Since the outbreak of the war in Ukraine, government officials have increasingly emphasized the importance of maintaining Russian-Hungarian cooperation for Hungary. Meanwhile, in Brussels, sanctions against Russia are being voted on. But is Russian influence in the Hungarian market as significant as it is claimed to be?
Last year, the Russian coach of the Ferencváros football team left under rather turbulent circumstances after the team lost 3-0 at home to the semi-amateur Klavskik from the Faroe Islands. Chants of “Russians go home” were heard, and indeed, Stanislav Cherchesov had to leave. However, the Russians are set to return as Gazprom, one of Russia’s largest companies, is reportedly becoming the main sponsor of Hungary’s most popular football team. This could signify a new level in Hungarian-Russian relations, given that the hardcore Ferencváros fan base has traditionally been anti-Soviet/Russian. Buying gas and oil from the Russians is one thing, but supporting Ferencváros with billions from Gazprom is quite another. Gazprom was a major sponsor of the Champions League for ten years, reportedly paying over 15 billion forints annually to the European football association. According to the Hungarian Foreign Ministry, Gazprom’s presence in the domestic football scene is not problematic.
Despite the government announcing the “Eastern Opening” policy in 2012, aiming to attract Russian investors to Hungary, and continuously emphasizing the importance of economic cooperation with Russia, the reality is that Russian-owned companies are scarce in Hungary. According to economic portal G7.hu and Átlátszó, Hungary did not become a significant economic partner for Russia, even after announcing the Eastern Opening policy, and the imposition of sanctions further reduced this proportion. For instance, Alma Group, which was the third-largest Russian-owned company in Hungary in 2022, is now undergoing a compulsory liquidation procedure.
Nevertheless, with the outbreak of the war in Ukraine, Hungary has become more important to Russia. While most EU countries have nearly eliminated Russian imports, Hungary, mainly due to energy needs, has increased them and become Russia’s second most important partner. Besides Hungary, only Bulgaria and the Czech Republic have seen an increase in imports from Russia. Russia’s influence is primarily in Hungary’s energy sector, thanks to government intervention. In 2023, nearly 85% of Hungary’s natural gas consumption and approximately 80% of its oil imports came from Russia. This high dependency is partly due to Hungary’s request for an exemption from sanctions on Russian energy carriers, arguing that it cannot meet its energy needs without Russian gas. The oil embargo exemption was extended by the EU for another year in the 12th sanctions package.
Changes in the Energy Landscape
A 2016 analysis by the Center for Strategic and International Studies (CSIS) noted that Prime Minister Viktor Orbán strongly criticized energy cooperation with Russia before 2004, but his stance changed significantly once in power. The most notable change occurred in 2014, with the signing of a €12.2 billion contract with Rosatom for the expansion of the Paks Nuclear Power Plant, a deal awarded without a public tender and financed by a €10 billion loan from Russia. Under the contract, Rosatom would build two new reactors, and Hungary would source the necessary raw materials from Russia, increasing its dependence on Russian nuclear energy. The contract details were classified for thirty years, and subsequent amendments were not made public despite a court ruling mandating their disclosure.
The Paks expansion was not Rosatom’s only planned EU project. A similar nuclear plant was planned in Finland, modeled after the Paks project. However, the Finnish government terminated the contract shortly after Rosatom specialists forcibly took control of the Zaporizhzhia nuclear power plant. The Hungarian project had to be modified following Ukraine’s invasion to comply with the sanctions. After consultations with Rosatom CEO Alexey Likhachev, Hungarian Foreign Minister Péter Szijjártó welcomed the EU’s quick, one-month approval of the contract amendments, which included the possibility for Hungary to draw less credit than originally planned. However, according to the Warsaw Institute for Eastern Studies (OSW), it remains uncertain whether Hungary can complete the expansion despite economic challenges and sanctions. This uncertainty has led to the increasing involvement of the French partner Framatome in the Paks project, especially since the French EDF company acquired the turbine supply business from the American General Electric.
