Pure Oil. Dirty Arithmetic

The Diversification Dream

— So, is it done? Is it flowing?

— It’s flowing, — the Prime Minister said with satisfaction. And added, — új energiaút (new energy path).

On July 21, 2025, Viktor Orbán and Aleksandar Vučić smiled almost in sync for the cameras in Palić. Both were press release heroes. Both were fighters against energy dependence. Orbán declared that Hungary and Serbia were opening a new chapter in energy cooperation, and Vučić added: “We are protecting sovereignty and supply stability.”

It looked genuinely impressive: an EU member state and a candidate country announcing the construction of a new oil pipeline connecting their infrastructures, and all this against a backdrop of soaring energy prices.

When asked directly about the origin of the oil, journalists got no answer. Only diplomatic formulas were heard: “reliable routes,” “energy security,” “diversification.” Not a single mention of geography. No specifics. Just a confident tone, as if the starting point was no longer oil, but an abstraction.

The media, however, didn’t let us down. Here’s how the news was reported in various outlets:

• Slobodna Evropa: “Pipeline to be built to supply Russian oil bypassing European sanctions”

• EUNews: “Orbán and Vučić want to deliver Russian oil to Serbia via Hungary”

• Anadolu Agency: “Serbia and Hungary announce new pipeline to circumvent EU energy restrictions”

• S&P Global: “Russia ready to supply oil to Serbia via new Hungarian pipeline”

And in the headline from China’s Xinhua agency, the word “Russia” wasn’t mentioned at all—just “strategic connection.”

— Clever move, — my companion smirked. — When “diversification” sounds like “Plan B for sanctioned fuel.”

Supply Geography: The Paradox Route

While ribbons were being cut in Palić, European Commission maps groaned with cognitive dissonance.

What “energy independence” can we talk about if:

• In 2025, 80% of Serbia’s oil market is controlled by NIS, 56% of which is owned by Russia’s Gazprom (11.3% by the parent company and 44.85% by its subsidiary, Gazprom Neft) (Reuters);

• The main oil supply route to Serbia is still the old “Druzhba” pipeline, southern branch;

• And if “Druzhba” isn’t working (e.g., due to Ukraine’s position), a workaround via the port of Omišalj in Croatia was used with shadow tankers—but the oil was still the same Russian Urals.

“Druzhba” (the Druzhba pipeline) is the world’s largest oil pipeline:

• Built in the 1960s;

• Runs from Russia (Samara) through Belarus, Poland, Ukraine, Hungary, Slovakia, Czechia, and Germany;

• Has two main branches:

• Northern—through Poland to Germany;

• Southern—through Ukraine to Slovakia, Czechia, Hungary.

Now, they want to add another route to this scheme—from Russia, through Hungary, to Serbia.

— But Hungary doesn’t border Russia?

— It doesn’t. But the southern branch of the Druzhba pipeline runs through Ukraine.

— And if Ukraine shuts off the valve?

— Hungary and Slovakia vetoed the 18th sanctions package, demanding guarantees for continued oil transit through Ukraine via the southern Druzhba branch, even as sanctions against Russia tightened (Reuters). In practice, this means the EU won’t prevent these countries from receiving Russian oil as long as Ukraine itself continues the transit.

— Wait. On the one hand, the EU wants to end Russian oil imports and fights against workaround schemes. On the other—it allows “Druzhba” for “vulnerable countries” of Eastern Europe?

— Exactly! The EU is basically saying: we don’t mind if you keep taking Russian oil for now—but we’re against you expanding this opportunity, i.e., feeding Russian oil not only to yourselves (Hungary and Slovakia), but also to others through you (Serbia).

— So this pipeline isn’t a new “alternative,” just an internal hose? So Hungary can pump to Serbia?

— Precisely. In the documents, of course, it’s called “diversification.” But you and I know better.

“Diversification” in the EU’s Mirror

When Aleksandar Vučić and Viktor Orbán smile for the camera against the phrase “alternative oil route,” it looks like another success for regional cooperation.

— Diversification! — says one.

— Independence! — replies the other.

— Energy security! — echo the headlines.

But behind this promotional façade hides a key contradiction:

The EU is systematically moving towards a complete phase-out of Russian oil by 2027–2028. But the “Serbia–Hungary” project is betting on the opposite—that Russian oil will stick around for a long time.

This isn’t “diversification.” It’s a diversion from diversification.

Even an official EU Commission spokesperson called it “an institutional challenge to the EU sanctions regime.” Because while Brussels is fighting for energy detox, Budapest and Belgrade are building an oil shunt right into the sanctions body.

