Why Ukraine's decision on Russia's Lukoil is a problem but not a catastrophe

The story of Ukraine’s partial restriction on the operation of the Druzhba oil pipeline continues to get more complicated, with partners also raising questions about whether Kyiv's actions are being driven by commercial rather than state interests.

Many Ukrainians have been surprised to learn that Russian oil is still being transported across Ukrainian territory to the EU despite the full-scale war. This, among other things, means it is funding Russia's military budget. So there was no significant opposition to the news that the transit of at least part of this oil – the part supplied by Lukoil – was being halted.

The governments of Slovakia and Hungary, however, have accused Ukraine of undermining their energy security.

Slovak expert Karel Hirman, the Minister of Economy in the previous pro-Ukrainian government and a former advisor to the Ukrainian Prime Minister, describes the positions of Bratislava and Budapest as "hysterical" and explains why there is no real threat. He also points out that Ukraine's decision defies logic and is undermining trust in Kyiv, even from its friends.

How come Ukraine is still pumping oil from Russia?

In fact, the supply of oil through the southern branch of the Druzhba pipeline, which runs through Ukraine to Slovakia, Hungary and Czechia, has been continuous and almost uninterrupted since February 2022.

I was the Minister of Economy of Slovakia in 2022, when negotiations were held in Brussels for the EU to make an exception to the oil sanctions for this route.

This exception stated that the refineries of three countries, Czechia, Slovakia and Hungary, temporarily retained the right to receive oil through Druzhba and had the right to sell petroleum products made from Russian oil in our region and to supply these products to Ukraine. The last point is still in effect: the Ukrainian market includes a share of gasoline and diesel made from Russian oil. Fuel from Hungarian and Slovak refineries also goes to the Ukrainian army.

The reasons why the three countries requested this exemption include their lack of other sources of oil (none of these countries have access to the sea), a regional diesel shortage, and the fact that they needed to upgrade their refineries in order to process non-Russian oil.

However, the exemption was approved as temporary, until the end of 2024.

On 1 January, the Druzhba pipeline was supposed to either stop completely or, in the event that new agreements had been reached, reduce its throughput.

The Czech refinery, which belongs to the Polish group PKN Orlen, has announced that it will stop consuming Russian oil completely because it has obtained an additional supply channel: the expansion of the Trieste-Ingolstadt Transalpine Pipeline has been completed.

The situation is similar in Slovakia and Hungary, where there is one refinery in Bratislava and one in Százhalombatta. To supply these refineries, the capacity of the Adria Pipeline from the Croatian island of Krk has been increased. Both refineries belong to the Hungarian group MOL, but it also planned to get at least 60% of its oil from Adria starting next year.

Thus, from 2025 onwards, we would have been in a new reality anyway.

On Ukraine's unexpected decision

It should be emphasised that even now, Slovakia and Hungary don’t only refine oil from Druzhba. Over the past year, the Bratislava refinery has received 30% of its oil from Adria. The situation is similar at Százhalombatta. However, that leaves up to 70% of the oil still coming from Druzhba, transiting through Ukraine.

Of this 70%, 40% is supplied by Lukoil, a private Russian company and one of the largest in the country. The rest of the oil that comes via Druzhba is supplied by companies in which the state owns a significant stake – Rosneft and Tatneft.

Here’s the paradox. Ukraine has only stopped the oil supplied by Lukoil.

And for me, this raises a huge question: why did the Ukrainian government stop Lukoil’s supply and place no restrictions at all on Rosneft and Tatneft? Why is it only restricting a private company? Of course, it [Lukoil] is also under Kremlin influence, but the Kremlin's influence is far greater in the essentially state-owned company Rosneft, and similarly in Tatneft.

Yet Ukraine continues to supply their oil!

So far, there has been no explanation from the Ukrainian government regarding the reasons for such selectivity. So one can only speculate about the interests behind this decision and why the restriction was implemented five months before the expected decrease in the volume of Russian oil. There have been no official comments from Brussels either, and it seems that Kyiv did not coordinate its decision with European institutions. The decision also came as a surprise to the Slovak and Hungarian governments.

The main question is: what is the point of this decision?

How does this decision benefit Ukraine? Why has it been made now, five months before the end of the transition period? And why does the restriction only apply to Lukoil?

There are no answers to these questions.

There may be security concerns that cannot be publicly disclosed, but it doesn’t make sense to say that Lukoil's oil in Druzhba poses a threat, while that of Rosneft and others does not.

The only plausible explanation that comes to mind is that this is about business disputes and private interests. But then why is the Ukrainian government involved in this game?

