Russia may have largely lost its sway over Europe’s oil and gas market, but its position in the Balkans remains strong. The continued presence of Russian energy companies such as Gazprom and Lukoil in Serbia, Bulgaria, Greece, North Macedonia, and Bosnia-Herzegovina gives Moscow influence over the region’s politics and economy. Time, however, is not on Russia’s side. In the medium and long term, Moscow’s energy footprint will decline.
The Balkan section of the TurkStream gas pipeline continues to work at capacity, shipping over 12 billion cubic meters (bcm) of Russian gas per year. Its main customer is Hungary, which currently relies on TurkStream for 3.5 bcm of the 4.5 bcm per year contracted from Gazprom in 2021 for a fifteen-year period. Last month, Gazprom agreed to supply Hungary with an additional 0.6 bcm per year via the Balkan route.
TurkStream also supplies Serbia with 2 bcm, which fully covers the country’s own requirements. In May 2022—several months into Russia’s full-scale invasion of Ukraine—Serbian President Aleksandar Vucic oversaw the signing of a three-year supply deal with Gazprom.
Greece cut its purchases of Russian gas from 3.1 bcm in 2021—just over 50 percent of its gas imports—to 2.7 bcm in 2022: about 34 percent of imports. Yet data for last October indicate that over half of the gas entering Greece that month has come from Russia.
Gazprom has also continued to supply North Macedonia and Bosnia through the Bulgarian and Serbian grids, respectively, without interruption.
The exception is Bulgaria, which was cut off by Gazprom in April 2022—in a breach of the long-term supply contract—over the country’s reluctance to pay in rubles, as opposed to U.S. dollars as stipulated in the contract. But even there, at least some of the gas delivered from alternative suppliers such as Greece’s DEPA probably comes from Russia. In addition, the long-term deal signed between Bulgargaz and Turkey’s BOTAS at the beginning of 2023 could see the latter reselling Russian gas on the Bulgarian market.
Nor has the oil market undergone any particularly dramatic changes, despite the EU-imposed embargo in force since December 2022.
In Bulgaria, the Lukoil-owned Neftochim refinery near the port of Burgas continues to rely on Russian crude oil, thanks to an exemption from the sanctions that Sofia secured last year. Prior to the war, the facility procured half of its crude from Iraq and Kazakhstan. Now, when other routes to deliver Russian oil to Europe are shut, the supply is almost 100 percent Russian. Neftochim processed 4.5 million tons of Russian crude between January and September 2023. Bulgaria therefore became the fourth largest importer of Russian oil after India, China, and Turkey. Much of Neftochim’s output, analysts claim, was then re-exported to the EU and the United States, creating a back door for Russian oil. It is also claimed that this loophole in the sanctions has generated over 1 billion euros for the Russian budget in the first nine months of 2023.
For this reason, the fate of Neftochim has become a contentious issue in Sofia. The pro-Western government has terminated Lukoil’s concession to run the Rosenets sea terminal, which many had linked to undocumented imports of Russian crude. Last month, the government appointed a state trustee to oversee Lukoil’s business. As Finance Minister Asen Vasilev admitted in a Financial Times interview, the end goal is to force the Russian company to sell the refinery, just as it did the ISAB facility in Sicily, Italy, and may eventually do with Romania’s Petrotel plant.
Yet there is pressure on Bulgarian Prime Minister Nikolay Denkov’s cabinet, notably from GERB, the largest parliamentary party in the governing coalition, to end the exemption on Russian crude—which expires on October 1, 2024—immediately. GERB’s leader Boyko Borisov, a former prime minister, was previously close to Lukoil, but is now burnishing his pro-Western credentials by opposing Russian business. The cabinet, dominated by the reformist We Continue the Change-Democratic Bulgaria (PP-DB) alliance, has been more circumspect, fearing the disruptive effects on the domestic market. After all, Neftochim doesn’t just supply Lukoil’s retail operations, but its competitors such as OMV and Shell too. On November 17, GERB and PP-DB cut a deal to terminate imports on March 1. In the long term, Bulgaria and Greece are discussing a pipeline that could ship crude to the Neftochim refinery from the Aegean Sea, providing an alternative to the congested traffic through the Bosphorus and the Dardanelles.
The sanctions against Russian oil have prompted Gazpromneft, the Gazprom subsidiary that has controlled Serbia’s national oil company Naftna Industrija Srbije (NIS) since 2008, to rearrange its business. In May 2022, Gazpromneft’s stake in NIS decreased from 56 percent to 50 percent, with 6 percent going to the firm’s parent company registered in the Netherlands. The transfer, which aimed to shield NIS from Western sanctions, preceded Vucic’s negotiations with Russian President Vladimir Putin on a new gas contract. The Serbian state remains a minority stakeholder to a near co-owner with 29.87 percent of the shares. In addition, owing to the EU embargo, the company is no longer processing Russian crude, previously delivered through the Adria pipeline connecting Serbia to Croatia. Serbia has announced plans for a pipeline to Hungary, which still imports Russian crude, though Budapest’s exemption will lapse at the end of 2024.
Although Russian dominance of the Balkan oil and gas market may appear undented, there are medium- and long-term factors which put that dominance in question.
The Balkan states are in the process of diversifying gas supplies. Serbia has secured 0.4 bcm a year from Azerbaijan, to be delivered through the EU-sponsored interconnector pipeline with Bulgaria that is expected to become operational at the end of the year. It will also benefit from physical connectivity to the floating storage and regasification unit (FSRU) at Alexandroupolis, a port city in northeastern Greece, which could become a regional gateway for liquefied natural gas (LNG). Bulgaria holds a stake in the facility, while Serbia’s Vucic attended the launch ceremony.
Bosnia-Herzegovina, meanwhile, will eventually obtain a physical link to the LNG terminal on the Croatian island of Krk, which aims to double its capacity. The so-called Southern Pipeline is projected to link Mostar and Sarajevo with Split, Croatia.
In addition, Russian gas may well become more expensive for the Balkans. Last month, Bulgaria slapped an additional fee of 10 euros per megawatt-hour on Gazprom’s shipments through its section of the TurkStream pipeline. Serbia is shielded from the adverse effects, as its contract is based on a fixed price and Russia cannot pass on the extra cost. Hungary, however, is up in arms, accusing Bulgaria of going against European solidarity. Bulgaria, of course, has a counterclaim against Gazprom with regard to the volumes it has not received over the past fifteen months or so, so Sofia may well stick to its guns. In the worst-case scenario, flows through Southeast Europe could be disrupted. Even in a more benign scenario, Gazprom may reconsider the price it charges Serbia once the contract comes up for renewal in 2025.
There is also a longer-term challenge looking at the 2030s. Russian gas—and natural gas in general—was seen as a transition fuel as the Balkans phase out coal. But the volatile supply, high prices, and geopolitical risks are making such a scenario less and less feasible. The region will invest more in renewable energy, prompted by the EU, but also exploiting local advantages in solar and wind power, as well as hydropower. Nuclear energy rather than gas-burning thermal power plants will provide the baseload power, compensating for intermittent output from renewable sources. Romania and Bulgaria are pursuing plans for additional units at their existing nuclear stations at Cernavoda and Kozloduy—and it is not Russia’s Rosatom providing the technology, but its Western competitor, U.S.-Canadian corporation Westinghouse.
While Russia’s near monopoly on the oil and gas market in Southeast Europe looks secure for now, therefore, there will be less and less Russian gas and oil sold on the local market going forward, as Balkan governments and companies look elsewhere for supplies.