Orbán, Vučić, and the “Bypass Model”

The oil logic of the new project is simple:

1. Russia pumps Urals oil via “Druzhba” through Ukraine to Hungary and Slovakia. Ukraine, for its part, hasn’t committed to maintaining oil transit, but for the EU to overcome these countries’ vetoes, it reportedly diplomatically insisted that a sudden cutoff without warning is unacceptable.

2. Hungary—via the new pipeline—to Serbia.

3. Serbia refines and sells fuel under its own brand.

4. Formally—the supply isn’t from Russia, but from “friendly Hungary.”

5. In reality—it’s the same Urals, just without the “from Russia” label.

This is the bypass model:

— The rules are formally followed;

— In reality, dependence on Russia remains.

Slobodna Evropa:

“Officially, the project is presented as a step toward energy resilience. But in practice, it fits into Hungary’s strategy to maintain access to Russian resources.”

Symbolic Date: The 18th Sanctions Package

The irony—or perhaps brazen defiance—is that the project was solemnly announced almost simultaneously with the adoption of a new EU sanctions package on July 18, 2025, as the author wrote in “Sanctions at the Limits of Faith”.

This package includes:

• A price cap of $47.6/barrel;

• Sanctions against the “shadow fleet”;

• Bans on tanker services and insurance;

• Freezing of Nord Stream and its insurance assets.

What the EU Says

Ursula von der Leyen, President of the European Commission, at a June 10, 2025 press conference introducing the 18th sanctions package, said:

“Russia’s goal is not peace at all. Its goal is to impose the law of force. … The only language Russia understands is the language of force.” (Reuters)

And on July 18, after the package was adopted, she commented:

“We are striking at the very heart of the Russian war machine… The blow falls on the banking sector, energy, and the military-industrial complex. A new dynamic oil price cap has been introduced. The pressure remains. And will remain until Putin stops this war.” (The Guardian)

Kaja Kallas, the EU’s High Representative for Foreign Affairs, after the July 18 vote, said:

“The EU has just approved one of the toughest sanctions packages against Russia ever. Every sanction weakens Russia’s ability to wage war. The message is clear: Europe will not back down from supporting Ukraine.” (Reuters)

EUNews also writes:

“The ‘Serbia–Hungary Pipeline’ project is seen as a challenge to the EU sanctions regime. Especially if it goes online before the route through Ukraine is shut down.” (Reuters)

Conclusion of this section:

This pipeline isn’t just an engineering structure. It’s a manifesto for an alternative energy path that doesn’t match Brussels’ course.

The EU says: “We need less Russia.”

Orbán and Vučić do: “We need Russia, but more conveniently.”

This isn’t a convergence of interests. It’s a fundamental divergence of goals.

Cost Price and Hypocrisy

— Okay, so they made a deal. But will there be any benefit?

— Of course. The cost price of gasoline will go down.

— And the pump price?

— Ahaha. Well… that’s a whole different story.

To understand what’s happening with fuel prices in the region, you have to start with the main thing: Urals is one of the cheapest oils on the global market. As of July 2025, its price is about $55 per barrel, or roughly €0.0054 per liter of crude.

What is the “cost price” of a liter of fuel?

Cost price is all the expenses the fuel supplier incurs before it reaches the gas station. These are:

1. Raw material (oil, purchase price—Urals, Brent, etc.)

2. Refining (oil refinery)

3. Transportation (pipeline, tanker, railcar, internal logistics)

4. Storage + logistics

5. Pre-retail taxes (e.g., refining or import tax, if any)

6. Gas station markup (includes distribution, infrastructure, operational costs)

IMPORTANT: Excise and VAT are taxes paid by the end consumer. They are included in the retail price, but not in the cost price of production and delivery.

Now—a bit of math.

Estimated cost price of a liter of gasoline from Russian Urals oil (in Serbia) based on DG Energy, Weekly Oil Bulletin, World Energy Prices – IEA, as well as Serbia’s Energy Commission (AERS), Hungary’s MEKH, Greece’s RAE, rough estimates from MOL Group, OMV, Gazprom Neft, NIS, Hellenic Petroleum:

Comparative table of cost prices per liter of gasoline in five countries

But that’s not what you pay at the pump. Daily and median retail prices as of July 2025 (Fuelo.eu, Mappr.co, Planet‑Trucks (diesel with VAT), for comparison Cargopedia (14 July 2025): gasoline and diesel for all countries, Energy.eu):

— Wait. So, in Serbia, diesel is more expensive than the average price in all EU countries, even though the oil there is cheap in terms of cost price and diversified, while here it’s Russian oil via pipeline?

