US sanctions against Serbian NIS fuel company

On 9 October, US sanctions entered into force against the Serbian NIS fuel company, belonging to Russian entities. The company was included in the sanctioning list as part of a comprehensive regulation package for the energy sector of Russia, adopted on 10 January by the Joe Biden administration (see. Penalties on Russia: Biden administration's farewell blow). This decision was aimed at forcing ownership changes in a company where the majority stake was held by Gazprom Niefté (50%) and Gazprom (6.15%); see. Russian energy assets in Serbia targeted by US sanctions). The entry into force of the sanction cuts off the company from the sole oil supply way – Croatian company JANAF suspended the transport of this natural material to a NIS-owned refinery in Pančev (the only plant of this kind in Serbia). It will besides make financial services hard due to the threat of secondary sanctions, which could lead to its uncontrolled bankruptcy.

The entry into force of the regulation has been postponed respective times (last time 1 October) and the Serbian authorities hoped that the NIS would be removed from the sanction list – especially as ownership changes took place in the company. Covered by the U.S. restrictions Gazprom Nieftí formally reduced its share to 44.9%, and 11.3% of the shares were transferred to JSC Intelligence controlled by Gazprom Capital. The remainder of the share ownership, i.e. 29.9% of the shares, belongs to the Serbian State and the remaining shares – to smaller shareholders. In 2022, the company managed to avoid EU sanctions (after tactical ownership changes), but it had to quit processing of Russian oil as a consequence of the EU embargo on its supply by sea (see IP/10/27). Serbia: Forced Resignation of Russian Oil).

In the short term, the entry into force of the regulation will origin serious problems in the Serbian fuel marketplace (NIS controls 80% of the marketplace and 50% of retail sales), although the Belgrade authorities declare that the accumulated stocks will let to cover local request by the end of the year. The future of the company will depend on the position of the Serbian authorities who do not want an open conflict with Moscow, but are besides under force from the US (and partially the EU).

Comment

• The entry into force of the sanctions demonstrates the failure of Belgrade's treatments, which tried to convince Donald Trump's administration to suspend restrictions for a long time and remove the NIS from the punishment list (this application was submitted in March and again in September). The Serbian authorities argued that due to the crucial importance of the company for the economy (it generates 4.5–6% of GDP) and the alleged small influence of Gazprom Niefti on the company's functioning should be excluded from the sanctioning regime. These efforts were supported by Budapest and the Croatian company JANAF controlling the pipeline strategy moving to Serbia and Hungary, the dominant part of which is the oil transport charge to Pančeva.
• Russia assumed that, in the light of the improved bilateral relations, the Trump administration would show greater support for NIS. This company is simply a key component of Russian influence in the Balkans, which Moscow does not want to give up. This applies not only to the energy sphere (blocking the liberalisation of the oil and gas marketplace and diversifying supply routes), but besides to building political links (thanks to those who benefit from their cooperation with Russian actors) and to the affirmative image of Russia (the budget for NIS social projects is around €4 million per year).
• Moscow will usage Serbia's dependence on Russian gas imports (2.2 billion m)³ annually), to halt her from taking action detrimental to Kremlin's interests. These deliveries are presently carried out on the basis of a short-term contract which expires on 31 December (Belgrad is negotiating a fresh long-term contract – the erstwhile 1 expired in May).
• Sanctions against the NIS show the United States' determination to minimize Russia's income from oil exports and reduce its influence on the Balkan energy market. Chargé d’affaires U.S. embassies in Belgrade declared that restrictions are not directed at Serbian society, but are part of the financial force on Moscow to prompt it to end the war in Ukraine. He besides stressed that the Belgrade authorities should search to remove Russian entities from the NIS, which would reconstruct control of key assets in the fuel sector and guarantee the country's energy security, in which the US will support them.
• The current crisis is simply a consequence of Serbia's policy, which, under the force of Russia, avoided moves to diversify sources and routes of gas and oil imports. Although Belgrade, under strong force from the EU, has signed gas supply agreements from Azerbaijan over the last 2 years and has completed (after many years of delays) the construction of an interconnector with Bulgaria, but its failure to implement regulations liberalising the energy marketplace has allowed Russian operators to keep a dominant position.
• The Serbian authorities categorically reject the anticipation of any action against NIS without prior agreement with Moscow – for example, the nationalisation of the company or the announcement of its controlled bankruptcy. The acquisition of all or part of the shares by the Serbian government or another entity is possibly allowed, but Russia rejects this solution. The readiness to take over the NIS was declared by Croatia, and there was speculation in the media about the interest of American and Azerbaijani fuel companies. Hypothetically, the Serbian authorities could temporarily take over any of the Russian shares in order to prevent a script in which the refinery stops its work. However, if sanctions are maintained, it may be essential to sale assets to third-country entities.
• Addressing NIS will depend on US and EU determination in order to effectively reduce Russia's presence in the region, as well as their support to Belgrade in negotiations with Moscow and the hard transition period from Russian natural materials. Visiting Belgrade on 15 October, Head of the KE Ursula von der Leyen offered Serbia a joint gas acquisition programme.