RUSSIA-HUNGARY: WARMING TREND

C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 001653

SIPDIS

SIPDIS

E.O. 12958: DECL: 04/12/2017
TAGS: PREL ECON ENRG HU RS
SUBJECT: RUSSIA-HUNGARY: WARMING TREND

REF: BUDAPEST 354

Classified By: Pol/Min Counselor Alice G. Wells. Reasons: 1.4 (b/d).


1. (C) Summary: Hungarian Prime Minister Ferenc Gyurcsany's
late-March visit to Moscow continued the warming trend in
relations between Russia and Hungary. Strong economic
interests have been sufficient to overcome the historical
legacy that dominates Russia's relations with some of its
former satellites. Nevertheless, Russia did not get a much
desired endorsement from Gyurcsany of Gazprom's proposal to
expand the Blue Stream gas pipeline to Hungary. The two
sides discussed diversifying trade, as well as a Russian
proposal to construct a massive gas storage complex in
Hungary, making it a hub for Moscow's expanding energy ties
in Europe. An effort by Hungarian activists to remove a
Soviet-era monument is unlikely to undercut improvements in
the relationship, given overriding Russian interests in
reestablishing influence in a former satellite and current EU
and NATO member. End Summary.

BEYOND 1956
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2. (C) Hungarian PM Gyurcsany's March 23 visit to Moscow and
meetings with President Putin, PM Fradkov and Gazprom Chief
Aleksey Miller was billed by both sides as a working visit,
with less of the ceremony that accompanied previous trips and
more business-like talks. References to the 1956 Hungarian
uprising and subsequent Soviet crackdown did not grab
headlines, as they did during Putin's 2006 visit to Budapest.
Economic and trade issues dominated the discussion.
Aleksandr Olesov, chief of the MFA's Hungarian Affairs
Section, told us that Moscow had seen "a marked improvement"
in bilateral ties since Socialist PM Gyurcsany came to power.
In his view, there were a lot fewer anti-Russian statements
in the Hungarian press. "Both sides have gone beyond the
difficult issues of the past and are now looking forward."


3. (C) The improved relationship is due in part to Putin's
2006 declaration in Budapest that Russians "feel some sort of
moral responsibility" for the Soviet intervention, said
Szabolcs Nagy, First Secretary at the Hungarian Embassy in
Moscow. That statement was designed to overcome an emotional
issue in the relationship, and make way for larger economic
cooperation, Olesov told us. Another reason for the
blossoming relationship is the fact that Hungary relies on
Russia for about 80 percent of its gas needs, Nagy
acknowledged.

GAZPROM LEFT WAITING
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4. (C) Despite the improved relationship, Russia did not get
a public endorsement from Gyurcsany of Gazprom's ambitious
proposal to extend the Blue Stream gas pipeline through
Turkey, Bulgaria, Serbia, Croatia and western Hungary, Olesov
said. The Gazprom proposal had been criticized by many EU
members as a project designed to undermine the EU-proposed
Nabucco pipeline, which would carry gas from Turkey to
Austria. Gyurcsany had previously made public statements in
favor of Blue Stream, though an official Hungarian position
has not been announced. In Moscow, Gyurcsany said Hungary
would wait for more details on the two projects. Putin told
Gyurcsany that Hungary should consider both projects and
select the one best suited to Hungary's needs, Nagy told us.


5. (C) During the meetings with both Putin and Fradkov,
Gyurcsany raised Hungary's desire to balance trade between
the two countries, Olesov said. Russia exports about USD 6
billion to Hungary annually -- mostly oil and gas. Hungary
exports about USD 2 billion to Russia. The two also
discussed ways for Russia to diversify its exports to Hungary
beyond hydrocarbons. Putin raised the GOR's opposition to
U.S. Missile Defense assets being deployed in Poland and the
Czech republic, adding that the Russian side had been
informed of U.S. plans but never consulted about them, Nagy
said.

A LOT OF GAS
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6. (C) Gyurcsany also met with Gazprom Chief Miller to
discuss not only the Blue Stream pipeline, but also a Russian
proposal to build a massive gas storage facility, with the
capacity for 10 billion cubic meters of gas, Nagy said. The
Russians promise to turn Hungary into a major European gas
hub, Nagy said. He added that construction of the storage
facility would be contingent on whether Hungary agreed to the
Blue Stream project.

NO MONUMENTAL PROBLEMS

MOSCOW 00001653 002 OF 002


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7. (C) While strong economic ties (and Putin's shrewd
acknowledgment in Budapest of past Soviet sins) have acted as
a salve in the bilateral relationship, this doesn't mean that
history can be entirely ignored. One possible irritant are
efforts by some Hungarians to force a referendum on the
removal of a Red Army monument in central Budapest. An
Estonian initiative to remove a prominent World War II
monument in central Tallinn has sparked angry Russian
rhetoric and threats of a deterioration in the relationship.
While any effort to remove the monument in Budapest would
provoke an outcry in Moscow, political commentators are
doubtful that Russia's overall relationship with Hungary
would suffer, given its strong economic underpinnings.

COMMENT
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8. (C) The Russians have made a conscious effort to overcome
historical differences with Hungary and concentrate on
building a forward looking relationship, albeit one based
largely on Budapest's reliance on Russian oil and gas.
Moscow sees Hungary's dependence on Russia as an opportunity
to influence a member of NATO and the EU. Russia's desire
for gas storage facilities in Hungary is part of its efforts
to reduce the leverage that Belarus and Ukraine have on gas
transiting to Europe. Russia views the Blue Stream extension
as key to preventing Caspian and Central Asian gas from
reaching Europe via non-Russian controlled routes and will
work hard to ensure that Hungary is offered the sort of
economic incentives that will encourage Budapest to
accommodate Moscow's interests.
BURNS