The European Union has rejected a nuclear fuel supply deal between Hungary and Russia, a move that will escalate the energy wars between Brussels and Moscow.

Hungary’s prime minister, Victor Orban, agreed a €12 billion deal with Russia last year to build a 1,200 megawatt nuclear reactor in the town of Paks, 120 km south of Budapest. The deal has raised fears that it would give Russia even stronger control over Europe’s energy supply, which is already very dependent on Russian gas. Other EU member states have been increasingly worried about Orban’s close relationship with Russian President Vladimir Putin, particularly when it comes to energy matters. Orban has criticised the European Commission’s energy union strategy, unveiled last month, which is meant to wean the EU off its dependence on Russian gas.

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However, Euratom, the organisation that governs the EU’s nuclear safety and supply arrangements, has blocked the fuel supply contract involved in the deal. The European Commission, the guardian of the Euratom treaty, quietly backed the organisation’s decision last week. All nuclear fuel supply contracts signed by EU member states must be approved by Euratom.

A European Commission spokesperson said it cannot comment on the decision at this stage because the documents involved are still classified. She said the Hungarian government has today given its permission to declassify these materials, and the Commission will be able to comment in the coming days. “We are not blocking the construction of Pacs, this is just the fuel supply agreement,” she added.

The existing deal stipulates that only Russian fuel can be used in the new nuclear plant. The Euratom decision, which has not yet been publicly announced, found that this was against the principles of diversification in fuel supply contracts, according to EU sources.

Last year Euratom looked at a similar arrangement for a new Finnish nuclear power plant that was to be built in the north of the country and use Russian fuel.

However, there are fears in Hungary that no such alternative supplier will be available in their case, because the Russians will not allow it. Jávor Benedek, a Hungarian member of the European Parliament, told the Financial Times yesterday: “If the Russians now refuse to modify the original contracts, this will be the end of the road for the project.”