Yes, exactly. Serbia is one of the most expensive countries for retail fuel, despite:

• Cheap raw material;

• Cheap logistics (by pipeline, not by sea);

• Low cost price (half the retail price).

Why is that? Internal “add-ons”

In theory, cheap Russian oil should have made gasoline in Serbia and Hungary the most affordable in the region.

But in practice, the opposite happens.

Reasons for inflated retail in Serbia:

1. NIS monopoly

The company is 56% owned by Russia’s Gazprom. It controls up to 80% of the domestic fuel market. No competition—so no incentive to lower prices.

2. Taxes and fees

In addition to 20% VAT, excise duties, environmental fees, and hidden fiscal mechanisms are added to each liter of fuel. Altogether, this often accounts for 50–60% of the retail price.

3. “Insurance” policy

The government deliberately keeps prices high to accumulate resources and compensate for instability in other markets. Essentially—a tax on stability.

4. Small market and limited infrastructure

Serbia can’t scale supply and logistics like Greece or Czechia. This affects costs: less scale—higher unit costs.

Contrast: Czechia and Spain

Now—two counterexamples:

Czechia

By 2025, it had completely abandoned Russian oil and switched to imports via the TAL project—a pipeline from Italy through Austria and Germany (AP).

• Oil is expensive, not Russian.

• Logistics are long and continental.

• Excise taxes are above the European average.

But gasoline and diesel are cheaper than in Serbia and Hungary.

Spain

• Imports oil from the USA, Nigeria, Mexico, and Brazil.

• Source: OEC

• Excise taxes are high; about 60–65% of the price structure is taxes.

• Port logistics + domestic refining.

But diesel is cheaper than in Hungary and Serbia, and gasoline is cheaper than in Serbia and almost the same as in Hungary.

The Oil Price Is Not the Gasoline Price

All the numbers given above aren’t just accounting. They expose the illusion underlying the pipeline’s justification: If we get cheap oil, gasoline will be cheaper.

No, it won’t.

Even if Russian oil comes through the pipeline for next to nothing (the hypothetical cost price of Urals could be below €0.30/l), it barely affects the final price of €1.50/l.

Why?

The cost of the raw material itself is only about 5–10% of the price. If oil hypothetically becomes 20% cheaper, gasoline might get… 3–4 cents cheaper. That’s it.

Serbia: Win on Raw Material—Lose on Tax

The reality of the Serbian fuel market is absurd:

• Cost price is among the lowest in Europe (cheap Urals, short logistics).

• Retail price is among the highest in the region.

Reasons:

1. Tax burden (double taxation: both VAT and excise above average).

2. NIS dominance (56% owned by Gazprom Neft).

3. Lack of competition in the distribution market.

4. State regulation aimed not at lowering prices, but at filling the budget.

Bottom line: even if oil were free—retail would hardly change.

Hungary: Slightly Cheaper, but the Same Trick

Hungary, though it claims to control prices, is also in a unique position:

• Oil is Russian, via “Druzhba.”

• Refineries are partially modernized, geared toward Urals.

• Orbán’s policy—energy isolation from Brussels.

Orbán’s trick: We’re kind of in the EU, but we buy cheap from Russia. And while the EU argues, we build an alternative route—for ourselves and our neighbors.

But gasoline prices in Hungary are still higher than in many EU neighbors.

“Diversification” in Reverse

When Orbán and Vučić talk about diversification, they mean… switching from one way of getting Russian oil to another.

It’s like saying:

— I no longer drink beer from the bottle—I pour it into a glass.

— So now I’m independent from beer.

Yes, the pipeline really does add a new route.

But not a new supplier. Not a new market. Not a new source.

This is not diversification. It’s deepening dependence—under the guise of energy self-sufficiency.

Final Conclusion

The “Serbia–Hungary” pipeline project isn’t an energy initiative, but a political-economic trick.

It doesn’t make gasoline cheaper,

doesn’t bring diversification closer,

doesn’t reduce dependence on Russia.

But it perfectly illustrates how in energy, everything can be the other way around:

• Cheap raw material doesn’t mean cheap retail.

• A new pipeline doesn’t mean new independence.

• Being in the EU doesn’t mean unity in strategic goals.

And the word “diversification” doesn’t have to mean what the dictionary says.