How Hungary’s new leader is turning into a bigger friend to Putin than anyone thought

Is this the best of times for the Kremlin, or the worst of times? With the world distracted by Israel and the US’s war on Iran and Lebanon, Vladimir Putin has been enjoying a cash windfall. Higher oil prices are set to refill the Kremlin’s war-depleted coffers, Washington has granted sanctions relief to Russian crude oil tankers en route to India and there has been a boost in demand for the country’s liquefied natural gas (LNG) as Europe scrambles to replace supplies trapped behind the Strait of Hormuz.

At the same time, the Kremlin just lost a major strategic diplomatic asset in the form of Hungary’s robustly anti-Ukrainian prime minister Viktor Orban, voted out of office in a landslide defeat earlier this week. Ukrainian long-range drones have become proficient at striking Russian oil export terminals on the Baltic Sea, thousands of kilometres from Ukraine’s borders. And the long-term economic pressure of war is starting to shake the fundamentals of the Russian economy. Even worse for Putin, prominent members of his country’s elite are beginning to publicly warn of a coming economic collapse.

It’s in Hungary that the close connection between European Ukraine policy and Russian energy supplies can be seen most starkly. The fall of Orban was undoubtedly a defeat for Putin, Brussels openly celebrated the end of Europe’s most obstructionist leader, Kyiv was relieved, and Western commentators rushed to declare the death of “illiberal democracy” in Europe.

But this week it’s become rapidly apparent that the real picture is more complicated. Peter Magyar, Orban’s one-time close associate and now successor, declared that he was ready to lift Hungary’s veto on a proposed €90bn (£78bn) EU loan that is Ukraine’s economic lifeline. But Magyar’s price was that Russian oil supplies to Hungary should be resumed via the Druzhba pipeline, a Soviet-era pipe that runs from Russia through Ukraine and into Europe.

Druzhba was shut down after a Russian drone strike on a pumping station near Lviv in January, causing a major diplomatic row as Hungary and Slovakia accused Ukraine of refusing to repair the pipeline for political reasons. Brussels, desperate to get the €90bn loan to Kyiv approved, found itself getting dragged into the argument and ended up pledging money and technical help to reopen the pipeline – even though this directly contradicts the EU’s pledge to wean the continent off Russian oil before the end of 2027.

The fallen Orban once described Hungary in a phone call to Putin as a “mouse” to Russia’s “lion”. But Magyar, it seems, is apparently just as ready as his pro-Russian predecessor to insist on preserving cheap oil and gas flows from the Kremlin. Moreover, Magyar has pledged to hold a referendum on Ukraine’s eventual accession to the EU – which could amount to a pledge to veto it in reality.

At the same time, unnoticed by most, Spain has also quietly increased its orders for Russian LNG as supplies from the Gulf dry up. Spanish imports nearly doubled in March, hitting a historic record of almost 10,000 GWh of Russian gas in one month. That’s even higher than during the 2023 energy price crisis peak. “Should Europe accelerate the exit from Russian energy?” asks Kyrylo Shevchenko, former head of Ukraine’s Central Bank. “Or is this just pragmatic diversification amid global instability?”

It’s a supreme irony, of course, that Europe is funding Ukraine’s defence against Russian aggression while at the same time funding Putin’s war machine through oil and gas payments. Hungary, for instance, has signed long-term gas contracts with Kremlin-owned Gazprom that run until 2036 on so-called “take-or-pay” terms worth roughly $2.5bn (£1.85bn) annually. That contract, signed under Swiss law, cannot be easily undone – and Magyar won in part thanks to a pledge to protect Hungarians from higher energy bills. The Hungarian Paks-2 nuclear plant, being built by the Russian state-owned Rosatom at a cost of €12.5bn and mostly financed by Moscow, will be built whether Budapest or Brussels likes it or not.

Yet the Russian economy is still in serious trouble, and experts are doubtful that a temporary windfall from the Iran war will be enough to save the Kremlin’s finances. Robert Nigmatulin, a prominent academician of the Russian Academy of Sciences, did not mince words at the Moscow Economic Forum this week. Publicly laying out the dire state of the economy, he said Russia now has “the lowest per capita incomes in Europe… Even the poorest regions of China now have higher incomes than Russia’s poorest regions”.

Over the last 11 years, Russia’s average annual GDP growth has been around 1.5 per cent, while consumer prices rose 77 per cent overall. The prominent economist was careful not to criticise Putin directly – but at the same time, he made it crystal clear that 40 per cent of the Russian budget currently being poured into the war in Ukraine is crippling the country for no useful end.

The Soviet Union was poor, Nigmatulin said, but at least that poverty came with massive achievements in space, nuclear, and industry: “Now we’ve lost everything, and we’re still the poorest.” And it’s not just academics who are going public. Russian Central Bank chair Elvira Nabiullina admitted this week that “for the first time in modern history, our economy is colliding with labour shortages, restrictions”.

The most important question is whether the economic squeeze will force Putin to end his bloody war on Ukraine. Ukraine’s defence intelligence directorate, known by its acronym GUR, doesn’t think so. According to deputy head Vadym Skibitsky, Russia is readying a fresh ground assault in southeastern Ukraine, dipping into its strategic reserve to add 20,000 fresh troops to its force inside the country.

With some 680,000 soldiers now on the ground, Skibitsky told the Financial Times this week, Russia is “aiming to capture the entire Donbas region by September”. He added that Ukraine is running out of air defence system ammunition, in part because of Patriot batteries being redeployed to the Gulf, and warned that Russia has doubled its production of mobile short-range Iskander ballistic missiles that have proved devastatingly effective against Ukraine’s electricity and heating infrastructure.

Ukraine’s response has been to hit Russia’s oil and gas export facilities in Ust-Luga near St Petersburg with almost daily strikes. And while those have been effective, they clearly haven’t succeeded in destroying the Kremlin’s capacity to keep exporting its energy to an oil-hungry world. And as long as international customers such as India, China and indeed Europe remain, Putin’s war machine will have the cash to plough onwards.