Russia and Hungary: Best of Friends or a Serious Error?

When Hungarian Prime Minister Viktor Orbán and Russian President Vladimir Putin meet in Budapest on Thursday, all the indications are that they will focus primarily on economic affairs.

The issue topping the agenda is likely to be the Paks nuclear power plant and its extension, for which the Russian company Rosatom has been contracted. Another key issue to be discussed is the extension of the Russian gas delivery contract to Hungary beyond 2021.

Other bilateral possibilities discussed during a meeting of Hungarian Minister of Foreign Affairs and Trade Peter Szijjártó with his Russian counterparts on the eve of Putin’s visit included transportation, civil aviation, machine-building, pharmaceutical industry as well military–technological cooperation. 

The latter is highly surprising, considering Hungary’s NATO membership, as well as the military industry-related sanctions against Russia, which impede its military industry companies to access EU-made technologies, including dual–use goods.

As in many other European countries, Hungarian trade with Russia has collapsed since summer 2014. Total bilateral export turnover fell by 40.5% in 2015 from its 2013 level.

Almost all the decrease (89.3%) stems from two segments, ‘machinery and transport equipment’ and ‘other manufactured goods’, sectors dominated mainly by local branches of multinational companies.

The reasons are manifold, including the sanctions, the drop in oil and gas prices and the structural slowdown in the Russian economy. Szíjjártó estimates the Hungarian losses due to the sanctions at $6.5 billion in the three years to January 2017.

Similar declines have also been registered on the imports side: the approximately 35% fall in crude oil and gas imports in 2015 was by far the most compelling cause why Russia’s ranking among Hungary’s global trade partners has dropped from third to tenth; energy import prices have lost much of their former significance in the bilateral relations.

Despite the concrete economic content of Putin’s talks, the political significance of his visit can hardly be overestimated. By visiting Budapest for the second time in three years, Putin can demonstrate to his domestic audience that he is still welcome in the EU, and that the West is far from united on sanctions against Russia.

And he can harness his hosts’ opposition to sanctions. For the Hungarian government has been more vocal than most in criticising the economic restrictions on Russia; Szijjártó openly called the sanctions ‘ineffective and harmful’.

Furthermore, he claimed that, since ‘the very day’ the sanctions were first introduced, Hungary remained the only country opposed to them, although Budapest had not used its veto to break the European consensus.

Both during his recent visit to Moscow and in the official communiqué of the Hungarian Ministry of Foreign Affairs and Trade, Hungary made it clear that, when it comes to deciding the future of the sanctions, ‘a lot depends on the Russian–American dialogue’.

In this context, one needs to recall that Orbán was one of the very few foreign leaders to openly endorse Donald Trump during the US presidential elections. Since Trump’s victory, the Hungarian government has been quite enthusiastic about the foreign policy opportunities Trump’s presidency might open up.

Szijjártó also declared that Hungary intended to be one of the pillars of resetting the relations between the EU and Russia. This might indicate that at the EU Foreign Ministers’ meeting in March, Hungary might take a much more radical position in demanding the removal of the sanctions.

However, Szijjártó might have run a bit too far with his optimism. Despite some expectation in the US media, lifting the sanctions was not mentioned during the 28 January phone conversation between Trump and Putin. 

Moreover, while Trump spoke with German Chancellor Angela Merkel about, among others, the conflict in Ukraine, the lifting of sanctions was not discussed. And during her visit to the White House on 27 January, British Prime Minister Theresa May was firm in saying that sanctions against Russia should remain in place.

Finally, even President Trump admitted that ‘it is too early to talk about the lifting of sanctions’. This may have come as a surprise to Hungarian diplomacy.

Still, it is noteworthy that during his recent trip to Moscow in preparation for Putin’s visit to Budapest, Szijjártó did not say a single word either about the illegal annexation of the Crimea or about the ongoing war in Eastern Ukraine.

A minor, though interesting detail was that in his interview to a Russian newspaper, Szijjártó openly admitted that he liked the Russian TV channel RT and watched it if he could, even though RT is widely considered to be an instrument in the Kremlin’s information warfare toolbox.

Despite the strong pro-Russian position of the Hungarian government, the Kremlin does not view Budapest as a particularly trusted partner.

While on the one hand Putin is meeting Orbán for the third time in three years, on the other hand Russian special services have supported Hungarian militant far-right groups. There have also been more than one serious propaganda offensives against Hungary.

And one also needs to take a more critical look at Szijjártó’s claim that since the introduction of the sanctions on Russia, Hungary has lost $6.5 billion of exports. First, although Szijjártó blamed the EU sanctions for the losses, they were, in fact, caused by Russia’s counter-sanctions.

Second, the $6.5 billion loss claim is hard to verify from independent sources. According to a detailed analysis of the Vienna-based Austrian Institute of Economic Research (WIFO), until the end of 2015 Hungary’s losses amounted around €562 million.

According to Russian trade statistics, Hungarian exports to Russia have always stayed well below $4 billion per year since 2007, except the peak year of 2008. Besides, the share of agricultural products – the sector most affected by the Russian counter-sanctions – was always less than 10% of the total exports, that is less than $400 million even in a bumper year.

Either way and although Hungary is talking the lead in dialogue with Putin, it is highly unlikely that Budapest’s ambitions to be one of the engines of resetting the relations between the EU and Moscow would be realised any time soon.

This contribution is based on a wider recent study published by the Centre for Euro-Atlantic Integration and Democracy (CEID) in Budapest (www.ceid.hu). We are grateful to our colleagues at the Centre for permission to publish these segments of their work.