American sanctions on Russian oil for NIS - what is all unclear
Since the beginning of the Russian aggression against Ukraine, Serbia has managed to avoid the introduction of sanctions against Moscow, but they have now arrived at its doorstep.
On January 10, the US Treasury Department decided to impose sanctions on Russian companies from the energy sector - Surgunneft and Gazpromneft and their subsidiaries, with the aim of reducing Moscow's income from the sale of energy products that finance the war in Ukraine.
Among the sanctioned companies is the Oil Industry of Serbia (NIS), which Washington says is Gazpromneft's subsidiary in Serbia.
Serbia is being asked to completely exit the Russian interest from the company, which must be completed in 45 days, Serbian President Aleksandar Vučić said on Friday evening.
A day later, after a conversation in Belgrade with Richard Verma, US Deputy Secretary of State for Management and Resources, Vučić says that the sanctions are not completely clear to him.
Verma said that the plan is to "remove Russia's ownership in the ownership structure" of NIS and that there will be no economic consequences for Serbia if that happens.
However, Vučić says that Serbia is ready to buy the Russian part, but that it is not clear how to do it.
"We don't want to steal someone's property, not even Russian property." We want to pay, we have the money, just tell us where and to whom to pay," said Vučić.
NIS will carefully consider all the details related to the published information, analyze all the consequences for the business and remain focused on preserving stability on the domestic oil derivatives market, the company's announcement reads.
"The supply of the chain of gas stations is regular and business is carried out smoothly," announced NIS.
The Russian company Gazpromneft, a subsidiary of Gazprom, owns about 56 percent of NIS shares, the Republic of Serbia controls about 30 percent of the ownership, and the rest are held by minority shareholders.
In 2008, Gazpromneft bought 51 percent of NIS shares for 400 million euros without a tender, and experts warned that the sale was "below the price."
What did Vučić and Verma say?
The American diplomat said that NIS is one of 2,000 companies under sanctions and that the goal is to remove Russian ownership from them.
There will be no economic consequences for Serbia if the ownership of Russia is removed, which does not invest in the future of Serbia because it does not use the profits from NIS for investments, but for financing the war in Ukraine, he says.
Vučić believes that additional explanations are needed from the American side about the manner and conditions of the change of ownership before negotiations with the Russian side begin.
There will be gas from Azerbaijan
On Saturday, January 11, Vučić announced another, as he said, bad news.
"We received information from our Azerbaijani brothers and friends that due to force majeure, due to the problems they have, from today we can no longer count on the 1.7 million cubic meters of gas that came to us every day," says Vučić.
"Which means, to translate it into Serbian, dear people, from today we will start spending our reserves much more and more seriously".
Vučić did not explain whether this move has anything to do with the interruption of the gas supply to Bulgaria, from where it reaches Serbia, or whether it is a different problem.
Azerbaijan temporarily suspended gas transmission to Bulgaria from January 7 to 11 due to "technical problems", Reuters reported.
During these days, Bulgaria secured the necessary quantities of gas from Turkey, the local gas company Bulgargaz announced.
A day later, Vučić announced that there will be no suspension of gas from Azerbaijan.
"Our brothers and friends from Azerbaijan have just informed me that, regardless of objective problems caused by force majeure, there will be no suspension of gas to Serbia," Vučić wrote on Platform X.
Media in Azerbaijan previously reported that the temporary reduction in gas flow was due to a technical problem at the Shah Deniz Alpha platform, but also that the Shah Deniz Bravo platform continues to operate at full capacity, ensuring stable exports.
It is expected that the gas supply will be restored soon, according to TV channel Anewz.
Unnamed sources in the Azerbaijani government refuted Vučić's assessment that delivery will be resumed in a month or two, stressing that the situation is temporary and under control.
It was also stated that the failure on the Shah Deniz Alpha platform was localized, that it did not affect the gas pipeline and that it did not cause damage to the environment.
The rig shutdown was a precautionary measure and did not disrupt overall field operations, it added.
