Factbox-Slovakia, Hungary threaten Ukraine with court fight over blocked oil

Factbox-Slovakia, Hungary threaten Ukraine with court fight over blocked oil

Hungary and Slovakia have threatened to take Ukraine to court for blocking supplies of oil by Russian producer Lukoil via the Soviet-built Druzhba (Friendship) pipeline, the last remaining route for Russian crude to Europe.

The following lays out the relevant facts.

RUSSIA'S REMAINING OIL LINK TO EUROPE

After Moscow's invasion of Ukraine in 2022, the European Union (EU), which used to buy up to a third of its fuel from Russia, imposed sanctions and stopped buying Russian oil.

However, it gave three member states - Hungary, Slovakia and the Czech Republic - exemptions from sanctions because of their reliance on Russian oil and limited alternatives.

Russia therefore continued to ship some 300,000 barrels per day (bpd) of oil - equal to around 0.3% of global supplies - to eastern Europe via the southern leg of Druzhba.

Germany and Poland, which used to receive oil via Druzhba's northern branch, stopped purchases of Moscow's oil in 2023, and Russia has since rerouted most of those volumes to Asia.

China has become Russia's biggest oil buyer, receiving some 2.14 million bpd via various routes.

TRANSIT ISSUES

The southern Druzhba route connects Russian oilfields with refineries controlled by MOL in Hungary and Slovakia and PKN Orlen in the Czech Republic.

The pipeline crosses Belarus and Ukraine before branching into Slovakia and Hungary. It is fed oil by Russia's Transneft, Belarus' Gomeltransneft, Ukraine's Ukrtransnafta and Slovakia's Transpetrol.

Transneft and Ukrtransnafta have a transit agreement on supplies via Druzhba. Other Russian companies, including Lukoil, are not a party to the deal, though Ukrtransnafta gets information on who supplies the pipeline.

Exports via Druzhba have been suspended repeatedly over the last year because of the complex relationship between suppliers, pipeline companies and buyers. In 2022, supplies briefly stopped after sanctions left Transneft unable to pay transit fees.

Ukrtransnafta raised fees several times during 2022 and 2023, citing the need to maintain infrastructure.

Russian industry sources have said higher fees have made the Druzhba route one of the least profitable.

UKRAINIAN SANCTIONS

Private oil firm Lukoil provides some 50% of the oil shipped southern Druzhba. Other suppliers include Russian state-owned Tatneft, Gazprom Neft, private Russneft and small producers.

In June 2024, Ukraine imposed sanctions on Lukoil, making it impossible for it to ship via Druzhba.

Ukraine has provided little information on the new sanctions and has not said why they target Lukoil rather than other Russian companies.

LIMITED ALTERNATIVES

Hungary and Slovakia are land-locked, which limits their access to alternative shipments of oil.

Hungary, however, can import oil from the port of Omisalj in Croatia. Since April, MOL has imported some 500,000 metric tons of oil per month (120,000 bpd) via Croatia.

Slovakia can only import oil via a pipeline connected to Hungary, which is not large enough to make up for lost Russian oil.

Around 30% of the oil Slovak refiner Slovnaft, owned by MOL, processed in 2023 was non-Russian, the highest proportion yet, according to Slovnaft.

The Czech Republic can import oil via the Transalpine (TAL) pipeline connecting Italy's port of Trieste to the IKL pipeline in Germany's Ingolstadt. It hopes to fully switch to non-Russian supplies next year.

Ukraine also depends on Hungary and Slovakia for energy. They send Kyiv fuel and power that is often produced from Russian resources.

Hungary's foreign minister said this week the country provided 42% of Ukraine's power imports in June.