Subtle messaging that could be followed up with a tougher one - 5 points on US sanction designations

2023-04-13
  1. Both Hungarian propaganda outlets critical of the United States and domestic voices critical of the Hungarian government, which perhaps expected tougher US actions, are looking at yesterday's announcement by the US Embassy of sanctions against the Russian-owned International Investment Bank (IIB) through their domestic political lenses. In fact, for the US administration, Hungary and the Orbán government are of secondary importance, the focus is on Russian influence in Hungary and the protection of common interests within the alliance structure. David Pressman made it clear that the IIB is not an economic-financial institution but a security risk. "The United States has urged Hungary – and other NATO member countries engaged with this Russia-controlled entity – to take seriously the threat posed by Russia and other countries that do not share Western values, especially a commitment to democracy and rule of law." the ambassador said.
  1. As outlined in our previous analysis (pdf) of the IIB, Russian President Vladimir Putin revived the former Comecon bank in 2012, which moved its international headquarters to Budapest in 2019, serving Russian economic and national security interests. The institution can safely be considered economically insignificant, with €1.1 billion in registered capital. Its Russian intelligence background, however, has opened up space for operations serving Russian interests in the European Union. This is why it is problematic that, while the Czech Republic, Slovakia, Romania, and Bulgaria all announced their withdrawal from the IIB immediately after the Russian aggression against Ukraine, in order to enforce common Euro-Atlantic sanctions and security policy, the Hungarian government decided to stay. In fact, Péter Szijjártó had earlier floated the prospect of further increasing Hungary's stake in the IIB (which would have helped the spy bank avoid Western sanctions by reducing Russian ownership), while Economic Development Minister Márton Nagy lobbied for the opening of the institution's frozen European accounts.
  1. In comparison, the US measures announced on Wednesday can be seen as a kind of cautionary warning: they are only directed against the IIB, they do not directly affect the Orbán government, and thus have no direct domestic political impact. A subtle hint that if Hungary enjoys NATO protection in a war situation, it is not advisable to jeopardize the alliance system that guarantees protection.
  1. It is questionable, however, whether the Orbán government will heed the warning beyond its announced withdrawal from the IIB and whether it will be able to change its foreign policy, as initial reactions do not suggest that it will. The Hungarian government is now too deeply subordinated to Russian interests, and its rhetoric on the Russian-Ukrainian war is based on Kremlin propaganda both at home and abroad.
  1. A loss of confidence in Hungary in the alliance system could be considered a severe security burden, especially if it is voiced by such a central player in the NATO structure as the United States. For years, there have been reports that European and American national security services are distrustful of their Hungarian partners, more cautious in sharing information, and fearful of the influence.