Serbia’s energy sector is on the brink of a crisis, as foreign banks are set to close the accounts of the Oil Industry of Serbia (NIS) in response to impending US sanctions. The move threatens to disrupt the operations of NIS, which controls around 80% of the Serbian oil derivatives market and operates over 400 petrol stations across the region.

According to reports by local media, foreign banks will halt transactions with NIS by February 24, ahead of the sanctions, which are set to take effect on February 28. The decision has far-reaching consequences for the energy landscape in Serbia, with one source close to the situation warning that the closure of NIS’s accounts could effectively paralyse the company’s operations.

"A company ceases to exist when its accounts are closed," the source told Nova Ekonomija, a Serbian magazine, on February 20. "Even if someone wants to violate sanctions, there is no way to pay money to NIS. The government of Serbia really must not play with it, because it can itself come under the impact of sanctions."

The closure of NIS accounts could have severe consequences for Serbia’s fuel supply. NIS operates a substantial portion of the country's petrol stations under the NIS Petrol and Gazprom brands. Sources suggest that after the closure of the accounts, some of the company's stations may stop dispensing fuel. However, stations operated by other companies such as OMV, MOL and Shell are expected to remain unaffected.

To mitigate the potential fallout, Hungarian oil and gas giant MOL announced plans this week to ramp up fuel deliveries to Serbia. MOL says it is working closely with both Hungarian and Serbian authorities to streamline oil transportation, but energy experts caution that these measures may not be sufficient to prevent a wider crisis.

In anticipation of potential liquidity issues, NIS management pre-emptively paid February salaries to employees on February 19. This precaution comes amid concerns that the suspension of international payments could endanger the company’s financial stability once the sanctions are enacted on February 28, unless the US grants Serbia’s request for an extension.

With NIS controlling nearly 50% of Serbia’s retail fuel market, the potential inability of the company to sell fuel could have widespread implications. However, government officials have reassured the public, saying that pumps will remain operational since certain Serbian banks are expected to continue processing NIS transactions, allowing fuel to be paid for with dinar cards or cash.

The crisis is a direct result of US sanctions, but also Serbia's longstanding dependence on Russian energy, with Gazprom and its subsidiary Gazprom Neft maintaining a controlling stake in NIS since 2008. The relationship has  exposed the country to significant geopolitical risks, particularly after Russia’s full-scale invasion of Ukraine in February 2022.

NIS has been under international scrutiny for years, with critics arguing that Serbia's 2008 sale of a 51% stake in NIS to Gazprom Neft for €400mn left the country vulnerable to external pressures. Now, with the US sanctions targeting Russian entities in the energy sector, NIS finds itself facing a potentially dire situation.

The sanctions, announced on January 10, essentially freeze NIS’s operational model and require Gazprom Neft to divest its 50% stake within 45 days (by February 28). Serbia has requested a 90-day extension, but is still awaiting a response from Washington.

The Serbian government is under increasing pressure to secure NIS’s future. Among the options being considered are the repurchase of Gazprom's shares by the Serbian state or the sale of the company to a third party. While nationalisation has also been discussed, the government has ruled it out, fearing it could strain relations with Russia, particularly as the two countries prepare for negotiations over gas supply contracts set to expire in March 2025.

Speculation is growing that third parties such as Shell, MOL or Azerbaijan's SOCAR may step in to acquire Russia's shares in NIS. Some local experts, including Goran Radosavljevic, a professor at the FEFA faculty, believe it is more likely that investors from the Middle East could become involved. "It seems more realistic to me that some players from the Middle East will appear. It wouldn't surprise me if the Russians don’t want to sell their stake," Radosavljevic said in an interview with Nova Ekonomija.

The ongoing uncertainty comes at a time of heightened social unrest in Serbia, following a deadly infrastructure collapse at Novi Sad train station in November 2024. The tragedy sparked months of  protests that have mobilised mass crowds in towns and cities across Serbia. Fuel price hikes and potential fuel shortages could exacerbate these tensions, especially for farmers who are already on the streets and find that their fuel subsidies that are now at risk.