Winter is Coming: The U.S. Sanctions Serbian-Gas Company NIS

In 2008, under the backdrop of a war-torn economy and years of inefficiencies and profit losses, Serbia’s state-owned oil and gas firm, Naftna Industrija Srbije (NIS), was on the rocks. Russian company Gazprom Neft, the oil arm of the hydrocarbon giant Gazprom, was eager to swoop in. Gazprom Neft purchased 51% of NIS, for what many consider a modest €400 million, along with the promise to modernize NIS’s refineries, upgrade oil export quality to meet European standards, and improve environmental safety practices. The deal is widely viewed as a quid pro quo gesture to Russia for vetoing Kosovo’s independence at the UN Security Council—a nation Serbia claims for its own.

This 2008 deal sets the stage for today’s looming energy crisis. This past January, NIS was added to the list of firms sanctioned by the U.S. Office of Foreign Assets Control (OFAC) due to its majority-Russian ownership and Washington’s broader efforts to curb financing for Russia’s war in Ukraine. Currently, Gazprom Neft owns 44.85% of the NIS, Serbia owns 29.87%, and another 11.3% is owned by JSC Intelligence, another Russian-owned firm. Special licenses offered by the US Treasury have delayed the sanctions by giving NIS permission to operate eight times since January, a pattern which came to a screeching halt this October. 

As a result, Croatia’s JANAF pipeline, which supplies the majority of Serbia’s crude oil, suspended shipments to NIS’s refineries, including the major Pančevo facility. Pančevo reportedly has enough crude oil stockpiled to continue operations through November 1st, and enough fuel reserved to maintain stable supply until the year's end. After that, availability becomes more uncertain. NIS petrol stations, found throughout the Balkans, will no longer accept U.S.-bank-issued credit cards, with most commercial transactions now processed in dinars. 

According to energy analyst Miodrag Kapor, these sanctions are heavy hitters. NIS contributes 7-13% of Serbia’s budget revenues and employs over 13,000 people. While these sanctions don't signal an immediate collapse, they will significantly squeeze supply, raise fuel prices, and place inflationary pressure on the economy. 

A variety of next steps have been floated—few have stuck. Serbian President Aleksander Vučić has refused a (historically un-American) U.S. request to nationalize NIS, calling the move an “expropiation of [Russia’s] capital and property.” Vučić has also been seeking to diversify its supply of crude by developing new pipeline connections to North Macedonia and Romania. This would link them to broader gas networks, including those sourcing from Azerbaijan—which some argue is still a conduit for Russian gas.

Cranking up the heat, the Kremlin warned that if Serbia nationalizes NIS or makes significant changes to the ownership structure, Russia will cut off gas supplies at the end of the year. This warning bears real weight, as Russia meets almost 80% of Serbian household and industrial needs. 

Meanwhile, the EU has invited Serbia to join the bloc’s communal gas buying initiative, which aims to strengthen collective negotiation leverage as the EU phases out Russian fuels. But membership is highly conditional. To join, EU Commissioner Ursula von der Leyen requires that Serbia harmonize its foreign policy with the EU. This comes in the form of imposing sanctions on Russia and implementing a variety of other rule of law and media freedom reforms to combat its democratic backsliding. Joining the initiative could mark a step towards Serbia’s EU accession, although Belgrade has yet to comment on any advances.

For years, Serbia has reaped the benefits of its delicate balancing act between Brussels and Moscow. It enjoys significant investments from both poles (and China!). Examples include the EU's Serbia-Bulgaria Gas interconnection, the Trans-Balkan Corridor to integrate Serbia’s power grid into the EU’s synchronized area, general funds under the Western Balkan Growth Plan, and recent ventures to open up Serbia’s lucrative lithium mines in the Jadar Valley. Moscow shares a host of cultural and political similarities with Belgrade, and has been steadfast in its flow of energy resources and support against Kosovo’s independence.

Moscow has made its red lines clear, Brussels is offering potential respite, and the U.S. has accelerated the timeline of decision making—shaking up Serbia’s policy of selective neutrality. What happens remains to be seen, and winter is coming.