Hungary Secures Temporary Sanctions Exemption from US Amid Complex Trade Deal

Washington: Hungary’s Prime Minister Viktor Orban returned from Washington with a temporary exemption from US sanctions on Russian oil, gas, and nuclear supplies, a move that comes just five months ahead of Hungary’s challenging election. While this exemption offers some relief, it is accompanied by a costly trade deal that complicates Hungary’s economic landscape.

According to BBC, the US offered Orban a one-year exemption from sanctions, potentially to bolster his position ahead of the April elections. However, Péter Szijjártó, Hungary’s foreign minister, suggested that the exemption might be indefinite. Despite this, Orban’s win is overshadowed by the lack of progress on the ongoing war in Ukraine, a significant concern for Hungary.

The exemption aligns partially with the European Commission’s request for EU member states to end Russian energy imports by 2027. However, Orban has not committed to this goal, unlike the Czech government, which frustrates the EU as it seeks to tighten energy sanctions. Meanwhile, Hungary’s MOL is adapting its refineries to process Brent crude, challenging Orban’s claim that Hungary, being landlocked, has no alternative to Russian oil.

MOL recently announced that 80% of its oil needs could be met via the Adria pipeline from Croatia, although this involves higher costs and risks. Between February 2022 and the end of 2024, Hungary and Slovakia have collectively paid Russia $13 billion for oil. Despite this, the US exemption provides Hungarian households a respite, with Orban suggesting that utility bills could have tripled otherwise.

The deal allows Hungary to continue purchasing Russian gas through the Turkstream pipeline, using a Bulgarian loophole to pay in hard currency. Bloomberg reports that this August alone, Hungary spent $185 million on Russian gas and committed to buying $600 million worth of LNG from the US.

Nuclear energy is another crucial component of the US-Hungary agreement. Hungary plans to buy US nuclear fuel rods for its Paks 1 power station and is considering US technology for spent nuclear fuel storage. Hungary also intends to purchase up to ten small modular nuclear reactors from the US, a deal valued between $10 billion and $20 billion. These reactors are vital for powering new Chinese battery plants in Hungary.

Additionally, a currency swap deal is under discussion between US and Hungarian central banks. This would allow Budapest to access US dollars during a financial crisis, enhancing Hungary’s financial security.

In summary, Hungary’s agreement with the US involves significant purchases of American gas, nuclear energy, and weapons systems, in return for a temporary sanctions waiver. However, Hungary did not secure the reintroduction of the US-Hungary dual taxation system or a new date for a potential Trump-Putin summit to address the Russia-Ukraine conflict. Critics argue that Hungary is swapping dependence on Russian energy for US energy, while the Orban government insists it is diversifying its energy sources.