What do the sanctions mean for NIS, Serbia and the citizens?

The closing of the Adriatic Oil Pipeline (Jadranski naftovod – JANAF) based in Croatia could be one of the direct consequences of the introduction of US sanctions on the NIS company, and “if the sanctions remain in force for a long time, there could be a destabilization of the economy,” believes the energy expert Miodrag Kapor.

– Inflation would increase, consumption would decrease, exports would become more expensive for us, foreign companies would be discouraged from coming to Serbia, but I still would not expect any consequences of sanctions like those in the 1990s in Yugoslavia – he says.

Although cooperation with NIS brings “the highest income” to the Croatian company that operates the oil pipeline, “it would not risk its own business by maintaining cooperation with NIS,” he believes.

– Even if the European Union did not impose sanctions, any company from the EU would not risk doing business with a company under US sanctions, so as not to receive sanctions themselves as a result – explains the energy expert.

Reacting to the decision on US and British sanctions, JANAF said that they would try to find a solution to continue cooperation in the next 45 days.

The statement added that NIS is their long-standing and largest business partner, with whom they have a contract for the transport of 10 million tons of oil from January 1, 2024 to December 31, 2026.

Croatian Prime Minister Andrej Plenkovic said that the Croatian government and US authorities had been communicating for several weeks regarding the sanctions against Gazpromneft and the Oil Industry of Serbia (Naftna Industrija Srbije – NIS), which affect JANAF.

– It is important for us that this package of sanctions allows 45 days for the Serbian authorities to resolve the issue of ownership in NIS – said Plenkovic, according to Hina.

He reminded that 95% of the oil that came to Serbia went through JANAF, making it important for Serbia's energy and economic security.

– It is in Croatia’s interest to use these 45 days to resolve the ownership issue. We want JANAF to continue supplying Serbia, because we want both the economic and energy stability of our neighbor, which the Serbian authorities know and I am saying this for the sake of the citizens – said Plenkovic.

The contract between the Croatian and Serbian companies contains a “force majeure clause,” which means that the contract is automatically terminated in such circumstances, reports the Danas daily.

In the event of NIS’s appeal against such a decision, an arbitration court would decide.

Despite the importance of this oil pipeline for Serbia, sanctions against NIS would not necessarily directly affect the security of supply of the market in the short term, says Aleksandar Kovacevic, an expert in energy economics, for the Serbian edition of the BBC.

– 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 resources from the Serbian government – he adds.

The prices of petroleum products and heating fuels in Serbia “already reflect the increased costs of supply and the perception of risk that exists in the market,” he estimates.

Although he does not expect greater instability unless there are disruptions in the Mediterranean and European markets, in Serbia there is “a need to place the security of supply on a more solid foundation, because there could be an accumulation of several different risks,” Kovacevic points out.

Serbia imports about three-quarters of its oil, mostly from Iraq (52%) and Russia (47%).

NIS is the company with the highest revenue on the domestic market, along with Elektroprivreda Srbije, according to data from the Business Registers Agency for 2023.

This company contributes 9% to the state budget, said Vucic.

– As a result, there could be a fuel shortage, because NIS controls about 80% 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 for changes in the ownership of NIS have been mentioned. One of them is the nationalization of the company, but Vucic rejected such a possibility in May 2022.

– We will certainly not do that – he said.

Serbia could either partially or completely buy out the Russian company's shares in NIS, or transfer the majority stake in ownership to another foreign company, which would avoid US sanctions.

– Buying out Gazprom shares would not be a problem for Serbia, it could be done without too many consequences for the budget, because the construction of a national stadium, for example, would be a much more valuable investment – says Kapor.

The value of one NIS share on the Belgrade Stock Exchange was 678 dinars on December 16, after a 10% drop after the announcement of possible sanctions, and the total price of buying out Russian shares in NIS could be more than EUR 1.5 billion, experts estimate.

Christopher Hill, the US ambassador to 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 across Europe, rather than investing in the future of Serbia – said Hill.

A similar solution was found in Germany, where the shares of the company Sefe, which imports gas and was owned by Rosneft until the beginning of the war, were purchased by the state from its Russian owners on market terms.

Another way out for Serbia could be negotiations with Washington or Moscow and resolving the situation diplomatically.

A solution could also be the introduction of sanctions against Moscow due to the war in Ukraine, whereby Serbia, along with Belarus, is the only European country not to do so.

In mid-December, Vucic asked the Serbian government to form a working group that would deal with sanctions against NIS.

The effects of sanctions on NIS will depend on the “type and depth” of these measures, says Aleksandar Kovacevic.

– Various transport or financial services, equipment, spare parts or professional services may be denied, and if that happens, business could be seriously hampered – says an advisor 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 revenge policy towards Trump,” “a short-sighted and counterproductive move,” the foreign policy analyst Bosko Jaksic told BBC Serbia.

– 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 mention of that, so the sanctions are much more directed at Trump than at Belgrade, which is collateral damage – Jaksic believes.

Due to the timing, but also the nature of the measures that America would impose on NIS, Trump could also profit politically by lifting them.

– I believe that he would lift them very quickly and consequently be even more celebrated in Serbia as someone who saves it from freezing during the winter – Jaksic says.

Executive orders, as one of the instruments available to American presidents, come into force immediately upon issuance, 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 point out 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 a considerable level – adds Jaksic.

NIS a.d. Novi Sad

Ambasada SAD Beograd

Jadranski naftovod

JANAF

Government of Croatia

Gazpromneft

Gazprom

US Embassy in Serbia

Sefe

Rosneft

Miodrag Kapor

Andrej Plenković

Aleksandar Kovačević

Christopher Hill

Boško Jakšić

Joseph Biden

Donald Trump

sanctions against NIS

US sanctions against NIS

fuel reserves

shares of Russian company in NIS

value of NIS shares