Energy Crisis

EU sanctions against Russia threaten Serbia’s oil supply; gas deliveries secured

EU sanctions against Russia threaten Serbia's oil supply, gas supplies secured

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Published

March 23, 2022

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Published:

March 23, 2022

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Importing Russian crude oil could become more expensive and difficult for Serbia due to the European Union’s unprecedented sanctions against Russia. As for natural gas, deliveries from Russia are not affected at the moment. The situation with gas could worsen if the EU bans imports and transit of Russian gas, but it only plans to reduce imports for now.

One week ago, the European Union adopted the fourth package of sanctions against Russia due to its military intervention in Ukraine. One of the sanctioned companies is Gazprom Neft, together with the subsidiaries in which it has more than 50 percent ownership. The ban on cooperation with Gazprom Neft impacts Serbia because its oil company Naftna Industrija Srbije (NIS) is majority-owned by the Russian company.

The EU is working on clarifying its latest sanctions in order to allow Western Balkans to continue importing fossil fuels from Russia

The ban implies NIS cannot continue to buy Russian oil from European companies like the big traders such as Glencore and Vitol. However, the new sanctions do not prevent EU members from importing Russian crude.

According to the Financial Times and local media reports, the EU is working to clarify the new package of sanctions to allow the Western Balkan countries to continue buying fossil fuels from Russia. The EU’s move comes after Serbia complained the new restrictions would endanger the stability of the supply of petroleum products.

The European Commission is in contact with the Serbian authorities to clarify all their concerns about the newest restrictive measures, European Commission spokesman Peter Stano said.

There are solutions for Serbia to continue importing Russian oil, but the deal is likely to be more complicated and expensive

Stano pointed out that the commission is cooperating with all countries in the Western Balkans to reduce the negative impact of the war on their economies and society.

Energy experts say that the situation is not hopeless. One option is that the Government of Serbia takes over the majority ownership in NIS. Turning to other oil-producing countries or companies that import the commodity is also an option.

All in all, importing oil will become more complex and more expensive, which can be interpreted as pressure on Serbia, which did not impose sanctions on Russia, our sources say. So the outcome of the Serbia-EU talks on the latest sanctions package remains to be seen.

If Bulgaria turns off gas supplies, the alternative is to import via Hungary

The fears of problems in the gas sector emerged after announcements from Bulgaria.

The Ambassador of Russia in Sofia, Eleonora Mitrofanova, said Bulgaria is among the 48 countries listed as Russia’s enemy countries. Her government could pay the transit fee to Bulgaria in rubles instead of dollars. Martin Vladimirov from the Center for the Study of Democracy, a nongovernmental organization, then commented that Bulgaria has the right to suspend gas transit if Russia pays its obligations in rubles.

Finally, Deputy Prime Minister Asen Vassilev pointed out that Bulgaria’s 10-year supply deal with Gazprom expires at the end of 2022. Sofia will look for other suppliers after the contract expires, he added.

It is unlikely that the Bulgarian threat of interrupting gas supplies to BiH, Hungary, and Serbia will materialize

Bulgaria transits Russian gas via the Balkan Stream pipeline to BiH, Hungary, and Serbia. Interruption of transit is not in the financial interest of Bulgaria and Russia, primarily due to the firm contracts in force. BiH, Hungary, and Serbia could secure supplies via Ukraine in the worst-case scenario.

According to people familiar with the situation, the situation could change drastically if the EU decides to ban imports of Russian gas and, above all, its transit through its member states. It is not an option for now, as the EU only strives to lower Russian gas imports, as proclaimed by the European Commission in its REPowerEU plan.

Until the Niš-Dimitrovgrad gas pipeline is completed, Serbia has no alternative for Russian gas

Regarding these statements, Zorana Mihajlović, Serbia’s minister of mining and energy, said that Bulgaria deciding to stop buying Russian gas would be one thing and that transit is a different issue.

It does not necessarily mean that transit would be suspended. She added that it is also an essential matter for Serbia and Hungary, which signed a 15-year contract with Gazprom at the end of last year.

Mihajlović said that in case of interruption of deliveries from Bulgaria, Serbia could get gas through Hungary to use its gas storage and replace gas with other energy sources. These are the only options until the Niš-Dimitrovgrad gas pipeline is finished, which will open the possibility of getting gas from other suppliers.

Mihajlović stressed that various scenarios and crisis plans are prepared in worst-case scenarios.

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