30. září, 2025 Júlia Lilian Szabó, Péter Bori
The most immediate economic consequence of Russia’s full-scale invasion of Ukraine was the disruption of European energy markets. With pipe flows threatened and Russia restricting supplies to several EU countries, energy prices skyrocketed, raising production, transport and heating costs. Hungary, among those most dependent on Russian energy in the EU (including gas, oil and nuclear fuel supplies), found itself in a delicate situation, extenuated by the potential political costs implied by raised energy prices for Viktor Orbán, who built his regime in part on the cornerstone of the mantra of utility price reduction (rezsicsökkentés) for households.
Since the war, the EU has doubled down on diversifying energy supply sources and phasing out dependence on Russian fuels. In line with the REPowerEU Plan, the EU’s reliance on Russian energy has significantly declined. Hungary, however, has been reluctant to introduce meaningful measures to ease the country’s dependence on Russian energy. It blocked EU packages curbing fuel imports from Russia, arguing that the country’s energy infrastructure necessitates the continuation of Russian oil and gas imports.
As a landlocked country, Hungary was eventually exempted from the EU’s near-ban, and through its state-owned energy group MVM, began to import significantly more gas from Russia than the 4.5 billion m³/year secured through its existing long-term contract with Gazprom. Reports estimate an additional 2.1 billion m³/year – way more than would be required to keep the country’s vast storage facilities at adequate capacity. By every indication, the gas imported from Russia above the amount set out in the 2021 long-term contract is cheaper, and likely served trading purposes, allowing MVM and other companies involved in the gas business to pocket a lot of profit, earning the label of war profiteers from critics.
To justify additional purchases, Péter Szijjártó, Hungary’s Foreign Minister in charge of sealing energy deals has cited ‚hard facts of physics‘ (i.e. where there is a pipe, gas and oil can flow, where there is not, they cannot) and any calls from the EU to decrease energy dependence on Russia are woven into the government’s anti-Brussels narrative, claiming that Brussels intends to destroy Hungary’s utility price reduction scheme. As analysts point out, however, the cost reduction programme for households is a political product, and while phasing out Russian dependence would raise costs, the surge would be nowhere near as dramatic as the government suggests. If the government cannot find the means to finance it, it raises uncomfortable questions for Orbán about the state of the Hungarian economy.
The war also triggered one of the worst inflationary periods in Hungary. Inflation surged after Russia’s invasion, peaking at around 25% in the first half, and food inflation hit 48% in late 2022. While high energy costs rippled into general inflation across Europe and global food prices increased, Hungary’s inflation surplus was massive compared with other Visegrád countries, with the highest food inflation in the EU for over a year.
Domestic policy choices contributed to the record-breaking spike. In the run-up to the 2022 election, the government made large fiscal transfers to big segments of the population, mostly through tax rebates and introduced caps on the price of basic food items and fuel, and kept household energy prices low. These policies might have left the electorate feeling like they were better off, but the decision to fuel demand increased Hungary’s inflationary momentum: the caps masked inflation initially, but once lifted, inflation flew through the roof.
The Hungarian National Bank (MNB) raised interest rates to cool demand, but government caps on mortgage and household loans shielded many from the rising interest rates and thus blunted the effect of MNB’s decision. The forint weakened due, in part, to low investor confidence as a result of the government’s abrupt policy changes and concerns over Hungary’s rule of law disputes, raising import costs and further fuelling inflation.
Another sector in which the war in Ukraine has had a significant impact is agriculture. With maritime route blockages, Ukrainian grain exports shifted overland. As its direct neighbour, Hungary was key for these new grain flows, both as a receiving market and a transition corridor. However, the influx of cheap Ukrainian grain depressed local prices, leading to Hungarian farmers struggling with declining incomes. Both the real and perceived fears of continued grain imports led to several farmers’ protests along the Ukrainian border and in Budapest. In response, Hungary joined Poland and Slovakia in banning Ukrainian grain.
At the same time, farm input costs skyrocketed as a result of the war. Fertiliser prices were 2-3.5 times higher in early 2022 than in the year prior, and fuel and other agro-chemical costs also increased significantly, raising overall production costs, driving extreme food inflation and price volatility. The Hungarian government introduced price caps on certain food items and fuels. However, the effectiveness of these interventions failed to significantly alleviate the pressures on the Hungarian food market, and according to some economists, these price controls were easily outmanoeuvred by retailers through increasing the cost of other products.
The war also exacerbated pre-existing agricultural labour shortages. While the beginning of the war caused some expectations that the influx of Ukrainian refugees could alleviate this labour crisis – even prompting the Ministry of Agriculture to advertise seasonal work to people fleeing the war -, in reality, the war’s refugee influx did little to fill the gap. Many Ukrainian refugees sought work in less arduous and better-paid sectors, while Ukrainian men were legally prevented from leaving Ukraine to work abroad.
Overall, the war in Ukraine had both very real economic consequences, as well as prompting significant policy responses both at the EU and national levels. Hungary joined its neighbours in urging EU action, resulting in aid packages of more than 150 million euros to assist farmers in affected countries, as well as implementing a general ban on Ukrainian agricultural products. While these expired in 2023 and have not been renewed by the EU, Hungary continued to take unilateral steps by banning at least 24 Ukrainian food products.
Viktor Orbán’s ambiguous positioning on Russia and Ukraine also had other (in)direct economic consequences. As highlighted in the first article of the series, after the outbreak of the war, Orbán continued to play both the role of EU-bad boy, complementing it with an increasingly amicable relationship with Putin. Hungary criticised implementing EU sanctions on Russia, arguing for the economic backlash of doing so and has used this positioning to secure certain temporary exemptions, such as that from the EU’s ban on Russian crude oil imports.
However, Orbán’s confrontational stance did not help with Hungary’s already-strained relationship with Brussels, partly fuelled by concerns over basic rights violations and rule of law deficiencies. As a result, the European Commission withheld billions of euros in Cohesion and Recovery funds in 2023. Although some 10.2 billion has been released since, following partial judicial reforms, more than 18 billion remained frozen. This has significantly restricted Hungary’s ability to pursue public investment and infrastructure projects, has weakened investor confidence and put a severe strain on the national budget. The government tried to alleviate some of these pressures through windfall taxes, borrowing, tighter fiscal controls and reclaiming smaller funding tranches through EU budget loopholes – alarming other Member States and further widening the gap between the European Union and Hungary.
As always, the economy is inseparable from politics, and in Hungary, the war has made the “invisible hand” of the market quite visible. From government contracts with Russian energy suppliers fuelling war profiteering, to using farmers’ grievances for pursuing anti-Brussels narratives, the Hungarian economy has largely been mismanaged since the outbreak of the neighbouring war. Political discontent is rising, reflected in the growing support for rival candidate Péter Magyar. At the same time, Hungary drifts further from its European allies – also raising questions for the future of the V4, the focus of our final article.
The article was written in the framework of the project Reflections of the War in Ukraine in Visegrad Countries. The project is co-financed by the governments of Czechia, Hungary, Poland and Slovakia through Visegrad Grants from the International Visegrad Fund. The mission of the fund is to advance ideas for sustainable regional cooperation in Central Europe.
ROČNÍK XIV. – 3. ČÍSLO, ZÁŘÍ 2025