Hungarian Prime Minister Viktor Orban (L) and Russian President Vladimir Putin greet each other during their meeting in the Kremlin in Moscow, Russia, 18 September 2018.
© EPA-EFE/ALEXANDER ZEMLIANICHENKO / POOL   |   Hungarian Prime Minister Viktor Orban (L) and Russian President Vladimir Putin greet each other during their meeting in the Kremlin in Moscow, Russia, 18 September 2018.

Viktor Orbán’s wager on Vladimir Putin and illiberalism was a losing bet: instead of prosperity, Hungarians got themselves an economic crisis

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Viktor Orbán is probably Vladimir Putin’s closest ally in the European Union. On account of this special relationship, Budapest signed a 15-year contract with Gazprom and accepted to pay in rubles. Hungary was supposed to be Russia’s pride in Europe, evidence that a contract with Moscow is a shield and life can be beautiful and prosperous. As it turned out, Russian gas came nowhere nearly as cheap as the Hungarians were promised, and this is the least of Budapest’s problems.

The population is starting to experience the impact of Orbán’s economic and political decisions first-hand. Due to price hikes, Hungarians are now buying gasoline and Diesel from Romania or Slovakia, which is also where they procure their basic foodstuffs. Teachers have blocked the capital, demanding higher wages. Owners of small and medium-sized enterprises are too protesting rampant taxes, and meanwhile, the European Union has frozen funds worth €7 billion to the bloc’s maverick state, which has so far did little to combat corruption and uphold the rule of law.

The prosperity for the sake of which Viktor Orbán has made so many ill-fated decisions that have cast doubts over his commitment to the values of principles of Western society has turned out to be nothing short of hot air.

Hungary is facing chain price hikes caused by soaring fuel and gas prices

Fuel prices have gone through the roof in Hungary after Budapest authorities increased excise taxes and eliminated the cap on fuel prices. For over a year, the price for standard gasoline was €1.17, but now it has already hit the €1.60 mark. Budapest had introduced the cap on fuel prices shortly after war broke out in Ukraine, when prices for gasoline and Diesel swelled globally. Hungary’s decision shortly led to a shortage of fuel on local markets, mainly because setting a standard price seriously impacted the fuel market by virtually eliminating competitiveness. Moreover, due to the low fuel prices, Hungarian companies last year stopped importing fuel, which determined the Government to lift the cap and increase taxes on fuel.

The consequences of this decision today translate into more expensive food from one day to the next, partly due to soaring fuel prices, partly also due to natural gas, which is not as cheap as the Government claimed would be when it struck the 15-year contract with Gazprom. In 2019, I recall Hungary’s Foreign Minister, Péter Szijjártó, telling me that “he was so fed up with the perception which portrays Hungary as a country that has such close relations with Russia”. Péter Szijjártó said that he cannot explain to voters that Hungary will spend 25% more on LNG compared to the current price for Russian gas, considering that Hungary at the time was 85% reliant on Russian gas imports.

Therefore, last summer, claiming it had obtained a preferential price, when everyone else in Europe was relying on short-term purchases on the stock market, Hungary signed a 15-year contract with the Russians, which came into effect in September 2021. For Hungary, however, preferential prices turned out to a be a myth. All figures now show that Hungary’s “friend”, Putin, has deceived his “comrade”, Viktor Orbán. Ever since last spring, economic pundits have warned that Hungary is paying as much as five times the normal price per cubic meter of gas, which is a lot more than any other country in the EU.

Putin’s poisoned gift: Hungary pays a lot more for “cheap” Russian gas than if it were to buy gas on stock market

“It is important that today Hungary buys natural gas which is five times cheaper compared to the European market”, Vladimir Putin told a joint press conference in February 2022, when Viktor Orbán visited Moscow, 22 days before Russia invaded Ukraine. Vladimir Putin was referring to highly favorable prices at the start of the month. The statement was then shared by Government media and analysts close to the Hungarian administration. Orbán too said that “as long as we have Russian gas, we will have cheap supplies to Hungarian families and low energy bills”. Since then, it turned out none of his statements was true. Hungarian experts who studied the contract with Gazprom noticed that the price of gas always depends on a certain evolution, in this particular case on the stock market prices in the last few years. When examining data published by the Statistics Office, any knowledgeable economist will see that the value of Russian gas deliveries is nearly tantamount to the price of gas on Dutch stock markets two months ago. Last summer, when gas bills increased as much as 7 times, the government immediately ceased its “cheap gas” rhetoric and secured extensions from Gazprom for its outstanding payments. The Hungarian Minister of Economic Development admitted that Russian gas is closely tied to stock market values stipulated in the country’s long-term contract. According to Hungarian experts who deduced the method of calculating gas prices, whenever the markets register abrupt increases, Russian gas is cheap, which is exactly what happened for a short period of time, over December 2021 – January 2022. However, when the market suddenly shrinks, which happened last summer, Russian gas becomes very expensive.

With its back against the wall, the Hungarian government signed another agreement with the Russian side, the terms of which have been kept secret. Hungary’s Foreign Minister however disclosed a few details. According to him, Budapest allegedly secured a deal for supplementing imports in exchange for Gazprom extending deadlines for the payment of last year’s debts, including the month of August.

The biggest inflation in the EU and waning living standards have forced Budapest to seek new alternatives to Russian gas

The EU’s decision to stop talking and start acting regarding Hungary and go for its pockets, where it hurts the most, has upset the plans of Putin’s European friend. Right now, all that Orbán is left with its his pro-Russian rhetoric, advertised in various forms, and lately anti-Ukrainian rhetoric. Last month, Ukraine officially backlashed, calling on Hungary to put an end to its contemptuous commentaries – a reference to Viktor Orbán’s comments to journalists, claiming Hungary is no one’s country and comparing it to Afghanistan.

So clearly Orbán remains relevant only at rhetorical level, since many Hungarians, even those who voted for him last spring, are starting to feel “the promises” of the FIDESZ leader weighing down on their pockets and are no longer willing to tolerate the ever-growing hardships. In December 2022, Hungary reported the biggest inflation rate in the European Union, 25%. A recent study shows that Hungary is at the bottom of EU standings in terms of the minimum wage, which stands at approximately €579. It’s less compared to Slovakia, Croatia and Romania. This is barely enough to cover basic necessities. It’s no wonder people are now crossing into Romania and Slovakia to buy food.

Coming back to our discussion about gas, Hungary has all of a sudden started to court Azerbaijan, and has also joined Romania, Slovakia and Bulgaria in their bid to the European Commission to disburse funds for interconnection infrastructure projects that are bound to deliver natural gas from the Caspian Sea to Europe. Minister Péter Szijjártó made this announcement after meeting his Azeri counterpart in Budapest, and this is a clear signal that Hungary finally admits it is high time it broke free from Russia’s energy monopoly.

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