On June 5, Hungary's state-owned energy company, MVM Group, announced the signing of an agreement to acquire a 5% stake in the Shah Deniz natural gas field from Azerbaijan. This news came after Budapest and Baku had already finalized an agreement for the supply of 100 million cubic meters (mcm) of natural gas by the end of 2023. Located on the deepwater shelf of the Caspian Sea, Shah Deniz was discovered in 1999 and has since been recognized as one of the world’s largest natural gas-condensate fields.
During a press conference alongside his Azerbaijani counterpart, Hungary's Foreign Minister Peter Szijjartoemphasized that MVM's 5% stake marks "a historically unprecedented situation for Hungary’s energy supply," as it will shield the country more effectively against "major energy market price fluctuations and uncertainties." Natural gas from Azerbaijan will enter the Hungarian market through liquefied natural gas (LNG) and existing pipeline networks, including the Southern Gas Corridor and various interconnector pipelines across the Balkan region.
Budapest's recent venture into the Azerbaijani offshore gas sector underscores Hungarian leadership's interest in enhancing energy cooperation with the Caspian countries. In June 2023, Prime Minister Viktor Orbánvisited Turkmenistan and emphasized Ashgabat's potential as a significant partner for Europe and Hungary. Furthermore, in December of the same year, the Hungarian oil and gas company MOL, in partnership with Ural Oil and Gas LLP, began gas production at the Rozhkovskoye field in Western Kazakhstan.
However, concerns have been raised about the impact of this agreement on Hungary's longstanding relationship with its traditional energy partner, Russia. Since Moscow's full-scale invasion of Ukraine in February 2022, EU and NATO members have provided military assistance to Kyiv and sought to decrease dependence on Russian energy. In contrast, the Hungarian government has consistently opposed Ukraine's EU membership and delayed aid agreements, expressing skepticism about Ukraine's ability to resist Moscow's advances. Observers attribute these actions to Budapest's significant reliance on extensive oil and gas imports from Moscow.
Therefore, it is legitimate to wonder to what extent Hungary can balance increasing cooperation with Baku, a trajectory also pursued by the EU, while maintaining stable energy relations with the Kremlin. Probably the answer to this question transcends the energy sphere.
Hungary stands out among EU countries due to its heavy reliance on natural gas in its national energy mix and substantial dependence on imported fossil fuels. Prior to Russia's full-scale invasion of Ukraine, Budapest's energy dependence exceeded 50%, with over 90% of its oil and natural gas imports supplied by Russia.
This dependency is compounded by Hungary's status as a landlocked country. Despite recent adjustments, where current Russian gas prices via pipelines more closely align with European exchange rates than in previous years, they remain a more cost-effective option for Hungary compared to importing LNG during periods of price volatility. In 2021, Moscow and Budapest signed an agreement for Hungary to purchase 4.5 billion cubic meters (bcm) of Russian gas over 10 years, with the possibility of extending the contract for an additional 5 years.
Currently, Russian natural gas enters Hungary through two primary pipelines. One route utilizes the TurkStream pipeline and its extension, the Balkan Stream, which traverses the Black Sea and the Balkans. The second pathway passes through Ukrainian territory. However, the transit agreement governing the latter pipeline is set to expire by the end of this year, and Kyiv has already declared its intention not to renew it with Moscow.
Given Hungary's significant dependence on imports from Russia, the country remains highly sensitive to geopolitical developments arising from the conflict in Ukraine. As stated by EU Commissioner for Energy Kadri Simson in November 2023, "Even Hungary acknowledges that by continuing this activity, they grant Russia the ability to manipulate their market."
The signing of the "Contract of the Century" on September 20, 1994, between Azerbaijani officials and 11 major foreign oil companies, including the UK's BP and the US's Exxon, marked a pivotal moment. This agreement led to the implementation of the Baku-Supsa and Baku-Tbilisi-Ceyhan oil pipelines, and later the Southern Gas Corridor network. In 2020, this network began delivering natural gas from the Caspian shores to Italy through Georgia, Turkey, Greece, and Albania. In July 2022, European Commission President Ursula von der Leyen visited Baku to sign an agreement aimed at doubling Azerbaijani gas exports to the EU by 2027.
Azerbaijan gained prominence in Hungarian foreign policy in the early 2000s during the Nabucco pipeline project era. Through this initiative, the European Commission aimed to transport Caspian and Middle Eastern gas to Central Europe. However, due to Russian opposition and conflicting interests among EU members, the Nabucco project faltered. Azerbaijan subsequently redirected its gas toward southern European markets.
Despite this backset, Hungary's energy ties with Azerbaijan deepened. MOL acquired a significant stake in the Azeri-Chirag-Gunashli oil field and the Baku-Tbilisi-Ceyhan pipeline. In December 2022, leaders from Azerbaijan, Georgia, Romania, and Hungary signed an agreement in Bucharest to implement a 1,200-km underwater cable under the Black Sea for electricity transmission to Europe. They also agreed to develop the Solidarity Ring (STRING) gas corridor, aimed at enhancing cross-border infrastructure to increase gas supplies from Azerbaijan to the EU.
