Sanctions against NIS would plunge both Serbia and the neighborhood into oil troubles

The end of the year comes with another one potential sanctions which could have an impact on the entire region.

From announcements US sanctions on the Serbian Oil Industry (NIS), which is majority owned by the Russian Gazpromneft and the umbrella company Gazprom, is feared not only by Serbia but also by all the countries of the region due to their dependence on the oil sector.

This is primarily about the Adriatic Pipeline (JANAF), which signed a contract with NIS on the delivery of oil until 2026, through which over 90 percent of the oil reaches Serbia.

Sanctions against Serbia do not suit Croatia

This was also one of the topics of the recently held meeting between the President of Serbia, Aleksandar Vučić, and the Prime Minister of Croatia, Andrej Plenković, who expressed his interest in resolving this issue as soon as possible, because no one likes turning the valve.

Especially not to JANAF. There is interest from both America and the EU in changing the ownership structure in NIS, i.e. reducing the share of the Russian company.

"We have to find a sustainable solution that is good for both JANAF and the economy of Serbia," Plenković said after the meeting with Vučić.

"I don't think it is in anyone's interest that anyone, not even Serbia, be left without oil, and Croatia will certainly not be the one to be the leader of such a policy," said Plenković, thereby opening another problem.

And that is the behavior of JANAF after the sanctions, i.e. whether the oil supply contract with NIS, which is in force until 2026, will be respected, thereby risking business operations under sanctions, or whether the supply will be cut off.

In that case, the details of the termination of the contract would be decided by the arbitration court, which is defined by the contract.

BiH should (not) worry

Other countries in the region fear that, at the very least, there could be an increase in the price of oil derivatives, given that Gazprom has its own network in Bosnia and Herzegovina.

However, economists are of the opinion that, if there are sanctions, they will not have too much impact on the BiH market itself.

"Everything depends on how Serbia will treat those sanctions, that is, whether there will be a repackaging of the ownership structure," says Almir Bečarević, an energy expert from Sarajevo, not wanting to prejudge the possible consequences for Bosnia and Herzegovina.

"The fact is that we import derivatives from Serbia, but we have to see the outcome of the situation with majority ownership." It will be felt indirectly, because Gazprom owns pumps in Bosnia and Herzegovina, and they procure oil in Pancevo, so everything is open," explains Bečarević.

The BiH market covers about 20 percent of the derivatives from the Refinery in Pancevo, which is not a large amount. However, it is a relatively small market susceptible to influence, so there could be an increase in prices.

Economist Zoran Pavlović also sees the solution in repackaging the ownership structure, in order to relieve the pressure not only on Serbia but also on JANAF, which has the largest contracts with NIS, INA and MOL.

In such circumstances, he does not believe that there will be any significant turbulence, because nobody is interested in destroying companies that are lifeblood.

"When we finally look at where BiH is, I don't think we should worry, because the distribution we have here is obtained from several channels - from Italy, but also through the port of Ploče," says Pavlović.

Russian-American antagonism

In this case, Serbia is more than 90 percent dependent on the delivery of oil by JANAF, and the alternative would be transport by barges on the Black Sea, which is unlikely.

"We have a colorfully defined distribution network that should not directly fall under US sanctions," concludes Pavlović.

BiH has two arrangements with Serbia at the moment. One is the import of about 20 percent of oil derivatives and this is a supplement to the regular import that goes through Italian refineries. Another aspect is the export of crude oil from Obudovac, which is currently being exported to Serbia in trial quantities. In case of sanctions, all this would be stopped.

The US ambassador to Serbia, Christopher Hill, also commented on the announcement of sanctions, who did not confirm the introduction of sanctions.

However, he says that the risk of cooperation with Russian companies has always existed, stressing that "a change of ownership would certainly bring more peace and prosperity, both in Serbia and in the region."

On the other hand, the Russian ambassador to BiH, Igor Kalabuhov, had a different message for the Americans, regarding oil, but also the current story about the South Interconnection gas pipeline.

"The Americans are doing everything, from the explosion of Nord Stream to sanctioning our banks, just to prevent Russian gas from reaching Bosnia and Herzegovina." Here, we now see that they intend to impose some sanctions against the NIS in Serbia, and that will perhaps have some malignant influence on the relations between the Russian Federation and Bosnia and Herzegovina in this sense," Kalabuhov told BHRT.

Possible solutions

Experts, in addition to the purchase of part of the ownership structure from the Russians in order to take over the majority ownership, also see the complete purchase of the Russian share in NIS as one of the possibilities, writes Deutsche says.

At the same time, there are few who believe that such a scenario is realistic, because apart from economic, Russian influence in terms of presence in the former state energy giant is also significant in the political sense.

Also, the possibility of an agreement with the Americans not to introduce sanctions is not ruled out, because that would have a wider impact than what is being achieved in Serbia.

Gazpromneft and Gazprom own 56,15 percent of the former Serbian state giant NIS, while 29,87 percent is owned by the Republic of Serbia. The rest are minority shareholders.

The European Union and the US blacklisted Gazpromneft in 2014, following Russia's annexation of the Ukrainian peninsula of Crimea.

If the sanctions occur, the biggest question on the regional impact will be whether JANAF will follow the American sanctions or continue with the delivery of oil to Serbia, which according to experts is difficult to expect at the moment.