The Shah Deniz Bravo platform continues to reliably supply gas to Azerbaijan, Turkey and Europe.
The short-term disruptions previously reported in Bulgaria have already been resolved.
Gas from Azerbaijan comes to Serbia through an interconnector, that is, a link, through Bulgaria, but the quantity is only sufficient for a small part of the annual needs.
Serbia receives the largest part of the required quantities of gas from Russia, via the Turkish Stream.
The Turkish Stream gas pipeline is installed along the Black Sea from Russia to the coast of Turkey, and then the land transit leg goes to Bulgaria, enters Serbia and continues to Hungary and Austria.
NIS and sanctions
At list of the US Treasury Department, NIS is at risk of secondary sanctions.
Great Britain also joined the American sanctions that were introduced for vessels that transport Russian oil, but also for the property and companies of dozens of businessmen from the Russian energy sector.
Gazpromneft, a company based in St. Petersburg, has been under US sanctions since 2022 and the start of the war in Ukraine, due to its ties to the Kremlin.
By transferring business to the umbrella company Gazprom, with which European Union countries have contracts for the supply of gas and oil, Russia has so far tried to circumvent sanctions.
The decision to include Gazpromneft's assets on the US sanctions list is unfounded and illegitimate, but the work will continue, the company announced.
"Every future decision must be approved by the Americans," says Vučić
"These sanctions can be extremely restrictive, as they prohibit any transactions with Russian interests and immediately freeze assets associated with sanctioned individuals," Vučić said.
He claims that Washington is seeking "the complete exit of Russian interests" from the NIS.
Serbia must "immediately start the ownership transformation plan" and that there should be a deadline of 45 days for all operations.
"Every future transaction must be approved by the Americans," said Vučić.
What do the sanctions mean for NIS, Serbia and the population?
The closure of the Croatian-based Adriatic Pipeline (JANAF) could be one of the direct consequences, and "if the sanctions remain in force in the long term, destabilization of the economy would also be possible", according to energy expert Miodrag Kapor.
"Inflation would increase, consumption would decrease, our exports would be more expensive, foreign companies would be discouraged from coming to Serbia, but I would still not expect any consequences of sanctions like those in Yugoslavia in the 1990s," he says.
Although cooperation with NIS brings "the biggest income" to the Croatian company that manages the oil pipeline, "it would not risk its own business by maintaining cooperation with NIS", he believes.
"Even if the European Union does not introduce sanctions, any company from the EU would not risk doing business with a company under American sanctions, so that it would not receive sanctions as a result," explains the energy expert.
The crude oil that Serbia buys comes to the Pančevo refinery mainly via the Adriatic pipeline through Croatia.
JANAF says that in the next 45 days they will try to find a solution for continuing cooperation with NIS, their "long-standing and largest business partner, with whom they have a contract for the transport of 10 million tons of oil until December 31, 2026."
Croatian Prime Minister Andrej Plenković said that the communication between the Croatian government and the US authorities has been going on for several weeks due to the sanctions on Gazpromneft and NIS that affect JANAF.
He reminded that 95 percent of the oil that comes to Serbia goes through JANAF, which is therefore important for the energy and economic security of the country.
"We want JANAF to continue supplying Serbia, because we want our economic and energy stability neighbors, which the Serbian authorities know, and I'm saying this for the sake of the citizens," Plenković said.
There is a "force majeure clause" in the contract between the Croatian and Serbian companies, which implies that the contract is automatically terminated in such circumstances, reports Danas newspaper.
In the event of an appeal by NIS against such a decision, the arbitration court would decide.
Despite the importance of this oil pipeline for Serbia, sanctions against NIS would not necessarily directly affect the security of market supply in the short term, says Aleksandar Kovačević, an expert in energy economics, for the BBC in Serbian.
"There are enough instruments and market participants to preserve or improve security of supply, but it is obvious that security of supply requires more attention and more funds from the Government of Serbia," he adds.
The prices of oil derivatives and firewood in Serbia "already reflect the increased costs of supply and the perception of risk that exists in the market", he assesses.
