Russian oil flows interrupted by pipeline to central Europe

Europe’s energy security has taken another hit after flows of Russian crude through Ukraine to Hungary, Slovakia and the Czech Republic were halted because sanctions prevented the payment of a transit tax .

While Russian pipeline operator Transneft PJSC said there was no effect on the northern branch of the Druzhba pipeline, which runs through Belarus to Poland and Germany, the southern part of the link was closed on 4 August. with Brent up 1.3% at $97.90 a barrel at 1:12 p.m.

Russia has previously blamed international sanctions for curbing natural gas flows to Europe through the Nord Stream pipeline. A similar disruption in oil flows would aggravate the region’s energy crisis, adding pressure on inflation and amplifying the risk of recession.

Hungary’s fuel supplies would be particularly vulnerable, as well as Budapest-based refiner Mol Nyrt. said it has started talks aimed at reviving crude flows by paying the transit fees to Ukraine itself.

“Although Mol has enough reserves for several weeks, it is working on a solution,” the refiner said in a statement.

Ukrtransnafta JSC, which operates Ukraine’s pipeline network and oversees the transit of crude through the southern branch of the Druzhba link, “stopped providing oil transportation services” in its territory on August 4, said Transneft in a statement Tuesday. There was no immediate comment from Ukrtransnafta.

The contract between Transneft and Ukrtransnafta requires 100% prepayment for transit flows. While the Russian pipeline operator paid the August transit fee on July 22, it collected the money on July 28, Transneft said.

European banks involved in the transaction are not allowed to make their own decisions on cross-border payments from Russia due to sanctions and need approvals from their national regulators, according to Transneft.

The Russian pipeline operator said it used “an authorized bank for further transfer of information to the European regulator to obtain permission to make settlements under an agreement with Ukrtransnafta”. It is also exploring other ways to transfer funds.

Fuel disruption

Failure to resolve the payments problem would carry particular risks for Hungary, where Prime Minister Viktor Orban’s imposition of a fuel price cap had already prompted some oil companies to suspend imports to avoid losses. .

Mol chairman Zsolt Hernadi has repeatedly warned of a potential supply shortage due to the price cap, which is in place until October 1. Shares in Mol fell 5.6% on Tuesday while the forint fell 1% against the euro in the biggest drop in emerging markets.

The best-case scenario is for the financial dispute to be resolved within days, said Erste Bank analyst Tamas Pletser. If the shutdown is prolonged, Hungarian refiner Mol has fuel reserves for a few weeks, but beyond that the country will have to exploit its strategic oil reserves, he said.

Any reduction in fuel processing at refineries in Hungary would come at a bad time, as supplies are also tight in neighboring countries.

Southern Germany, Austria and Switzerland are grappling with tight fuel supplies as the halt in production at oil refineries coincides with a cut in deliveries via the Rhine. Like Hungary, Switzerland has already dipped into emergency fuel stocks.

Austria’s only refinery in Vienna is barely functioning after an incident and OMV AG has been forced to suspend deliveries of diesel and heating oil from storage sites in southern Germany until its refinery in Burghausen in the country returns from maintenance.

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