By Krisztina Than and Marek Strzelecki

BUDAPEST (Reuters). Hungary has stepped up the pressure in negotiations about European Union oil sanction sanctions. On Wednesday, it said that a deal wasn’t possible until Brussels proposes a “solution”, which is a number of hundreds of million dollars for replacing Russian oil in Hungary.

Peter Szijjarto (NASDAQ; Foreign Minister) stated that there is still no satisfactory proposal. Also, he stated that Russian shipping via pipelines should not be subject to any oil embargo which would only apply for sea-transported deliveries.

This would be a benefit to MOL (Hungarian Oil and Gas), which makes large profits from its cheap Russian Urals refineries. By now, the Urals-Brent difference in price has increased to $34-$35 per barrel.

MOL also has this ability to offset losses from the Hungarian government’s price cap for fuel, which was implemented last year. Prime Minister Viktor Orban won elections in April.

Szijjarto claimed that Hungary made it clear to Brussels it will support oil sanctions only when the Commission proposes a solution for the difficulties they might create for Hungary.

Szijjarto explained that they expect such a proposal to address the cost of our oil refineries transformation, which is hundreds of billions of dollars. It also needs to include the increase in capacity of the Croatian pipeline, which will be several hundred million dollars. But it would also have implications for the future economic prospects of Hungarians.

Many other EU members support banning Russian oil as part of the sixth round of sanctions to hit Moscow for its war crimes against Ukraine. However, such a decision requires unanimity. Hungary is the biggest critic, while other Eastern European countries are also opposed.

Szijjarto stated that the EU ban on maritime oil shipment would only lead to an agreement.

Ursula von der Leyen is President of European Commission and has indicated that further work would be required to achieve an agreement.

This is an important issue because granting MOL year of exemption and financial compensation for refinery upgrade would cause a disruption to the level playing field.

MOL and the government have been playing together. It is profitable to keep using Russian oil for longer than necessary, given the differential,” WojciechKononczuk, deputy director at OSW Centre for Eastern Studies (a think-tank located in Warsaw), stated.

The Polish ambassador to EU said that the negotiations were hard because multi-year exclusion involved competition issues and the equal status for companies in the common market.

MOL – A BONUSES

MOL’s downstream business model is based on Russian crude oil shipped through the Druzhba Pipeline, which covers approximately 65% of Hungary’s oil needs. It would require between $500m and $700m to completely switch the two Slovakian refineries into alternative processing.

MOL has built its refineries to handle the Russian Export Blend (REB crude). MOL’s refineries can be converted to other crude oil, and MOL has so far processed up to 35% nonRussian oil. We need more capacity and technological investments, as well as testing time.

“At present we have the advantage over the higher Ural prices, but it will not last forever.”

MOL’s oil refining margins were boosted by Russian crude oil and an increase in gasoline crack spreads.

MOL data shows that MOL’s refinery margin increased to $33.7/barrel in March, from $3.4 in February. MOL didn’t publish April data, stating that current margins did not reflect actual profitability.

Tamas Pletser from Erste Investment, an analyst in the oil sector said that the embargo will hurt MOL’s business model. However, it would also expose MOL to Druzhba.

“If the EU funds are available for investments, then that would be a win, particularly if Russian shipments remain intact,” he stated.