Why Hungary chose Shah Deniz: prospects and benefits of cooperation

Editor's note: Kohán Mátyás, Deputy Editor at Mandiner.hu, a Hungarian expert.

Hungary's recent acquisition of a 5% stake in the Shah Deniz gas field has shed new light on a well-established reality: Hungary has been paying due attention to the manifold possibilities presented by Azerbaijan. It is less known, however, that this modestly sized Central European country had already done so before it was cool.

Azerbaijan only popped up on the radar of most EU countries and the EU leadership in the wake of the Russian invasion of Ukraine in 2022, which caused a stir on gas markets. At that time, they suddenly became aware of the fact that a neighboring country they had been slandering with their usual hollow human rights discourse is actually a valuable potential partner in diversifying gas supplies. European delegations suddenly turned up at Azerbaijan's door looking for energy deals, while human rights lingo and stern condemnations of Azerbaijani operations in Karabakh disappeared in a moment. Azerbaijan's President Ilham Aliyev was reportedly amused at his European partners' sudden change of heart, quipping on one occasion that "I went to bed one night being a dictator. Then I woke up the next morning and I wasn't one anymore."

This is precisely the kind of duplicitous diplomatic about-face that Hungary prefers not to do. Hungary has, in the last decade, consequently recognized Azerbaijan as a key economic partner that harbors great potential in energy cooperation. Thus, it abstained from pointless meddling in Azerbaijan's domestic politics and regional relations, preferring instead to gain a foothold for Hungarian energy giant Mol in the ACG oil field , pave the way for Hungarian pharmaceutical and beverage companies in entering the Azerbaijani market, and develop long-term cooperation in gas supplies.



Once all necessary infrastructure was in place, Hungary started physically importing Azerbaijani gas in September 2023. This flies in the face of the criticism Hungary usually gets for supposedly not diversifying its gas imports from Russian sources. In fact, the country has spent the last decade improving the meager interconnectedness of its gas network, establishing gas transport links with all of its neighbors and opening up the physical possibility of non-Russian gas imports through the Omisalj LNG port in Croatia as well as pipelines that originate in Türkiye and Azerbaijan.

Azerbaijan plays a hugely important role in Hungary's gas diversification strategy: as Turkmenistan doesn't have a connection to the European gas network and all other new gas corridors (through Croatia and Poland) only allow access to LNG, Azerbaijan is currently the only partner that can offer non-Russian gas molecules and maintain the most important advantage of Russian supplies: the low transport costs afforded by pipeline transport. Azerbaijan lent significant help to Hungary in transforming Russian gas from a source we were dependent on into a source we may choose to buy or not to buy from, depending on what their offer is.

The stake in Shah Deniz elevates this already crucial partnership to a whole new level: Apart from contributing to the diversity and security of Hungary's gas supply, Azerbaijan now also contributes to keeping the Hungarian economy competitive. Being a co-owner of Shah Deniz protects Hungary against fluctuations on the European gas exchange, which jeopardize both the purchasing power of consumers and the plannability of companies across Europe. On the flipside, Hungarian energy companies bring technology, capital and expertise into Azerbaijan's energy sector, they provide access to a stable and well-paying market, and shape a climate in which Hungarian companies increasingly muster the courage to invest in the modernization of various sectors of the Azerbaijani economy. The Shah Deniz deal is symbolic of the Hungary-Azerbaijan partnership: it's not only win-win cooperation, but a cooperation that helps both countries win the 21st century.

(If you possess specialized knowledge and wish to contribute, please reach out to us at opinions@news.az).

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