U.S. Sanctions Impact Serbia’s Oil Sector as Waiver Expires

Serbia’s oil sector faced significant challenges on October 12, 2023, as the United States allowed a sanctions waiver for Naftna Industrija Srbije (NIS) to expire. This decision exposes the Gazprom Neft-linked refiner to U.S. sanctions, disrupting crude flows through Croatia’s JANAF pipeline. The lapse follows a series of extensions and will influence NIS operations under a short license from the Office of Foreign Assets Control (OFAC) that remains valid only until October 15.

NIS is a crucial entity in Serbia’s energy landscape, operating the Pančevo refinery. It supplies approximately 80% of the country’s gasoline and diesel, as well as over 90% of jet and heavy fuel oil. The refinery boasts a nameplate capacity of around 4.8 million tonnes per year. Ownership remains predominantly Russian, with Gazprom Neft holding 44.9%, an affiliated investment arm owning about 11.3%, and the Serbian state controlling 29.9%.

In a statement, NIS confirmed that the U.S. license allowing for “unhindered operations” was not renewed and that sanctions took effect at 06:00 local time, raising concerns about the refinery’s future operations. The company assured customers that it has adequate inventories and that retail locations will remain open, allowing payments in dinars should foreign card transactions be disrupted.

Serbian President Aleksandar Vučić warned that without new crude deliveries, the refinery might face operational strain after November 1. However, he expressed confidence that current stock levels would meet domestic demand through the end of the year.

Economic Implications for Serbia and Croatia

The repercussions of the sanctions extend beyond Serbia. Croatia’s economy ministry announced it would comply with U.S. and European Union measures regarding the sanctions and confirmed the status of JANAF’s license through October 15. According to a statement from JANAF, the operator is coordinating closely with the government and U.S. legal advisers. The potential loss of throughput from NIS could result in a revenue decrease of approximately €18 million.

Croatian officials are also addressing the corporate fallout. Economy Minister Damir Habijan emphasized that Croatia would “fully respect allied sanctions.” Meanwhile, JANAF executives noted that crude transportation to Serbia has halted, pending further decisions from Washington.

Before the sanctions took effect, JANAF had received short-term U.S. authorization to continue shipments until October 15 to complete existing contracts. Reports indicate that JANAF’s transport agreement with NIS is set to run through the end of 2026, representing about one-third of the pipeline’s annual revenue. The termination of this contract could have severe implications for Croatian pipeline earnings.

The evolving situation highlights the interconnectedness of the energy markets in the region and the significant risks posed by geopolitical tensions. As both Serbia and Croatia navigate these challenges, the focus remains on maintaining energy security and economic stability in light of the new sanctions regime.