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Gas in exchange for sincere warm feelings

Riddle Russia believes Moscow will not succeed in convincing Belgrade to recognise Crimea as Russian or give up European integration

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Amidst the deteriorating energy crisis in Europe, the Kremlin has made an electoral gift to Serbian President Aleksandar Vučić. For the next six months, Moscow’s Balkan ally will receive gas at the old price of USD 270 per thousand cubic meters, and a new long-term agreement will also be beneficial for Belgrade, as Vladimir Putin suggested. People in the Balkans are debating about the potential political price of this move. Meanwhile, Russia should not expect any noticeable concessions from its strategic partner, which relies primarily on cooperation with the EU, the USA and China.

The negotiations in Sochi which were held in late November between Presidents Vladimir Putin and Aleksandar Vučić resulted in Gazprom’s agreement to continue to sell gas to Belgrade at a low price: USD 270 per 1,000 cu.m. More favourable terms are offered perhaps only to Belarus (USD 128.5 per 1,000 cu.m.) and China (USD 171 per 1,000 cu.m.). Serbia is not the only country in Europe which cannot pay the market price but Moscow is again demonstrating its readiness to support first of all the ones it considers its allies and strategic partners. For the sake of comparison, the price for Moldova, where power has gone in the hands of people who are distant from the Kremlin, is no longer as attractive at USD 790 in October and USD 450 in November per 1,000 cu.m.

According to statistics, Serbia is the fourth largest buyer of Russian gas in the Balkan Peninsula (after Croatia, Greece and Bulgaria). It satisfies just under 13% of its own demand through domestic production and imports the remaining gas exclusively from Russia. In recent years, Serbia has received more than two billion cubic meters per year, and is now considering increasing its gas supplies to three billion.

Rapprochement after annexation

What are the advantages of Serbia that the Russian authorities are willing to reward with gas bonuses? Apart from deeply running warm feelings for Russia, how does Belgrade officially respond? Serbia does not criticise the Russian authoritarian model and the Kremlin’s foreign policy. It was under Vučić that, as shown by research, that Serbia opened the door to Russian influence and intensified cooperation, also on sensitive issues. After the annexation of Crimea, Serbian authorities, who aspire to EU membership, did not only refuse to impose sanctions against Moscow, but also continued to expand military ties with Russia. Joint military exercises are held at least twice a year, and Belgrade also accepts Russian military equipment as a gift.

Serbia is the largest importer of Russian arms and military equipment in Europe. Over the past few years, Russia has provided Serbia with 30 upgraded T-72MS tanks, 30 BRDM-2 armoured fighting vehicles, seven Mi-17 and Mi-35 helicopters and six MiG-29 fighters. Belgrade has also purchased a battery of Pantsir-S1 rocket launchers. The delivery of the Kornet anti-tank missile system is expected in the near future. Vučić has announced that he would like to have the Russian S-400 system, but Serbia cannot afford it at present. Following his last visit to Russia, he said that his country would receive «important, big things of strategic interest» in the near future.

With the status of Russian strategic partner, Serbia is the only country in the Western Balkans that is developing cooperation with Moscow in the area of security. Of particular value to the Kremlin is the promise from the Serbian authorities to maintain neutrality and not to join NATO. Furthermore, Serbia is the westernmost member of the Eurasian Economic Union (EEU) free trade zone, although it has no plans to tighten the integration.

As for other positives for the Kremlin, Belgrade stays out of its disputes with Ukraine and actually helps Moscow to bypass Ukrainian territory when transporting gas to Europe. (At the end of September, Gazprom signed a new contract with Hungary, which will receive 4.5 billion cubic meters of gas annually for 15 years via Austria and Serbia, which deprives Kiev of the opportunity to buy gas via virtual reverse).

More than energy

Many observers have labelled the gas agreements in Sochi as a pre-election gift to Vučić. However, Moscow can fully afford to make such a gift. The Kremlin is once again giving a good hint to other countries in economic dire straits showing where they should look. As for Gazprom, it is capable of covering such losses in other markets, especially under the current market circumstances. The boom of gas prices in Europe generated record profits for the Russian company: Gazprom earned 1.5 trillion roubles in the first nine months of 2021. This sum already exceeds the profit for any calendar year in the company’s history.

Since the advantageous gas agreement signed with Serbia in 2012 expires at the end of this year, the meeting with Putin was presented in the media as a «rescue» meeting. What will be the ultimate political price for Serbia? Clearly, if the gas supply becomes an issue for the Kremlin rather than line ministries or businesses, this means that discussions go beyond the topic of energy.

