian authorities, and has continued to oppose policies that would go against Russia’s interests even after its full-scale invasion of Ukraine. In the recent April 2022 election, state-controlled media amplified fears that an opposition victory would have led to support for sanctions on Russian gas. Szijarto, a Russian Federation Order of Friendship recipient, was reappointed in May following Orban’s election win.

On July 29, Hungary’s Prime Minister, Victor Orban, stated that he expects to sign a deal with Russia for an additional 700 million cubic meters of gas deliveries by the end of the summer to supplement its existing contracted supply. Orban has long publicly criticized sanctions against Russia, recently going so far as to state that the “European economy has shot itself in the lungs, and it is gasping for air.”

FACING THE HEAT AT HOME

The procurement of additional gas from Russia is unlikely to fully blunt the domestic impact of recent utility and other austerity measures ‒ a major reversal on campaign promises ‒ in the medium to long term. Polls conducted immediately after the large-scale protests over unpopular tax reform showed that approval for Orban’s party, Fidesz, had fallen a nearly unprecedented 10% to levels approximately equal to that of Hungary’s united opposition. With winter approaching, the effects of energy conservation initiatives and increased prices to the pocketbooks and homes of ordinary Hungarians are likely to prompt a repeat (and ramp-up) of the demonstrations this summer as well as corresponding approval rating drops.

Even if Hungary both reaches a deal on additional gas from Russia and successfully mitigates energy shortages in the colder months as a result, the 700 million cubic meter supplementary deliveries make up only a fraction of the approximately 4.5 billion cubic meters (bcm) it receives annually from the country under a 15-year deal signed in 2021. With the timeframe of the supplementary deal as yet unclear, it would nevertheless most likely be a temporary measure. Given the daunting effort required to implement Hungary’s recent energy plan to reduce reliance on Russia, Hungary would likely have to further hike prices to reduce consumption and/or approach Russia once again to address its gas supply issues in the near term (and, potentially, before the next election cycle).

However, popular discontent may not directly translate to a high-level political shift. Prior to the April 2022 elections, Orban pushed through controversial electoral reforms that included an altered parliamentary seat allocation policy that works with gerrymandering to benefit the ruling party and legalized voter tourism, which had previously been considered fraud. Media capture by the state bolsters this advantage for Fidesz and Orban, who has been Prime Minister since 2010. With Orban’s power tightly consolidated, this political architecture is unlikely to change as a result of the next election. As for a vote of no confidence, Fidesz’ two-thirds supermajority in the parliament makes this step unlikely in the near term, and the recent, high-profile resignation of a close Orban advisor is unlikely to set off a party-wide shift.

See Also
Photo: The Russian Presidential Press and Information Office/Wikimedia Commons

CHALLENGING EU UNITY

Hungary’s recent policy moves have alienated external supporters as well as domestic ones. Poland ‒ once Hungary’s closest policy ally in the V4 and the EU due to similar approaches to rule of law, migration issues and euroscepticism ‒ has largely broken from its Central European neighbor over Orban’s position on the war in Ukraine. While Poland has actively supplied weapons to Ukraine and hosted refugees en masse, Orban campaigned on the pledge to keep Hungarian troops and weapons out of Ukraine in the April elections. Hungary’s highly public bid for additional Russian gas is likely to only exacerbate this rift.

As for ties with the rest of the EU, which have long been strained, the flouting of a deal to reduce gas dependence on Russia coupled with a high-level visit to a country waging war on an EU candidate country and whose leadership is under EU sanctions is likely to further erode relations. At the same time, Hungary’s money woes have pushed Orban’s government to offer concessions to the EU on judiciary and corruption reforms in the hopes of finally receiving the billions of euros in EU funding that had been suspended. With the precedent for withholding any EU budget funds due to the flouting of EU standards in place, this “conditionality mechanism” could continue to be an important carrot in influencing Hungarian policy over the next several years. Even so, the recent parliamentary resolution in Hungary calling for a reduction in the EU Parliament’s power indicates that Hungary is likely to continue to push back on EU deals and directives for the foreseeable future.

MOSCOW MOTIVATIONS

As funding is for the EU, gas supplies are and will continue to be an important lever in policy and relations with Hungary. Szijarto’s is only the second high-level visit to Russia from an EU member state since late February, when Russian launched its full-scale invasion of Ukraine. Hungary’s much-publicized diplomatic overture for gas provided a major platform for Russian Foreign Minister Sergei Lavrov to publicly criticize Western sanctions on Russia while highlighting its continuing interaction with the EU member state ‒ implicitly emphasizing division in Europe, an oft-repeated narrative in Russian messaging ‒ as well as promote Russia’s narratives on the war in Ukraine to an international audience. By saying that Russia would consider Hungary’s request rather than pledging to grant it immediately, Lavrov also incentivizes Hungarian authorities to amplify and not to stray from their current stance on Russia and the war in Ukraine in the intervening time. With Hungary’s current energy emergency and Russia’s demonstrated willingness to disrupt supplies to Europe, this noncommittal approach to short-term energy deals is unlikely to alter in the near future.

Any views and opinions expressed in this article are those of the author and do not necessarily reflect the position of Internews.

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