Europe and the Politics of Russian Gas

March 3, 2015 at 1:34 PM

The recent announcement of a lucrative new gas contract between Hungary and Russia is certainly beneficial to both countries. Perhaps more significant however, is the fact that Russian energy supplies, and the political conflict between Europe and Russia, is drawing dividing lines all over the map. By allowing Washington to drive European policy vis-à-vis Ukraine, sanctions, energy infrastructure and investment, and myriad other political and economic issues, Europe has transformed Russia from a partner into an obstacle.

Hungarian Politics and Russian Gas

The new deal between Russia and Hungary will secure reliable, affordable energy for Hungary, while ensuring a continued partnership and market for Russia. While the finer points of the deal will be finalized in the weeks to come, essentially the new contract provides Budapest with more flexibility in terms of its consumption and purchases. By eliminating the “take or pay” principle – the provision that required Hungary to pay for unused gas that it initially contracted – Hungary will be able to reduce its costs by rolling over unused gas supplies into the following year.

The new contract will provide much needed flexibility in terms of gas purchases for the Hungarian government. Additionally, Hungary will now have the ability to expand its storage of unused gas in underground facilities, allowing the country to deal more effectively and efficiently with everything from unexpectedly cold winters, to politically motivated energy shortages.

Even more important for Hungarian Prime Minister Viktor Orban is the cementing of close ties with the Kremlin and Russian President Putin amid a growing climate of political pressure, both internal and external.

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