Related cross-site: Were schoolteachers really paid substantially less than $45 per month in 1990s Ukraine?

This particular question is arguably on-topic on Lit.SE and History.SE as well, but I'd like to focus in this question primarily on the economic history alluded to in a particular novel.

The Ukrainian novel Carbide by Andriy Lyubka refers to a smuggler in 1990s Ukraine who would smuggle vodka, cigarettes, and gasoline from Ukraine to Hungary (which the book claims costs 3 times as much in Hungary as in Ukraine at the time). The smuggler initially made $45 per night. However, it notes that the smuggler's margins had been greatly reduced over time:

Fifteen years had trickled by since [starting the smuggling operation], and the whole fuel-smuggling scheme had lost its viability. Hungary had jointed the European Union, and the weighted cost of gas and diesel had levelled out across all Europe. Yes, there still was a slight difference in price between Ukraine and the EU, but it was barely enough to feed one marginal smuggler, at best. The customs officers had started writing down your car's mileage and gas levels at the border, so you'd get slapped with a huge fine if you went through the same checkpoint a half hour later with your gas tank nearly empty after driving just a few miles. Smugglers would cross the border, sell their gas, head to some parking lot, and sit there for five or six hours. They'd hook up a special device that looked like a meat grinder to the odometer and spin the handle. They'd crank up the mileage in just a few short minutes and then head back. The customs officer would see they'd crossed the border seven hours ago and driven over four hundred miles in that time, so yeah, obviously they were going to be running on empty. They could get around paying big fines that way, but they'd make a measly 20 bucks or so for a run that could take up to 10 hours.

I am somewhat confused as to why "the weighted cost of gas and diesel had levelled out across Europe", and how that's connected to Hungary joining the E.U. Can someone explain what caused this shift?


1 Answer 1


EU is not just political union, but to a great degree economic one (see EU). Lifting of restrictions on commerce, and movement of people means that prices will equalize to a degree as people take advantage of arbitrage opportunities.

For example, if gas is cheaper in HU than in SR, people from Slovakia are free to cross the border get their tanks full of gas in Hungary and they cannot be subjected to any extra taxes or levies other than those regular Hungarians pay, and won't face any checks on the border. As a result demand for gas in Slovakia falls, forcing pumps to lower their prices, whereas demand for gas in Hungary increases allowing pumps there to increase prices. And vice versa if price was higher in Hungary than in Slovakia, or other neighbouring countries.

In addition to consumers being allowed to cross border freely, retailers are now allowed to freely, without any undue restrictions, to buy gas from any other EU member. Hence, whereas previously pumps in Hungary would be primarily forced to deal with Hungarian MOL, afterwards there was competition from Slovnaft or Austrian OMV.

In real life prices may never fully equalize as it might not make sense for someone from lets say Orava region of Slovakia to travel to Hungary to fill their tanks, or someone from Békés county in Hungary to go fill their tank in Slovakia. Similarly, pumps would have to pay higher transportation costs for ordering from afar.

However, under free trade prices typically equalize sufficiently than smuggling does not make any economic sense. In addition, there is no need for smugglers if anyone can just take a car or bus across border and buy whatever they want. Smugglers earn money by taking advantage of arbitrage opportunities created by tariffs & trade barriers. Remove all trade and movement restrictions and smuggling does not make any financial sense anymore. Without them smuggling might not even be technically possible since smuggling is defined as illegal transport of goods, and if any goods can be transported legally then smuggling can't really exist.


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