Lukoil Attempts to Circumvent Sanctions
Hungarian and Slovakian refineries are currently unable to receive oil through the Ukrainian section of the international Druzhba pipeline from the Russian oil company Lukoil, which is subject to Ukrainian sanctions. This situation has sparked a strong reaction in Bratislava and Budapest. Kyiv is closely observing how the recipients of Russian oil and Lukoil will attempt to bypass these sanctions.
The first public announcement of the cessation of Russian oil supplies through the Druzhba pipeline, which runs through Ukraine, was made by Hungarian Foreign Minister Peter Szijjarto. He did this on 16 July during a press briefing on the sidelines of the UN session in New York, right after meeting with Russian Foreign Minister Sergey Lavrov. At that time, Szijjarto stated that they were seeking a "legal solution to resume transit." On Thursday, 18 July, it became known that oil supplies were continuing, but supposedly from other traders, not from Lukoil.
The primary buyer of Russian oil in Hungary and Slovakia is the Hungarian MOL Group, which owns three refineries: in Bratislava (it processes 6.1 million tonnes per year, Slovakia), in Százhalombatta (8.1 million tonnes per year, Hungary), and in Rijeka (4.5 million tonnes per year, Croatia). Together, they can process nearly 19 million tonnes of oil per year, but they are not operating at full capacity.
Before the sanctions against Russia were imposed, the MOL Group received approximately 75-80% of the oil it processed from Russian suppliers. According to the company's plans, which were made public in February 2023, shortly after the ban on seaborne imports of Russian oil to the EU was implemented, the MOL Group was ready to reduce the share of Russian oil to 50-55% by the end of the same year and to zero by 2025.
The reasons for imposing sanctions on Russian oil are clear and have been explained multiple times: Russia finances its war against Ukraine through revenues from the export of raw materials and energy, primarily oil.
It is worth noting that the MOL Group's refineries currently produce significantly more oil products than the countries where these refineries are located actually need. For example, Hungary consumed approximately 3.1 million tonnes of motor fuel in 2023, and this figure continues to decline. Therefore, it is likely that a substantial portion of the oil products made from Russian oil is being sold in neighbouring countries' markets.
At least 70% of the Russian oil that is transported through the southern branch of the Druzhba pipeline is refined at the Hungarian Százhalombatta refinery. Overall, the Druzhba pipeline is currently used to supply Russian oil to Slovakia, the Czech Republic, and Hungary via the southern branch, and Kazakh oil to Poland and Germany via the northern branch. In mid-2023, as part of one of the EU's sanctions packages, a ban was imposed on the import of oil through the Druzhba pipeline to Poland and Germany. However, imports to Slovakia and Hungary are still permitted, as these countries do not have the option to import oil by sea.
According to Reuters, which cites industry sources, about 1.1 million metric tonnes per month, or approximately 250,000 barrels per day, of Russian oil is exported through the southern branch of the Druzhba pipeline. Of this, around 900,000 tonnes are almost evenly distributed between Slovakia and Hungary, with a small portion going to the Czech Republic.
The Druzhba pipeline, constructed during the Soviet era, originates in Tatarstan (eastern European Russia) and runs to Bryansk (Russia). After Bryansk this pipeline crosses the border into Belarus. From there, the pipeline reaches Mozyr (Belarus), where it branches into northern and southern sections. The northern branch runs through Belarus to Poland and onwards to Germany. The southern branch runs through Ukraine and on to Slovakia, the Czech Republic, and Hungary. The Slovakian section of the pipeline is operated by the Slovak company Transpetrol, the Ukrainian section by PJSC Ukrtransnafta (Ukraine), and the Polish section by PERN (Poland).
The Druzhba pipeline is not the sole source of crude oil for refineries in the Czech Republic, Slovakia, and Hungary. For instance, the MOL Group can transport oil via a pipeline from Croatia, where it can be shipped by sea to the port of Omisalj. Here lies an interesting opportunity for Russians to circumvent sanctions. This involves transferring Russian oil at sea and concealing its origin by various means. Thus, Russian oil, including that from Lukoil, could ultimately reach the EU by evading sanctions.
It is also known that the MOL Group does not necessarily have to transport crude oil through the Druzhba pipeline specifically from Lukoil, which, in addition to previously imposed Ukrainian sanctions, has been banned from transiting oil through Ukrainian territory since June 2024. For example, oil could be supplied by oil traders with Russian ties but registered outside Russia. Alternatively, the oil could come from Kazakhstan. Moreover, the composition of Kazakh oil is very similar to that of oil supplied from Russian fields, making it almost indistinguishable. The technological processes at the aforementioned refineries allow for the processing of both Russian and Kazakh oil.
This opens up interesting possibilities, likely hinted at by the Hungarian Foreign Minister when he mentioned legal mechanisms, as stated at the beginning of this article. This could involve a kind of exchange. Russian oil could be supplied via the southern branch of the Druzhba pipeline under the guise of Kazakh oil, while Kazakh oil could be exported from Black Sea ports as Russian oil. Of course, this scheme adds extra discomfort to the Lukoil company, reducing its earnings but allowing it to evade Ukrainian sanctions on the company.
As this article was being prepared for publication, it was known from Slovak oil transporter Transpetrol that supplies from Lukoil had indeed ceased, but supplies from other Russian exporters continued through Ukraine towards Slovakia.