Hungary’s Sanctions Evasion Nexus: Economic Ties with Kazakhstan and Uzbekistan as a Backdoor for Russia

Hungary’s economic engagement with Kazakhstan and Uzbekistan appears smooth on the surface, but it plays a deeper role in enabling Russia to circumvent Western sanctions. Both Central Asian nations formally condemned the invasion of Ukraine at the United Nations but refrained from joining the sanctions regime. Instead, they have adopted a strategic balancing act between the West and Moscow.

Trade statistics reveal an undeniable trend: Kazakhstan and Uzbekistan have drastically increased exports to Russia, particularly in goods restricted under Western export controls. The European Union has openly acknowledged that Central Asia is becoming an increasingly important intermediary in sanctions evasion, facilitating the transfer of dual-use goods and sensitive electronics into Russia. Since February 2022, imports of electronics and dual-use components from Kazakhstan and Uzbekistan to Russia have surged exponentially.

For instance, computer imports to Kazakhstan in 2022 skyrocketed sevenfold to $1.2 billion (with $310 million sourced from the EU). Kazakhstan’s domestic demand clearly does not account for such a spike. What does explain it is that Kazakhstan’s computer exports to Russia soared to $300 million that same year—an increase of 2,300% compared to 2021. A similar trend is evident in microchip trade: Kazakhstan’s microchip imports doubled from $35 million in 2021 to over $75 million in 2022, while exports of microchips to Russia jumped 7,300% (from $245,000 to $18 million).

These are classic re-export schemes. Small intermediary firms purchase Western electronics in places like Hungary or Germany, ship them to Kazakhstan as if for domestic use, then repackage and reroute them into Russia. In an attempt to hide these trends, Kazakhstan and Kyrgyzstan have begun to restrict detailed customs data publication. Some companies—Kazstanex in Kazakhstan and Uzstanex in Uzbekistan—were caught purchasing precision machinery in Europe and channeling it to Russian buyers via Chinese intermediaries. This entire operation was coordinated by Russian businessmen now under U.S. sanctions.

By the end of 2024, the U.S. Treasury blacklisted four Central Asian companies (one each from Kazakhstan and Kyrgyzstan, and two from Uzbekistan) for supplying dual-use machinery to the Russian military-industrial complex. The geography of the region enables these schemes: as members of the Eurasian Economic Union, Kazakhstan and Kyrgyzstan share a customs-free border with Russia. Once goods enter their territories, they move into Russia without further checks. Even Kazakh officials admit the difficulty of controlling this flow—Kazakhstan’s foreign minister acknowledged the problem in early 2023, citing the open borders with Russia.

Uzbekistan, though not in the EAEU, borders Kazakhstan and thus forms part of the same transit corridor. It imposes no export controls on potentially sensitive goods destined for Russia, and customs authorities are not required to track the final destination. This creates ideal conditions for obscuring the origin of goods: simply reroute them through Kazakh or Uzbek logistics hubs and reissue export documentation.

Hungarian companies and banks have also become intermediaries in this shadow trade. OTP Bank’s presence in Uzbekistan provides Russian capital a convenient financial channel, allowing transactions to flow through a European bank’s local branch and formally evade EU controls. OTP Bank still operates in Russia, where its subsidiary earned record profits in 2023—about $372 million, a 40% increase—thanks to the exit of Western competitors. Part of this revenue allegedly financed Russia’s military-industrial sector. OTP Bank has effectively become a sanctions loophole, replacing other European banks that exited Russia. This has led to a diplomatic scandal: Ukraine designated OTP as a “sponsor of war,” and Hungary retaliated by blocking an EU military aid package for Kyiv. Under pressure, Kyiv temporarily removed OTP from the blacklist, linking its final removal to a complete Russian market exit. As of 2025, however, OTP remains active in Russia, despite reputational risks.

At the political level, Budapest is undermining EU sanctions unity. Hungary is the only EU member state systematically threatening to veto sanctions packages. In January 2025, the Hungarian government threatened to block the extension of all EU economic sanctions against Russia unless several Russian oligarchs were removed from the list. The “favored” individuals included Kremlin-linked billionaires like Alisher Usmanov, Mikhail Fridman, and Pyotr Aven. Previously, Hungary had successfully negotiated the removal of less significant figures from the lists, using its veto as leverage. This time, pro-Russian Slovakia joined Hungary, further complicating Brussels’ decision-making. Such moves not only weaken pressure on Moscow but also create opportunities for sanctioned individuals to enter the EU via compliant member states, nullifying the sanctions’ impact.

