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Serbian President Aleksandar Vučić had a very uncomfortable job when he met his Russian counterpart Vladimir Putin in Sochi last week to plead for a lower price for Russian gas.
In fact, before visiting Russia, President Vučić had told the Serbian press that he would “ask and beg”.
Ultimately, Putin complied with the request of his Serbian guest, so that the Serbian president has one less problem to fear before the Serbian parliamentary elections in April 2022.
However, the question remains whether there is a price to be paid.
Serbia’s gas supply on the route
Why was that an uncomfortable task for Vučić? Serbia is completely dependent on Russia for its gas supplies.
In 2008 Russia acquired a majority stake in NIS, Serbia’s national oil and gas company. The sale was below market price in return for Russia’s protection at the UN level in Kosovo and a promise that Moscow would build the now-decommissioned South Stream pipeline over Serbian territory. The opening of the Turkstream pipeline in 2021 confirmed the reality of energy dependence.
However, given the ongoing energy crisis in Europe, Serbia now fears high Russian gas prices.
In 2022 there are presidential and parliamentary elections in Serbia, as well as elections in the capital Belgrade.
President Vučić and his Serbian Progressive Party (SNS) are almost certain to win. But both still face the challenges of the COVID-19 pandemic and the economy, which may only experience a major downturn after power consolidates.
The Serbian leadership needs to show that the economy is still growing despite the pandemic. This was the main reason the government enthusiastically welcomed Chinese funding, despite the resulting deterioration in environmental and labor standards.
The UAE is also useful as a source of money and a domestic promotion tool. However, the high gas price would make things more difficult.
The first reason for Vučić’s concern was more immediate: the start of the cold season. High gas prices lead to higher costs for heating, electricity and food: Everything that voters observe in the run-up to the elections. In mid-November, high food and energy prices pushed the inflation rate down to 6.6 percent.
The Serbian pro-government daily Večernje novosti, known for uncritical and exaggerated praise of the Serbian leadership and Serbian-Russian relations, gave a detailed account of Serbia’s concerns ahead of the Putin-Vučić meeting.
Serbian gas consumption has doubled compared to previous years. Serbia pays Russia 270 dollars (€ 239) per 1,000 cubic meters because Serbia has been buying Russian gas since the Soviet era under a system in which 100 percent of prices are derived from the oil formula.
In view of the energy crisis, the state-owned Russian energy company Gazprom proposed to set the price 30 percent according to the oil formula and 70 percent according to the spot market price, which would mean that Serbia would charge 790 dollars (698 euros) per 1,000 cubic meters.
That is too much for the Serbian leadership. Likewise the alternative proposal, in which the price would be determined 70 percent by the oil formula and 30 percent by the spot market prices: a total of 510 dollars (451 euros) per 1,000 cubic meters.
Not an easy task
The Serbian head of state was hoping for a new agreement under which Serbia would buy three billion cubic meters of Russian natural gas annually for ten years.
Pro-government media in Serbia flaunted the idea that Vučić could get a fairer Russian gas price than countries like Germany, Belarus and Armenia.
The difference was that Germany, with a long-term supply contract, is a major buyer of Russian gas and Belarus and Armenia are Russia’s allies in the post-Soviet space.
More importantly, while Serbia insisted that the focus be on gas supplies, Russian presidential spokesman Dmitry Peskov stated that the two leaders would discuss bilateral relations, with energy being just one of the issues raised .
Why is that important? Last year, Serbia undertook a slight reorientation towards Russia due to the election of Joe Biden in the USA. However, 2020 was a very bad year for Serbian-Russian relations. Putin has not forgotten that.
What happened in 2020 Putin didn’t like the idea that Vučić was trying to settle the Kosovo dispute with Donald Trump’s help, which would mean Moscow would lose one of its last assets in the Balkans, and Belgrade’s relocation to Washington.
In order to ingratiate themselves with the West, pro-government tabloids in Serbia accused pro-Russian players of instigating violent protests against the lockdown in the summer of 2020.
Trilateral military exercises with Russia and Belarus have also been canceled. China has now replaced Russia as Serbia’s most important non-Western partner.
Putin didn’t forget how Vučić tried to outsmart him when he thought he was getting a better deal in the West. The meeting was almost certainly used to discipline Vučić.
Still, Vučić got what he wanted. After the meeting, it was announced that the price of gas for Serbia would remain at $ 270 and the amount of gas supplied would increase over the next six months.
Nobody knows what will happen after these six months. But Vučić got a present from Putin for the heating season – and for the elections. Vučić can also present himself to his voters as a skilled leader who enjoys the friendship of brotherly Russia.
What concessions were offered?
It can be assumed, however, that Putin’s gift is conditional.
On the same day, news circulated that Russia’s state nuclear construction company Rosatom could build a nuclear power plant in Serbia, although Serbian experts do not believe that Serbia has the necessary know-how and resources for such a company.
Russian companies are also expected to receive the construction of the Belgrade city and suburban railway system.
Above all, there are talks that Serbia could purchase Kornet anti-tank missile systems from Russia: a dangerous scenario as Serbia stopped buying Russian weapons in late 2019 for fear of US sanctions.
It remains to be seen whether these transactions will be completed and whether other favors that Vučić promised Putin will be revealed later in the game. After all, there is no free lunch.
Vuk Vuksanovic is a researcher at the Belgrade Center for Security Policy (BCSP) and a contributor to LSE IDEAS, a foreign policy think tank at the London School of Economics and Political Science (LSE). He holds a PhD in International Relations from the LSE. He has published numerous publications on questions of modern foreign and security policy.
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