BUDAPEST (July 26): Hungary will face fuel shortages from September if full Russian oil flows are not restored, a government official said on Friday, accusing Ukraine of blackmailing it by partially suspending supplies.

Eastern European Union (EU) members Slovakia and Hungary have been hit by a stop in flows from Russian group Lukoil coming via Ukraine after sanctions were imposed on the company.

This has put pressure on Hungarian and Slovak refineries, all owned by Hungary's oil and gas (O&G) group MOL.

It is also angering governments in Bratislava and Budapest which, in the Russia-Ukraine war, oppose sanctions against Moscow and sending military aid to Kyiv. They are seeking EU mediation in the dispute.

Gergely Gulyas, chief of staff for Hungarian Prime Minister Viktor Orban, on Friday said Ukraine's decision was blackmail for their positions on Russia's war in Ukraine.

"If the situation is not resolved, there will be a fuel shortage ... a solution must be found by September," Gulyas told a news conference. "Ukraine is blackmailing the two countries that are standing for peace and ceasefire."

Oil deliveries from other Russian suppliers have not been interrupted.

Ukrainian presidential aide Mykhailo Podolyak rejected Budapest's accusations, saying that Ukraine's decision to suspend Russian oil transit to Hungary and Slovakia had nothing to do with blackmail.

In the Lukoil dispute, the two countries want the European Commission to use an association agreement with Ukraine, based on which they said Kyiv could not block oil transit.

Slovakia called on the Commission on Thursday not to delay, saying it was hostage to the EU and Ukraine and asking whether citizens needed to queue for petrol or face rising prices first.

Hungary's EU Affairs Minister Janos Boka said that Hungary was examining whether Ukraine's actions breached World Trade Organisation regulations.

Gulyas said Budapest was looking for solutions.

"One is that the Ukrainians admit that they cannot do this to two EU countries," he said. "Another is that the European Commission helps us, and the third is that we find a legal loophole that allows the oil to be transferred by someone not affected by the sanctions."

The Ukrainian energy ministry did not immediately respond to a request for comment.

MOL also did not immediately reply to questions.

Tamas Pletser, an O&G analyst at Erste Group Bank in Budapest, said big fuel shortages were not likely after the summer months but replacing Lukoil supplies would be difficult for MOL.

"Lukoil can be replaced by MOL if they want to; it wouldn't be simple but it's possible," he said. "Lukoil's size makes it a good choice to sanction, it's not irreplaceable but still painful to lose."

The EU imposed sanctions on Russian oil in 2022 although Slovakia, Hungary and the Czech Republic gained exemptions due to their reliance.

On Wednesday Fitch Ratings said refineries in Slovakia and Hungary faced significant credit risk after the Lukoil sanctions.

Czech refineries, owned by Poland's Orlen, do not have Lukoil as a supplier, so have not been directly impacted by the dispute.

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