Hungarian firms are also involved in concrete sanctions evasion schemes. The oil and gas company MOL has profited significantly from Hungary’s exemption from the EU’s embargo on Russian pipeline oil. Budapest secured a deal to continue importing Russian crude via the Druzhba pipeline, with Moscow selling it at a heavy discount. Hungarian refineries reaped windfall profits, and some of the refined fuel was exported to other EU countries as “European” fuel. Brussels eventually shut down this loophole by prohibiting the re-export of oil products derived from Russian crude, but the scheme had already worked for nearly a year.

A similar tactic is being used in Uzbekistan. A special economic zone (SEZ) in Tashkent was ostensibly created for Hungarian and European investors, but such zones are easily abused for repackaging or relabeling goods. The lack of transparency makes it difficult to track component origins. Western microchips or electronic devices can be assembled into final products—like drones or advanced electronics—and exported to Russia under Uzbek certification. Hungarian technologies and specialists, transferred to partners in Central Asia, can ultimately reach Russian hands. Hungary’s involvement in Uzbekistan’s Rosatom-led nuclear project is one such example. Another is the MOL–KazMunayGas agreement: under the guise of Caspian oil cooperation, Hungary gains partial replacements for Russian oil, while Rosneft can use Kazakhstan as an alternative export route.

Such flag-switching of oil cargoes has occurred before. In 2022, Moscow allowed 300,000 tons of Kazakh crude to flow through the Druzhba pipeline into Slovakia and the Czech Republic, effectively blending Kazakh and Russian oil to obscure the origin. In short, Budapest is helping Moscow hide in the shadows of collective trade.

Orban’s Real Commodity: EU Loyalty Traded for Kremlin Privileges

Prime Minister Viktor Orban is trading Hungary’s loyalty within the EU for Kremlin-backed financial benefits, using this leverage to consolidate domestic power and enrich loyal business groups. In practice, Moscow and Budapest function like a criminal enterprise, generating opaque multibillion-dollar profits. Consequently, Hungary is increasingly referred to as a “Russian spy base”—a direct threat to the EU that Orban and the Kremlin aim to destabilize from within.

Hungary’s double game has already raised serious concerns in Europe. NATO reports describe Hungary as Europe’s “soft underbelly,” vulnerable to Russian infiltration. Moscow may use Budapest to launder dual-use or military-related goods, thereby undermining the Western sanctions regime. Essentially, Orban is constructing a hub inside the EU where Kremlin capital, Chinese investment, and Western taxpayer money intersect. If any of these flows are cut off, Hungary’s economy could go into shock. That’s why Budapest clings to Russian oil and gas contracts and Eastern markets—it is monetizing its role as a Trojan horse inside the West.

Any weakening of the sanctions regime benefits Russia.

For the EU, it sets a dangerous precedent, threatening unity and fueling distrust. Globally, it signals to authoritarian regimes that sanctions are survivable if you have friends inside the opposing bloc.

In response, the EU is tightening enforcement. The 12th sanctions package included for the first time companies from Kazakhstan and Uzbekistan aiding Russia’s military industry. Brussels also launched a “punish the intermediaries” mechanism—authorizing export bans to third countries found to be redirecting goods to Russia. Meanwhile, Washington has made its stance clear. “The U.S. and its allies will continue to take decisive action globally to stop the flow of critical technologies that Russia needs for its illegal and immoral war against Ukraine,” said U.S. Deputy Treasury Secretary Wally Adeyemo.

Hungary now faces the threat of secondary sanctions unless it ends its dual game. The Orban government is under growing criticism both in Europe and across the Atlantic. Already at risk of losing billions in EU funds over rule-of-law concerns, Budapest could also face financial isolation over its pro-Russian maneuvers.

Hungary prides itself on being “different.” But Orban is walking a dangerous line: between the lure of easy money from autocratic alliances and the risk of losing Western trust—and with it, Hungary’s international standing.

The Hungary–Kazakhstan–Uzbekistan triangle has brought new markets and economic benefits to Budapest, but it has also become a critical vulnerability in the West’s sanctions regime. Moscow clearly benefits—as long as these loopholes exist, the Kremlin continues to fuel its war machine. But Hungary risks its reputation and stability. The EU must now decide how to handle the “Hungarian question,” because the success of collective deterrence depends on unity.