For years, Hungary has maintained a balance among its opposing Russian and European benefactors. Hungary depends on Russia for much of its natural gas imports. A new interconnector from Slovakia is slated to come online soon, but it would meet only about half of Hungary's demand, forcing it to continue relying on Russia. At the same time, Hungary depends on the European Union for trade and funding and on NATO for security.
Hungarian Prime Minister Viktor Orban's goal is to reach a flexible and affordable energy deal with Russia without losing NATO's security guarantees or the extensive funding and trade benefits it receives as an EU member. In order to achieve this goal, Budapest is attempting to fulfill Russia's demands that Hungary avoid cooperating with key European energy projects and the West's need for Hungary's commitment as a security ally.
Orban's schedule reveals this frantic effort to maintain his balance between Russia and the West. On Feb. 2, Orban held talks with German Chancellor Angela Merkel in Budapest. On Feb. 11, Orban met with Serbian Deputy Prime Minister Ivica Dacic, and the following day he met with Polish Foreign Minister Grzegorz Schetyna. On Feb. 13, Orban traveled to Kiev to meet with Ukrainian President Petro Poroshenko. On Feb. 16, he met informally with Serbian Prime Minister Alexander Vucic, and the day after that he hosted Russian President Vladimir Putin in Budapest. Two days later, Orban visited Warsaw and met with Polish Prime Minister Ewa Kopacz. That same day, the Kazakh government announced that Orban would visit the country in April.
For Russia, Hungary has grown more important throughout the Ukraine crisis. Hungary's ability to send natural gas reverse flows to Ukraine undermines one of Russia's main ways to influence Ukraine. Growing tensions between the European Union and Russia have also provided the impetus for more discussions about forming a European Energy Union, which would reduce Russia's leverage in European energy markets. Moreover, as a member of the European Union, Hungary has the ability to veto European sanctions against Russian individuals and companies, making it a strategic asset to block EU policy changes.
The Kremlin's interest in undermining plans for a European Energy Union and reducing Ukraine's ability to import natural gas from the European Union have enhanced Orban's negotiating position with Russia. Furthermore, falling natural gas prices have made the Kremlin more open to providing new, more flexible natural gas arrangements. Negotiations yielded a deal for Gazprom to waive its take-or-pay clause for Hungary, allowing the country to purchase over the next four or five years natural gas volumes that were included in its current contract but remain unused, and to pay for the supplies once they are actually used.
Orban has indicated that Hungary now pays $260 per thousand cubic meters for natural gas supplies. In 2013, the country paid about $391 per thousand cubic meters. Orban said that Hungary would be better off avoiding a long-term contract that ties the price of natural gas imports to the price of oil. Gazprom's contracts have traditionally been indexed to oil prices, but Orban's announcement signals that Hungary could be allowed to continue paying a relatively low rate for natural gas over the next few years regardless of oil price fluctuations.
The natural gas deal's favorable terms have come with concrete demands from Russia, which Orban has vowed to fulfill. A day after Putin's visit, Orban publicly announced that Hungary would not support a European Energy Union and would not provide Russian natural gas reverse flows to Ukraine. Moreover, during his meeting with Putin, Orban emphasized that Hungary would support proposals for a pipeline to connect the planned Russian-backed Turkish Stream pipeline to Macedonian, Serbian and Hungarian markets.
For the West, as for the Kremlin, Hungary has become significant as a result of the crisis in Ukraine. Orban's moves to meet Putin's demands have been met with disapproval in European capitals. The Polish prime minister described the discussion of Ukraine and prospects of regional cooperation with Orban on Feb. 19 as "honest and difficult."
Nevertheless, as a NATO member country bordering Ukraine, Hungary is a strategic ally for the West. If NATO ever needed to conduct air operations near its eastern boundary, for example, Hungary's four airfields, along with airfields in Poland, Slovakia, Romania, and Bulgaria, would be ideally suited because of their proximity in the region. Moreover, most EU policy changes require the consent of all members. European countries are hopeful that Hungary would cooperate on some projects that would boost energy interconnectivity and security throughout the bloc.
Despite Hungary's cooperation with Russia on energy, Budapest is committed to maintaining its security and economic ties with the West. Russia is undergoing its own financial crisis and could not replace Europe as a top investor in Hungary. At the same time, Hungarian leaders know that Russia, while geographically far, could threaten Hungary's security in the event of a significant escalation of hostilities in Ukraine and an overt Russian military intervention in the country. While Hungary has not pressed for greater NATO presence in the region, Hungary will remain an active NATO member in order to guarantee its security.
Orban's series of meetings shows he will take care of Hungary's immediate need first: energy. However, Hungary also will take care to maintain ties with the West out of financial and security needs.