Hungary, along with France, opposes EU sanctions on the Russian nuclear industry. Hungary hopes that the growing French involvement in the Paks project will further strengthen France’s stance against sanctions on Russian nuclear energy. However, a leaked “non-paper” revealed that several EU member states, including the Baltic countries, Poland, and Germany, are pushing for sanctions on the Russian nuclear industry. The document suggested a nine-year grace period for Hungary to complete the Paks II project if Rosatom were included in the sanctions.
Mol’s Transition and the Impact of Sanctions
Shortly after the war in Ukraine began, Mol issued a statement explaining that its refineries in Százhalombatta and Bratislava were set up to process Russian mixed oil, and could only handle 35% non-Russian oil. The transition to other sources would require significant investment, estimated at $500-700 million, and the European Commission granted a deadline until the end of 2024 for this transition. In 2023, the EU sanctioned only seaborne imports of Russian crude oil, bowing to Hungarian pressure.
The Bratislava refinery, capable of producing three times the domestic demand, sold refined oil to neighboring countries until the sanctions were implemented. Post-sanctions, products derived from Russian crude can only be sold domestically, with an exception allowing sales to the Czech Republic until the end of 2023 due to limited processing capacity for non-Russian oil. Hungarian and Slovak officials have requested an extension of the transition period for another year.
Mol’s chairman, Zsolt Hernádi, indicated in an interview with Reuters in April last year that by 2025, they aim to freely choose the source of oil for their refineries, whether Russian or non-Russian.
OTP Bank’s Challenges
The OTP Bank, which continued operations in Russia after February 24, 2022, became an economic casualty of the war. Despite efforts to sell its Russian subsidiary, an executive order by President Vladimir Putin prohibiting ownership changes in foreign banks thwarted these plans. OTP adheres to EU sanctions, avoiding investments in Russian government bonds and refraining from financing its Russian subsidiary.
The Ukrainian National Corruption Prevention Agency designated OTP Bank as a sponsor of the war against Ukraine on May 4, 2023, citing the bank’s provision of favorable loans to Russian military personnel and the availability of a loan moratorium. This designation came after Hungary’s threats to veto EU support for Ukraine led to OTP being removed from the war sponsor list in October 2023.
A recent article by Radio Free Europe highlighted that the United States could ban European banks financing the Russian defense industry from the entire US financial system, as it warned Austrian Raiffeisen Bank.
The US also imposed sanctions on the Budapest-based International Investment Bank (IIB) and its leaders, including a Hungarian vice president. Known as the Russian spy bank, the IIB established its headquarters in Budapest in 2019. Hungary had left the bank in 2000 due to its lack of transparency and efficiency but rejoined in 2014 following a Cuban vote to amend the founding charter. The IIB’s return to Budapest came with numerous concessions, including exemptions from financial oversight, diplomatic immunity for employees, and unrestricted entry for their guests.
Following Russia’s invasion of Ukraine, countries like Romania, Slovakia, the Czech Republic, and Bulgaria indicated their intention to leave the IIB. Hungary held out until US Ambassador David Pressman announced on April 12, 2023, that the bank and its leaders were added to the US sanctions list. The ambassador stated that the IIB posed a threat to the security and sovereignty of Hungary and its allies. Shortly after, Hungary announced its withdrawal from the IIB, leading the bank to start its exit from Hungary back to Russia.
These cases illustrate that Russian influence in Hungary is primarily observed in the energy sector, where the state has direct influence over developments. However, the government’s strong attachment to Russian energy isolates Hungary within the European Union and NATO.
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International Reaction to Estonian Prime Minister’s Husband
International reactions were swift when it emerged in September 2023 that the husband of Estonian Prime Minister Kaja Kallas had a stake in a company that remained active in Russia despite EU sanctions. Estonian opposition members demanded the Prime Minister’s resignation, prompting multiple investigations into other companies potentially violating sanctions. A joint Estonian-Latvian-Dutch police operation revealed that hundreds of companies operating in the Baltic states had not withdrawn from Russia despite the sanctions.
It raises a legitimate question: are there similar companies or institutions in the country whose leaders regularly threaten to veto sanction packages against Russia or lobby for removing pro-Russian figures from sanction lists?