Although he does not expect greater instability if there are no disruptions on the Mediterranean and European markets, in Serbia there is a "need to place the security of supply on a more solid foundation, because there may be a cumulation of several different risks", Kovačević points out.
Serbia gets about three quarters of its oil from imports, mostly from Iraq (52 percent) and Russia (47 percent).
NIS is, along with Elektroprivreda Srbije, the company with the highest revenue on the domestic market, according to data for 2023 from the Agency for Economic Registers.
That company participates with nine percent in the state budget, said Vučić.
"As a result, there could be a shortage of fuel, because NIS controls about 80 percent of the fuel market in Serbia."
"Serbia has strategic reserves for about two months, but after that destabilization would follow," adds Kapor.
Is there a way out for Serbia?
Since the beginning of the war in Ukraine, several models have been mentioned for changes in the ownership of the NIS.
One of them is the nationalization of the company, but Vučić rejected such a possibility in May 2022.
"It doesn't occur to us to do that," he said.
Serbia could partially or fully buy out the Russian company's shares in NIS, but also give the majority share in its own transfer to another foreign company, which would avoid the sanctions of the United States.
"The purchase of Gazprom shares would not be a problem for Serbia, it can be implemented without too many consequences for the budget, because the construction of the national stadium, for example, would be a many times more valuable investment," says Kapor.
The value of one share of NIS on the Belgrade Stock Exchange was 678 dinars on December 16, after a 10 percent drop after the announcement of possible sanctions, and the total price of the purchase of Russian shares in NIS could amount to more than 1.5 billion euros. evaluated by experts.
Christopher Hill, the American ambassador in Belgrade, said earlier that "a change of ownership would certainly bring more peace and prosperity, both here and in the region."
"The Russian owners of NIS are using part of the profits to finance brutal aggression against Ukraine and threaten stability in the Balkans and throughout Europe, rather than investing in the future of Serbia," Hill said.
They found a similar solution in Germany, where the state bought the shares of the Sefe company, which is engaged in importing gas and was owned by Rosneft until the beginning of the war, on market terms from the Russian owners.
Another way out for Serbia could be negotiations with Washington or Moscow and resolving the situation diplomatically.
The solution could also be the introduction of sanctions against Moscow due to the war in Ukraine, which Serbia, along with Belarus, is the only European country that has not done so.
In mid-December, Vučić asked the Government of Serbia to form a working group that will deal with sanctions against the NIS.
The effects of sanctions on NIS will depend on the "type and depth" of these measures, says Aleksandar Kovačević.
"Various transport or financial services, equipment, spare parts or professional services can be denied, and if this happens, business could be seriously hampered," says the adviser to numerous international organizations, such as the United Nations, the World Bank and the International Energy Agency (IEA).
Punishment for Serbia or Biden's 'revenge policy' towards Trump
Due to the moment in which the decision was made, it could be interpreted as part of "Joseph Biden's vindictive policy towards Trump", "a short-sighted and counterproductive move", says foreign policy analyst Boško Jakšić for the BBC in Serbian.
"Six months or a year ago, the situation was practically the same regarding the ownership of NIS and Serbia's policy towards Russia."
"If we deserved sanctions, then we deserved them a year ago, and there was no talk of it, so the sanctions are much more addressed to Trump than to Belgrade, which is collateral damage," Jaksic believes.
Due to the timing, as well as the nature of the measures that America would introduce to the NIS, Trump could also benefit politically from their cancellation.
"I believe that he would abolish them very quickly and consequently be even more celebrated in Serbia as someone who saves it from freezing during the winter," says Jakšić.
Executive orders, as one of the instruments at the disposal of American presidents, come into force immediately upon adoption, so with such a move, Donald Trump could quickly prevent the consequences of sanctions on Serbia.
"The only question is whether sanctions against Serbia would be on Trump's agenda so quickly, unless his associates indicate to him that he has an opportunity to score a good point."
"Sanctions like these have a negative political dimension for America, because they increase anti-American and anti-Western sentiment in a country where it is already at an enviable level," adds Jakšić.
