BUDAPEST BLOG: Hungary lays out the red carpet for Putin

By bne IntelliNews February 17, 2015

Tim Gosling in Prague -


Hungary will welcome Russian President Vladimir Putin on his first official visit to an EU country in more than seven months on February 17. Budapest hopes to gain gas benefits as it controversially lays out the welcome mat and pledges to strike a balance between Russia and the West - a strategy that sounds frighteningly familiar.

The red carpet Putin will walk in Budapest will have spent little more than a fortnight in storage following German Chancellor Angela Merkel's trip to Budapest on February 2. Prime Minister Viktor Orban and his government have sought to make much of the twin trips, and continue to talk up a "balanced" foreign policy between the EU and Russia. 

That balancing act is typical of Orban, and is a role he has had Hungary playing throughout the rise of tensions between Moscow and the EU and US. Hungary has not used its veto to block EU sanctions against Russia and has been fed  EU gas to Ukraine. At the same time, Budapest has been vocal in pushing for a "pragmatic" stance towards Moscow, and has halted the gas flow eastwards more than once as it has signed deals with Russia.

More of the same is on the cards for Putin's trip. Orban says he wants to agree a new gas supply deal during the trip. Following a three-month halt following the visit of Gazprom CEO Alexei Miller to Budapest in September, Hungary restarted sending gas to Ukraine in early January. However, the taps have been turned back off again ahead of the Russian leader's arrival.

It's that kind of coincidence that has created huge suspicion in the West. Cutting the gas to Ukraine late last year kicked the wheels into motion in Washington, and several Hungarian officials were barred from entering the US over allegations of corruption - the first such instance against a Nato ally. That helped spark protests against the government - with more demonstrators on the streets of Budapest on February 16 - as well as a rash of negative attention from international media.

Brussels will clearly frown upon the Russian leader's appearance in a European capital just a day after the EU unveiled a new round of sanctions over the war in Eastern Ukraine. "The visit is much more in Putin's interests as he can be shown to be visiting a Nato and EU country and treated with all due respect," an EU diplomatic source told bne Intellinews. "It will also continue the well-worn Putin tactic of "divide and rule". Important decisions on sanctions will be made at the European Council meeting in March." 

About face

However, as he has proved since coming to office in 2010, Orban is practiced in deflating such anger in the short term, while still pursuing his goals. True to form, the government made several nods to Western concerns in the weeks around Merkel's visit.  It welcomed the new US ambassador Coleen Bell and even suggested Hungary could host new Nato forces. At the same time, Orban has said he's ready to lower taxes on the media and banks, both of which have enraged investors and regulators in Brussels.

Yet no sooner was the German leader on her way out of Hungary than the government dove into the preparations for Putin's arrival. As soon as the next day, gas supplies to Ukraine were halted again, with state-controlled transmission system operator FGSZ blaming "a fall in demand".

However, while Orban has been held up in international media as an example of a turncoat, it may be the Hungarian PM is simply seeking out the opportunities to be found in the Ukraine crisis. Little wonder then that he has been talking gas almost constantly ahead of Putin's visit - even whilst the pullback in pressure on investors has the ratings agencies suggesting the country could finally escape its two year or so stay in junk status.


As he lands in Budapest, the Russian leader will be making his first official visit to an EU country since a July trip to Austria. An appearance at the D-Day anniversary in France the same month was his only other such visit in 2014, save for a visit to Hungary in Januuary. In defending the latest welcome, Hungarian officials insist that the country must continue to talk to both the EU - in the guise of Merkel - and Russia. 

Budapest is clear where its priorities lie. Russia is Hungary's third biggest trading partner, and the recent drop in bilateral trade has had a "very grave" impact on Hungary's economic performance, Peter Szijjarto, minister of foreign affairs and trade and leading advocate of a "pragmatic" foreign policy, said on February 16, according to MTI.

Gas is at the top of the list of issues. With Hungary's long-term gas contract with Gazprom set to expire at the end of the year, Orban has said several times that he wants to agree a "flexible" new arrangement during his talks with Putin. Russia will remain a key player in ensuring central Europe's energy supply so it is "inconceivable for us not to consult with it regularly"," Szijjarto said.

However, officials have flatly denied speculation that Orban plans to discuss deals to sell Hungarian gas infrastructure, most of which has been bought by the government over the past two or three years. 

Rather, Hungary hopes to leverage its pipelines and storage facilities to promote itself as a partner in Moscow's drive to bypass Ukraine as a major transit state for Russian gas headed into the EU. It was perhaps the keenest potential host of the giant South Stream project that was abandoned because of EU objections in December. Gazprom now claims it plans to route gas headed for Europe via Turkey.


However, there is for the moment no European infrastructure to collect that fuel, should it make it to the border. Hungary has not been slow to throw its hat into the ring, and says it is already talking to countries such as Serbia about a plan to bring it to Central Europe.

Orban will press Putin on the plan, which runs directly counter to EU and US policy. With typical front, Hungary says it is looking to stiffen EU energy security, and plans to ask the EU to help. 

"It is important to know when, and along which route, Russian gas deliveries via Turkey to Central Europe can start and who will finance the pipeline construction," Szijjarto said. "Establishing the infrastructure would require huge investments, which the countries lying along the pipeline would be unable to finance alone. This implies that the European Union should get involved in the project, all the more so since Central Europe's energy security is an all-European affair."

A Putin adviser confirmed on February 16 that the topic is on the agenda. "Exchange of opinions will take place in this light," Yuri Ushakov said, according to Reuters. "Hungary still means a lot for us as a market for our hydrocarbons and as a potential transit country."

Orban and Putin have a busy day ahead then, and Hungarians should hope that this is in fact just more of a get rich quick scheme than a geopolitical turn. A policy of balancing Russian and Western interests - especially when it comes to gas trading - is exactly the line that Ukraine ploughed for 20 or so years after gaining independence. Hungary is finding itself battered as it appears to be trying to launch that policy, but a look to the east illustrates just how tough it could be to change course in the future.


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