Sanctions against Serbia’s Petroleum Industry pose a challenge for Vučić

A Serbia’s Petroleum Industry cistern in Pancevo. Photo: Shutterstock

Serbia’s petroleum industry: a double-edged sword

The Serbia’s Petroleum Industry (NIS) group, established in 1991 as a state-owned and single Serbian company engaged in the exploration, extraction, refining and distribution of oil, petroleum products and natural gas, remains a key player in the Serbian market. The company supplies around 80 per cent of the country’s domestic demand for oil and petroleum products, contributes roughly nine per cent to Serbia’s GDP, and provides employment for more than 13,000 people.

At the same time, since December 2008, a controlling stake in NIS has been owned by Russia, with the Russian company Gazprom Neft achieving this at the cost of 400 million euros. The acquisition formed part of a broader energy package with Russia, linked to the planned construction of the South Stream gas pipeline through Serbia – a project that ultimately never materialized. As part of this wider energy deal, the purchase became a strategic investment for Russia in the region, while for Serbia it turned into a persistent source of difficulty. This is because it created a significant dependence on Russian energy supplies, complicating an already fragile situation regarding energy security.

It is therefore unsurprising that the United States sanctions targeting Russia’s oil sector – focusing primarily on two major companies, Gazprom Neft and Surgutneftegaz – introduced on January 10th 2025, have also affected NIS. As of early 2025, Gazprom Neft held a 50 per cent stake in NIS, with Gazprom owning an additional 6.15 per cent. The restrictions, aimed at reducing Russia’s revenues from oil exports, have consequently impacted the Serbian company as well. The sanctions against Russia, introduced by the outgoing Biden administration, were postponed eight times over the course of the year before finally taking effect on October 9th, thereby creating yet another challenge for Serbian President Aleksandar Vučić, whose regime is already under immense pressure amid ongoing nationwide protests that have continued for nearly a year.

Delaying the inevitable

Despite repeated calls from the EU to join western sanctions against Russia, the Serbian authorities have refused to do so even three years after Moscow’s invasion of Ukraine. Belgrade has cited the country’s dependence on Russian energy sources as justification for their stance. According to the stockbroker Nenad Gujaničić, ever since Russia’s occupation of Ukraine’s Crimea in 2014, Serbia has had enough time to gradually move away from Russia. However, instead of pursuing a proactive policy, it chose a different path. “This problem has been swept under the rug for a long time, and the longer its solution has been postponed, the harder it has become to resolve the situation. Serbia, as the owner of 30 per cent of NIS shares, should have taken action back in 2014 (in terms of reducing Russian influence),” the Serbian expert told Radio Free Europe’s Balkan service.

In August 2014, several months after his appointment as prime minister, Aleksandar Vučić initiated an official review of the 2008 privatization of the Petroleum Industry of Serbia (NIS). The investigation was presented as a step to examine the legality and terms of the sale of the Serbian oil company, rather than a direct move towards its nationalization. Nevertheless, it opened up political space for a reassessment of agreements with Russia. However, despite the investigation and negotiations in 2014, the share of Russian entities in NIS was not substantially altered – Gazprom Neft remained the largest shareholder in the following years.

Ten years later, the review of NIS’s ownership structure was initiated by the Russian side ahead of the upcoming oil sanctions. Although NIS represents less than one per cent of Gazprom’s total assets and shareholding portfolio, control over the Serbian company forms part of Russia’s geopolitical strategy to maintain and strengthen its presence in South-Eastern Europe. On the very day the sanctions came into effect on January 10th 2025, Gazprom Neft reduced its stake in NIS from 50 per cent to 44.85 per cent, transferring part of its shares to the parent company, Gazprom. However, this formality failed to satisfy the US Treasury’s Office of Foreign Assets Control (OFAC), which is responsible for enforcing economic and trade sanctions. After nine months of delays, in September 2025 the Russian side made another attempt to circumvent the sanctions: Intelligence JSC, a St Petersburg-based company owned by Gazprom, acquired an 11.3 per cent stake in NIS. This attempt ultimately proved to be the last. The sanctions came into force, leaving Belgrade with a heavy burden of problems and limited room for manoeuvre.

The price of sanctions

Serbian experts agree that sanctions against NIS will lead to a period of uncertainty for the country. First and foremost, there may be an increase in petrol and diesel prices, as well as shortages. The NIS-owned oil refinery in Pančevo will almost certainly be forced to reduce its production of fuel oil, bitumen, jet fuel and liquefied gas – petroleum products that are important for fulfilling the country’s energy and economic needs.