Although some experts in the Balkans fear Belgrade’s growing dependence on Russia, there is not much room for Russian expectations. What the Kremlin should not expect in any case is the recognition of Crimea as Russian, Belgrade’s rejection of its strategic foreign policy priority of joining the European Union, and distancing itself from NATO. Moscow still has very limited opportunities to exert political influence on Serbia. Serbian businesses (with the exception of the energy sector) have long been focused on Europe. The European Union and Washington are the key investors, financial donors and security guarantors for Serbia. Incidentally, Serbia was completing another round of military exercises with the Americans on the day of the high-profile gas deal with the Kremlin.

The claim about «the choice between Russia and Europe,» which Belgrade is allegedly facing, is often injected into the Russian information space alongside claims that dozens of economic and military agreements signed with Moscow allegedly make it more advantageous for Serbia to join the EEU rather than the European Union. However, such assertions are not based on facts. Belgrade is indeed committed to close and friendly cooperation with Russia, but maintains an unchanged course towards EU accession, and the Serbian political elites do not seek closer integration within the projects proposed by Russia.

On the one hand, Moscow has benefited from the slowdown of European integration and NATO expansion in the Balkans in recent years, but, on the other hand, this does not lead to greater distancing of Serbia from the EU or NATO, as desired by the Kremlin. Belgrade has been developing partnership relations with NATO for 15 years, and has signed at least five legally confirmed agreements. Among them is the agreement on cooperation in the field of logistics support, which provides for freedom of movement and immunity for NATO personnel.

Diplomatic immunity for NATO officials is an irritating factor in Russian-Serbian relations. Among the concessions that Moscow has been seeking from Belgrade in recent years is the idea to grant similar immunity to the staff of the Russian-Serbian humanitarian centre in Niš, which addresses the consequences of natural disasters and mine clearance. It has not been possible to grant Moscow’s request in this sphere without damaging the relations with Western partners because the USA and EU fear that this centre could be used for covert special operations in the region. A favourable gas price is unlikely to be an incentive to resolve this issue in Moscow’s favour.

In the shadows of the West and China

As for Serbia’s foreign economic relations, Russia is now the fourth largest partner (after Germany, Italy and China) with a mutual trade volume of USD 2.5 billion. The amount of Russian investments is estimated at USD 3 billion. Some positive news for the Kremlin have hit the headlines in recent months: Serbia started producing the Sputnik-V vaccine (and is preparing to start producing Sputnik Light booster). Moreover, after a long break, Russia is buying a Serbian strategic enterprise again: this time it is the petrochemical plant HIP Petrohemija in Pančevo, the only producer of polymers and synthetic rubber in Serbia. The business will be taken over by Naftna Industrija Srbije (NIS), where Gazprom Neft holds a 56.15% stake.

At the same time, Sberbank is leaving the region after a decade of expansion. In early November, its European division signed an agreement to sell its subsidiaries in Central and Eastern Europe, including ones in friendly Serbia, where Sberbank had been successfully earning profit. The main reasons behind this move include an unfavourable geopolitical situation and absence of strong performance indicators due to competition and a small market share. For political observers, this market exit is an indication of Russia’s weak position in the Balkans.

Compared to other countries in the region, Serbian politics often looks pro-Russian, which is largely due to eloquent Aleksandar Vučić, who knows how to emphasise the importance of brotherhood with Russia or Vladimir Putin’s superiority over other world leaders.

Meanwhile, Vučić’s admiration for the Chinese power seems no less genuine, and at times even more convincing. For example, after the outbreak of the pandemic, Serbia became the first European country to buy several million doses of China’s Sinopharm vaccine without waiting for WHO approval. The Serbian leader often offered compliments to Beijing and has even kissed the Chinese flag. Despite Vučić’s deliberations about the benefits of Russia’s S-400 systems, in 2019 Serbia bought Chinese drones and the FK-3 missile defence system, which is based on the Russian one. Before that deal, it was believed that Russia held a monopoly in supplying a whole range of arms to the Serbian market.

Vučić has been equally enthusiastic in demonstrating to Brussels and Washington that his policies are not pro-Kremlin. For example, in 2019, shortly after signing a free trade agreement with the EEU, the Serbian leader announced that the agreement would become invalid after Serbia’s EU accession. Russia continues to be among Serbia’s main foreign policy pillars, along with the European Union, the USA and China. However, the Russian leg looks increasingly weak because of sanctions and the long-standing conflict with the West, which remains the most influential player in the Balkans. Gifts such as gas bonuses look essentially unavoidable in order to strengthen this pillar. Moscow cannot withstand competition with China’s multibillion infrastructure projects, let alone offer an equal substitute for European integration.

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