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Serbia seeks solution for its oil industry as deadline looms

Authors: Igor Novaković, Senior Associate at ISAC and Marko Savković, Senior Advisor at ISAC

After years of empty talk about how Serbia will finally make a strategic decision, thereby closing the space for further speculation regarding its foreign policy orientation, the United States is making a decision that will most directly affect it. The expected displacement of Gazprom from the ownership structure of the Serbian oil industry, as a consequence of the sanctions, means that the Russian state is left without the most concrete means of pressure on the authorities in Belgrade. In a very short period of time, which does not seem to leave enough time for an acquisition from a third party, two options open before the authorities, by which Serbia becomes the owner of the oil industry again – now profitable, modernized and market dominant. Direct takeover by nationalization is “out of the question” for now, but we’ll see. As of January 14, the Belgrade Stock Exchange has stopped trading in NIS shares.

Serbia’s President Aleksandar Vučić announced less than a month ago that the United States would impose sanctions on the NIS, claiming to have received this information directly from that country’s officials. The claim was initially met with skepticism – Washington does not disclose sanctions in advance. Yet on January 4, Vučić reiterated this during an emergency government session, stating how the sanctions would be all-encompassing, having the potential to halt NIS operations completely. Confirmation came days later on January 10, when the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued a directive under Executive Order (E.O.) 14024. With this directive a number of entities operating in Russia’s energy sector, subsidiaries of Gazprom Neft and Surgutneftegas, oil tankers, vessels, and individuals were sanctioned.

Key implications for NIS are by now known and as such, most significant. If no solution is found by the March 15 deadline, oil imports via the JANAF pipeline (leading from Krk terminal in Croatia) would effectively cease, as JANAF could face secondary sanctions. Second, domestic banks in Serbia would likely be forced to suspend NIS banking accounts, effectively rendering its operations unviable. From there on, Gazprom’s ownership of NIS would become impossible.

There are precedents. Last year, sanctions directed against Milorad Dodik (and associated entities) could not be circumvented, even after attempts at ownership restructuring. (There were such humiliating episodes as the Serbian member of the Bosnian Presidency not being able to pick her salary).

Gazprom Neft’s exit appears unavoidable. Vučić has set a deadline for Serbia to present the solution(s) by February 15, with sanctions taking effect after March 15. One issue, next to the mentioned short timeframe, is that current U.S. Ambassador Christopher Hill is leaving Serbia on January 18, and it will take some time before his successor is named and confirmed (meaning Belgrade will deal directly with D.C. – where once again new people will be taking posts).

This timeframe was later confirmed by Croatia’s PM Plenković. Discussions (negotiations?) are planned with both the incoming U.S. Administration and the Russian President. It is clear from Vučić’s statements that Gazprom Neft cannot remain a minority shareholder – that all shares must be sold or transferred to an entity unconnected to Gazprom Neft.

A post on Russia Today’s social accounts suggests how Serbia has offered to purchase Gazprom Neft’s stake in NIS. Domestic financial analysts have estimated anywhere from USD 1 billion to 4 billion, as it includes a network of gas stations (up to 50% of market share) and Petrohemija in Pančevo, producing, as the name says, the bulk of Serbia’s petrochemicals.

If Gazprom Neft rejects the settlement, Serbia’s only alternative would be a “hostile takeover” or nationalization. Vučić has so far been ruling it out, favouring the outright purchase of Gazprom Neft’s shares. However, even a negotiated settlement requires OFAC approval for transferring funds from Serbia to Russia (thus in effect funding its war in Ukraine).

The timing of Vučić’s announcement has raised questions, particularly as it coincided with the transition to the new U.S. administration. Additionally, both the negotiations on a long-term agreement for Russian gas imports and the closure of the Ukrainian transit route on January 1 complicate the situation further. With TurkStream II now the sole route for Russian gas to the EU via Serbia, Belgrade keeps some leverage, potentially creating an opportune moment for Serbia to take control of NIS. However, Vučić is careful to avoid framing this as an anti-Russian move (for now).

This situation also prompts possible concerns for the future about other Russian-Serbian ventures, including the Banatski Dvor gas storage facility, Yugorosgaz (a gas intermediary and owner of key pipelines), and the Serbian section of TurkStream II.

While this development targets Russian influence in Serbia, it may be in Moscow’s long-term interest to cooperate and retain a foothold in the country. A dispute could destabilize Serbia, especially given the ongoing domestic protests. In such a scenario, media under the control of the ruling elite might portray Russia as the guilty party (for Serbia’s troubles), eroding its influence.

The most likely outcome appears to be a negotiated settlement offering Moscow some compensation while preserving the facade of amicable relations between the two countries. This approach could allow Serbia to transition NIS ownership smoothly while maintaining strategic ties with both the West and Russia.

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