On accusations from Hungary and Slovakia

The Slovak and Hungarian governments have raised the issue in Brussels and want to activate EU mechanisms against Ukraine.

There is too much hysteria in their position, though.

The claims being made by the Slovak and Hungarian governments about Ukraine having created a threat to the operation of their refineries are untrue. The figures refute this!

Take the Bratislava refinery, for example. Oil from Druzhba constitutes 70% of its supply, and 40% of that 70% is Lukoil oil. Mathematically, Ukraine's decision affected about a quarter of the supply.

A quarter is a significant volume, but far from catastrophic.

The fact that Slovakia and Hungary appealed to the European Commission is procedurally the correct step. The governments had to inform Brussels of Ukraine's strange decision, which was made without prior notification to consumers in Slovakia, Hungary and Czechia.

However, the comments, outrage and claims of a threat to energy security, especially from Slovakia, are exaggerated and unfounded.

And it should be noted that Brussels understands this, which is why they did not support the Slovak and Hungarian demands to urge Ukraine to resume Lukoil supplies.

However, this doesn’t mean that the questions for Ukraine are off the table. Too much remains unknown.

Moreover, it is still unclear whether the reduction has actually occurred.

Naftogaz, Ukraine’s national oil and gas company, says there has not even been a 25% reduction. According to them, the Lukoil oil has been replaced with oil from other companies.

But if this is true, even more questions arise for the Ukrainian government.

What was the point of all this? What is the point of these sanctions for Ukrainian security? Is it purely to push Lukoil out of certain markets?

Differences between Slovakia and Hungary

The governments in Bratislava and Budapest position themselves politically as not very friendly towards Ukraine. 

But there is a significant difference between them.

Although Slovak Prime Minister Robert Fico does make anti-Ukrainian statements publicly, his actions contrast with these statements. 

Notably, there have been two joint government meetings between Slovakia and Ukraine this year. Such meetings are only held when there is close intergovernmental friendship, and Fico not only agreed to them – he initiated them.

Slovakia's policy in Brussels is even more revealing. While Hungary constantly blocks decisions on Ukrainian matters in the EU and NATO (the latest example being its veto on payment for delivered weapons, which Budapest directly linked to the Lukoil conflict), the Slovak government never does this. Fico does not veto any EU decisions regarding Ukraine.

So the policies of Slovakia and Hungary towards Ukraine are different. His rhetoric might be belligerent, but Fico works very well with the Shmyhal government, including on arms supplies and energy projects that are not publicly announced.

How Ukraine should have acted

There is no reason to believe that this entire show was devised to eventually get sanctions lifted from Lukoil, since there are no separate EU sanctions on it, only general sanctions on oil and refined products from Russia and Belarus. They are clear and transparent and apply to everyone. Likewise, the temporary exemption for the refineries in Czechia, Hungary and Slovakia regarding supplies via Druzhba’s southern branch applies to all companies.

It’s only now that Ukraine has made an exception by additionally sanctioning only Lukoil. 

Kyiv could have restricted supplies altogether.

Ukraine is in an emergency situation due to Russia's massive attacks on its energy infrastructure, and the pumps on the Druzhba pipeline need electricity to operate.

Ukraine could have used this explanation. It would have been generally well received by the EU. The Ukrainian government has every reason to say: sorry, friends, but we don’t have enough electricity for our citizens, businesses and even hospitals because Putin is destroying our energy infrastructure, so this is Russia’s fault. It would have been sufficient for the Ukrtransnafta dispatcher to send a simple notice to their counterparts in Slovakia and Hungary to say that pumping would stop in a few hours’ time due to this force majeure.

Sanctions could also have been applied by banning the pumping of Russian oil entirely. 

Of course, Ukraine’s European partners would have needed to be notified of the sanctions in advance, a few weeks beforehand, but this too could have been justified.

Instead, the Ukrainian government failed to take advantage of these obvious opportunities and unexpectedly stopped the pumping of oil from only one company, and on top of that, made statements like "Guys, why are you upset? We just replaced Lukoil's oil with other suppliers’."

The situation is extremely strange. There are no economic or security grounds for this decision. 

Instead, it creates tension and an atmosphere of distrust between countries. 

Moreover, Kyiv's actions raise many questions among Ukraine's friends, including myself and my colleagues in Brussels, about the real motives behind Ukraine's actions. Trust is a valuable thing and should not be overlooked.

It is obvious that some game, theatre or even circus is now going on, and that behind it are financial interests and flows that are bypassing our countries’ budgets.

Recorded by Sergiy Sydorenko, Editor, European Pravda

Video by Volodymyr Oliinyk

Translated by Daria Meshcheriakova