Hungary's relations with Russia and Azerbaijan are not solely rooted in energy ties but are part of a broader political strategy known as the "Eastern Opening Policy," championed by the Orban administration. This policy includes fostering cooperation with Russia, South and East Asian countries, and Turkic nations.
Hungary's decision to become an observer state of the Organization of Turkic States in 2018, justified by Prime Minister Orban'sbelief that Hungarians are "Kipchak Turks" who "consider themselves late descendants of Attila, of Hun-Turkic origin" reflects this strategic pivot. The latter has been driven in part by Budapest's increasing isolation within the EU over the past decade, exacerbated by Eurosceptic rhetoric and violations of core EU principles under the Fidesz government.
While recent Hungarian efforts to maintain advantageous political and economic ties with Russia have drawn scrutiny, less attention has been focused on Hungary's relationship with Azerbaijan. President Ilham Aliyev has governed Azerbaijan for two decades amid allegations of authoritarianism and corruption. In September 2023, Azerbaijan regained control of Nagorno-Karabakh, displacing over 100,000 Armenian residents and facing accusations of ethnic cleansing. Hungary notably blocked a joint EU statement condemning Baku's military actions against the local Armenian population. Recently, the Azerbaijani government has intensified its suppression of rights activists and independent journalists. Aliyev's uncontested victory in local elections this year was criticized for lacking democratic principles, although Orbandescribed it as "huge and indisputable."
Hungary's support for Azerbaijan has been controversial since 2012, when Azerbaijani Lieutenant RamilSafarov, convicted in Budapest in 2006 for the murder of Armenian officer GurgenMargaryan, was transferred to Azerbaijan. Initially sentenced to life imprisonment by a Hungarian court with the possibility of parole after 30 years, Safarov was sent to Azerbaijan under the Azerbaijani government's promise that his sentence would be upheld. However, upon his return, he was controversially pardoned and promoted. Additional controversy arose in 2017 when the "Azerbaijani Laundromat" investigation revealed over USD 7 million had been transferred to various Budapest bank accounts around the time Hungary handed over Safarov's custody to Baku.
Following Hungary's announcement of acquiring a 5% stake in Azerbaijan's Shah Deniz gas field, Hungarian Foreign Minister Peter Szijjarto attended the Saint Petersburg Economic Forum. During his visit, he expressed Hungary's satisfaction with its cooperation on gas supplies with Russia and affirmed Budapest's intention to continue purchasing gas from Moscow despite external pressures.
While Hungary aims to diversify its import sources, uncertainties persist regarding whether imports from Azerbaijan will effectively shield Budapest from price fluctuations and reduce dependence on Moscow. This dilemma mirrors broader concerns within the EU. Despite Baku's commitment to increase gas supplies to the EU under a 2022 agreement, the specific sources of this additional gas remain unspecified.
Since the events of February 2022 and the EU's "energy divorce" from Russia, Moscow has shifted its export focus on two fronts. On the one hand, discussions on the "Russia-Kazakhstan-Uzbekistan Gas Union" suggest new avenues for Russian gas towards Central Asia. On the other, Azerbaijan began importing gas from Russia in late 2022 to meet its export commitments while satisfying domestic demand. During this period, Russian company Lukoil increased its stake in the Shah Deniz gas project from 10% to 19.99%.
Recent Russia-Azerbaijan cooperation extends beyond energy. Geopolitical events in Eurasia underscore an alignment of interests between Moscow and Baku, including Russian support during Azerbaijan's Nagorno-Karabakh offensive and Azerbaijan's strategic role in Russia's North-South Corridor linking Europe to the Indian Ocean. Turkey's pivotal role in this alignment is evident, as Ankara has supported Azerbaijan politically and militarily in its conflicts with Armenia. Despite NATO membership and verbal condemnation of Russia's actions in Ukraine, Turkey has refrained from joining Western sanctions against Moscow due to energy dependence and deep economic ties.
In August 2023, Hungary's MVM signed a gas agreement with Turkey's BOTAS, securing up to 275 million cubic meters (mcm) of natural gas. Despite Turkey's efforts in gas extraction, about 40% of its gas imports still come from Russia, raising concerns that gas transported to Hungary via Turkey could originate from Russia.
Therefore, while the Hungarian government acknowledges the urgent need to diversify its energy supplies to maintain affordable consumer utility prices and ensure domestic electoral support, the pursuit of gas agreements with Azerbaijan and Turkey as alternatives to Russian gas raises concerns. Budapest's strategy appears to be driven more by established geopolitical alignments under the Fidesz government's "Eastern Opening" policy than solely by energy security considerations.
This article was written in the framework of The Eastern Frontier Initiative (TEFI) project. TEFI is a collaboration of independent publishers from Central and Eastern Europe, to foster common thinking and cooperation on European security issues in the region. The project aims to promote knowledge sharing in the European press and contribute to a more resilient European democracy.
Members of the consortium are 444 (Hungary), Gazeta Wyborcza (Poland), SME (Slovakia), PressOne (Romania), and Bellingcat (The Netherlands).
The TEFI project is co-financed by the European Union. Views and opinions expressed are however those of the author(s) only and do not necessarily reflect those of the European Union or the European Education and Culture Executive Agency (EACEA). Neither the European Union nor EACEA can be held responsible for them.
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