by Alexander Faludy
Tuesday, 16
November 2021
Explainer
16:15

All eyes on Hungary’s fuel price provocation

Extraordinary interventions by Viktor Orbán have unsettled member states
by Alexander Faludy
Credit: Getty

In the quiet hours of Saturday night — with no announcement beyond a notice in the official Hungarian gazette, Magyar Közlöny — Viktor Orbán’s government staged an extraordinary economic intervention in response to soaring fuel prices. It is one which could have profound consequences for foreign governments and the functioning of the EU’s single market.

Fuel prices in Hungary have jumped 50% in the last year due to a rise in global wholesale prices and the Forint’s 11% slide against the USD since May. Last week the situation became unsustainable for consumers as fuel crossed the symbolic threshold of 500 HUF/litre (£1.16). In response, the Government stepped in on Thursday with price controls — capping sales of standard petrol and diesel at 480HUF/litre.

Such measures immediately raised the prospect of oil companies declining to resupply once pumps ran dry of existing stock. To counter this possibility, the Government stepped in again on Saturday night with a fresh decree, compelling stations either to stay open ‘during the period of emergency’ or face large fines or trading bans.

Operators unable to meet these conditions must, on a ‘temporary’ basis, hand over their facilities (including ancillary shop and cafe functions) to the control of another provider willing to maintain supply. The only company likely to be willing to do so is MOL, the country’s market leader, which is part-owned by foundations linked to Fidesz.

This move looks set to inflame EU and international relations for a number of overlapping reasons. A member state forcing EU headquartered companies to trade at a loss by government decree runs diametrically counter to the principles underpinning the single market. Direct confrontation with the Netherlands and Austria (concerned for the welfare of Royal Dutch Shell and OMV respectively) are to be expected.

Further problems may also arise with foreign consumers, as well as foreign operators. Hungary is surrounded by seven neighbours, five of whom are EU members. With the price cap and the 6.5% fall of the Forint against the Euro since June, making fuel in Hungary is significantly cheaper than in Austria, Slovakia and Slovenia (and likewise non-Eurozone Croatia). We therefore might see an influx of ‘petrol-tourists’ at Hungarian filling stations that could lead to significant pressure on domestic supply. Any attempt to exclude such consumers in favour of domestic ones would flout EU market rules even more brazenly than the present measures.

So far, despite confrontational rhetoric on both sides, Brussels has taken a light touch in dealing with Hungary’s rule of law issues because they fell short of disrupting single market functionality or German commercial interests. With the latest moves by Budapest, that situation may be about to change dramatically.

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  • This looks like another nail in the coffin of the EU. The receivers of aid are not playing the political game when things get tough. This is concurrent with problems arising in the other federation across the Atlantic. (I realise that the EU is not a true federation but I am squinting as I type and things are a bit distorted).
    I would not be surprised to see Remainers going very, very quiet. Also, failures in the EU leaves the future of Scottish decisions a little doubtful.
    Perhaps this is the time for the UK to be reborn as a brand new federation with a written constitution. Issues in the north (as in the report today about Middlesbrough) could be freed from interruption from London. People could feel part of something again and we might hear the word ‘pride’ from time to time. Anything is better than just struggling on as we are.

  • “One must have a heart of stone to read the death of little Nell the EU without laughing.”

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