Considering that Serbian agriculture is directly dependent on NIS, the imposition of sanctions could affect food prices. An increase in the cost of diesel, which is critically important for Serbian farmers, would raise the expenses of producing and transporting agricultural products. On the other hand, given that the EU market is the main destination for Serbian exports, rising production costs in agriculture could significantly affect the competitiveness of Serbia’s farming sector on the European market.

Overall, the economic impact of sanctions against NIS could be significant for Serbia. As NIS is one of the main sources of state budget revenue (through excise duties and VAT on fuel), any serious disruptions to its operations or income would reduce government revenues, which are already facing certain challenges even without the NIS situation.

All these potential consequences of sanctions against NIS for Serbia remain hypothetical for now. The Serbian authorities, NIS management and independent observers agree that the country has sufficient reserves of crude oil and petroleum products to last until the end of the year and possibly even through the winter. However, this does not change the fact that the NIS issue needs to be resolved as soon as possible.

Looking for a solution

Until recently, most of the oil imported into Serbia was delivered via the Croatian JANAF pipeline. The enforcement of US sanctions against NIS has blocked the possibility of further oil deliveries through this pipeline. As Serbia lacks alternative infrastructure to secure the necessary volumes of crude oil, the central question is what measures should be taken regarding NIS to enable the country to overcome this crisis.

One potential avenue involves the Serbian authorities attempting to purchase the Russian stake in NIS. However, Gazprom Neft’s management has indicated that it is not interested in this proposal and is likely leaning towards selling its stake to a third party. Such a third party could be the Hungarian oil company MOL, whose main shareholder is the Hungarian state and whose leadership enjoys the Kremlin’s trust. Nevertheless, despite the Hungarian authorities willingness to increase fuel supplies to Serbia, no public statements have yet been made indicating any intention to acquire a stake in NIS.

In January 2025, Vučić categorically stated that “Serbia does not wish to nationalize Russian property,” and continues to adhere to his position to this day. At the same time, this scenario appears to be the most logical under the current uncertainty.

It seems that Russia understands this as well. This helps explain why, on October 11th 2025, Russia extended the three-year gas agreement with Serbia, which had expired in May 2025, only until the end of this year. This was done rather than for three years or at least until the end of May 2026, as the Serbian authorities had wanted. Considering that around 85 per cent of its natural gas is supplied to Serbia from Russia (via the Balkan Stream pipeline), with no alternative sources expected in the near future, the extension of the gas agreement only until the end of the year was perceived by the Serbian president as a clear signal that the nationalization of NIS would have serious consequences for the country.

The situation with the EU’s plan, approved this week, for the gradual phase-out of Russian natural gas imports by 2028 does not make life any easier for Aleksandar Vučić. The plan includes a ban on the transit of Russian gas through EU territory to third countries, which will come into effect on January 1st 2026. This might pose obstacles to the supply of Russian gas to Serbia via the Balkan Stream pipeline through Bulgaria. Commenting on this ban, the Serbian Minister of Mining and Energy, Dubravka Đedović Handanović, did not hide her emotions, noting that, in the context of the NIS situation, Serbia is in an “almost hopeless situation”. Statements by Aleksandar Vučić and the Speaker of the Serbian Parliament, Ana Brnabić, were made in similarly sombre tones. Although EU Commissioner for Enlargement Marta Kos insisted that there is no reason for such pessimism and that the EU’s plan to reduce dependence on Russian gas will not affect Serbia, it nevertheless raises questions about the country’s strategic orientation, while the issue of Serbia’s immediate future in light of the US sanctions against NIS remains unresolved.

In a situation where Aleksandar Vučić’s foreign policy – based on ambiguity, neither full alignment with the West nor full independence from Russia – has led the country into such a precarious position, and with time working against the Serbian authorities, it would take a certain degree of a miracle to get out of the situation Belgrade now finds itself in. Although the authorities reassure citizens that there will be enough fuel so that the country will not be left without heating in winter, and that the situation with NIS will be resolved soon, one thing is clear: Serbia’s energy dependence has become a political vulnerability, and freeing itself from it will cost far more than the sanctions themselves.

Ivan Zhyhal is pursuing a PhD in Slavic Studies at the University of Fribourg. His academic background includes studies in the history, culture and politics of Eastern Europe and the Balkans, which have been undertaken in Minsk, Cluj, Warsaw and Bologna.

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Aleksandar Vučić, Balkans, energy policy, Serbia, Serbia-Russia