San Francisco Frontiers - Serbia's sole refinery faces shutdown after US sanctions

President Aleksandar Vucic, speaking to the press in Belgrade, said the Pancevo refinery had scaled back operations, with a "complete halt" just four days away.

"It has not been shut down yet, but it is already running at a reduced level compared to normal," Vucic said, weeks after sanctions cut off the refinery's supply of crude oil.

The Petroleum Industry of Serbia (NIS) confirmed in a statement that the refinery had been reduced to a "warm circulation" as it prepared for shutdown if no new crude was received.

Since October 9, Belgrade has been scrambling to solve a looming winter energy crisis after the long-delayed measures came into effect as part of Washington's crackdown on Russian energy over the 2022 invasion of Ukraine.

Vucic said NIS had stockpiled enough fuel to last until the end of the year, with further reserves held by the government.

But he set a 50-day deadline for a deal to be reached between the Russians and a potential buyer, which includes bidders from Hungary and the United Arab Emirates.

If that failed, his government would be forced to buy the company, he said.

"We will have no choice. We will bring in our own management and offer the highest possible price."

- Negotiations -

With Russians holding a controlling stake in NIS, Serbian officials have had to hope their counterparts in Moscow were willing to sell.

Last week, NIS filed a new request with the US for a temporary exemption from the sanctions while negotiations were underway -- but there has been no movement from Washington yet.

Vucic warned that if sanctions remained, Serbia may face secondary measures, which could target the country's central bank if it continued to deal with NIS.

"There could be a complete halt in payment transactions and services to the population, cessation of card functionality, cessation of credit insurance, and everything else," he said.

Since sanctions were imposed, global Mastercard and Visa payment cards have been blocked at NIS petrol stations, while cash and payments with the domestic Dina card -- backed by the central bank -- have continued.

Following Vucic's comments, the National Bank of Serbia said it would cease working with NIS if a deal wasn't reached within the 50-day deadline.

In 2008, Serbia sold a controlling stake in NIS to Russia's Gazprom and Gazprom Neft for 400 million euros ($462 million).

Serbian officials have repeatedly warned that a solution for NIS must be found, increasingly raising the possibility of a state takeover if no other option emerges.

But for Vucic, who has close ties to Moscow, the option of seizing a Russian asset is particularly unpalatable. He has so far rejected the idea.

-'Attacks and blackmail'-

On Tuesday, he said his country had been left in an "increasingly difficult position" as Washington and the Kremlin clashed.

"Through no fault of our own, we have become the target of intense attacks and blackmail," he said.

"For nine months, we simply followed everything our Russian friends demanded of us."

"I just want to tell you that there are no easy solutions," he told the media, warning of huge flow-on effects for the economy.

Serbia, also heavily reliant on cheap Russian gas, remains among the few European countries not to impose sanctions on Moscow over the war in Ukraine.

Parallel talks on gas supplies are also underway, as Russia has been offering only short-term contracts in recent months -- a tactic Vucic has said was aimed at dissuading Serbia from seizing NIS.

F.Young--SFF