A Serbia-based Gazprom Neft subsidiary, NIS a.d., has recently been affected by U.S. sanctions targeting Russian gas companies. As time runs out for a solution, the risk grows that these sanctions may impair the company’s ability to supply oil and oil derivatives to the citizens of Serbia and disrupt the regional oil supply chain.

U.S. Sanctions Affecting NIS – What Are They?

On 10 January 2025, the Office of Foreign Assets Control (“OFAC”), an agency of the U.S. Department of the Treasury, imposed a new set of sanctions targeting Russia’s oil production and exports to further reduce Russian revenues from energy (“OFAC Sanctions”).[1] These sanctions have been enforced pursuant to Executive Order (E.O.) 14024 against individuals and entities operating in the Russian energy sector.[2] The OFAC Sanctions are set to take effect on 27 February 2025, and their implications could be significant, as other businesses and financial institutions may stop cooperating due to the risk of secondary sanctions for engaging with sanctioned entities.

Among others, the OFAC Sanctions apply to Gazprom Neft PJSC, a Russian state-controlled oil company and subsidiary of Gazprom PJSC, recognized as one of the largest oil producers in Russia (“Gazprom Entities”).[3] They hold a majority stake in Serbian company NIS a.d. Novi Sad (“NIS”), which, as a result, also fails under the scope of the OFAC Sanctions.

NIS – Why It Is Important?

NIS is the leading Serbian oil company and one of the largest vertically integrated energy companies in Southeastern Europe. It is also the largest contributor to the national budget and one of the most profitable companies in Serbia.[4]

This is not the first time NIS has confronted the threat of international sanctions. In 2022, the European Union imposed similar sanctions on Gazprom Neft PJSC, which then held 56.15% of NIS. To mitigate the impact of these sanctions on NIS, Gazprom Neft PJSC divested 6.15% of its stake to the non-sanctioned Gazprom PJCS.[5] The Serbian Government (“Government”) continues to hold a 29.87% stake in NIS, with the remainder held by minority shareholders.[6]

A similar attempt is currently underway, as Gazprom Neft PJSC has reduced its share in NIS from 50% to 44.85%, while Gazprom PJCS’s share has increased from 6.15% to 11.30%.[7] However, according to prevailing interpretations, this time an intra-group restructuring may be insufficient to alleviate the impact of U.S. sanctions on NIS.

If this proves to be the case and the OFAC Sanctions are enforced, NIS’s ability to operate will be severely jeopardized, affecting the energy supply chain in Serbia. Indeed, press reports indicate that NIS is already facing challenges with banks, suppliers and buyers.[8] Furthermore, this situation could have broader implications for regional energy stability, including the flow of oil through Croatia’s JANAF pipeline system, which transports crude oil from the Adriatic Sea to Central Europe.[9]

Looming Energy Crisis – What Are Possible Courses of Action?

Currently, a “buffer period” is in effect to enable the Gazprom Entities to divest their ownership of NIS before the OFAC Sanctions take full effect. With support from the governments of Serbia and Hungary, NIS has requested a suspension of sanctions for at least ninety days while it seeks a sustainable solution for its ownership and management structure.[10] This request is still under consideration. Meanwhile, diplomatic efforts are ongoing, aimed at lifting the sanctions or exempting NIS from their application.

If the U.S. government maintains the OFAC Sanctions or refuses to exempt NIS – thereby effectively requiring a withdrawal of the Gazprom Entities from NIS – the Government may consider acquiring additional shares in the company. Similar proposals have surfaced for a non-sanctioned company to purchase the majority ownership package from the Gazprom Entities at a price set by them.

The Government may also explore a restructuring of the business model currently employed by NIS and its counterparts.[11] Additionally, it is already negotiating with other oil companies to bolster fuel supply in the event that the sanctions affect their availability in the Serbian market.[12]

If these efforts prove to be insufficient and an amicable solution is not reached, the Government may ultimately resort to taking control of NIS without the consent of the Gazprom Entities, the measure it currently considers as an undesirable option.

Regardless of the outcome of any restructuring of NIS, disruptions in NIS’s operations may lead to commercial and investment disputes, which may primarily be resolved through international arbitration.

By Dragana Nikolić, Dalibor Valinčić, and Dániel Dózsa

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[1] U.S. Department of the Treasury, Treasury Intensifies Sanctions Against Russia by Targeting Russia’s Oil Production and Exports, 10 January 2025, available at https://home.treasury.gov/news/press-releases/jy2777?utm. Similar sanctions have been also imposed by the United Kingdom the following day.

[2] U.S. President, Blocking Property with Respect to Specified Harmful Foreign Activities of the Government of the Russian Federation, 15 April 2021, Federal Register Vol. 86, No. 73, available at https://ofac.treasury.gov/media/57936/download?inline.

[3] About Gazprom, available at https://www.gazprom.com/about/.

[4] Company, available at https://www.nis.rs/en/company/.

[5] NIS Annual Report 2022, p. 22, available at https://www.nis.rs/wp-content/uploads/2023/05/AR_2022_ser.pdf.

[6] NIS Annual Report 2023, p. 96, available at https://www.nis.rs/wp-content/uploads/2024/05/GodisnjiIzvestaj2023-EN-FINAL.pdf.

[7] Belgrade Stock Exchange, NIS a.d., Novi Sad – The Recent News, 26 February 2025, available at https://www.belex.rs/trgovanje/vesti/hartija/NIIS.

[8] Večernje novosti, “Exit from The Crisis in Delaying Sanctions: U.S. Sanctions Against NIS Could Have Serious Consequences”, 21 February 2025, available at https://www.novosti.rs/ekonomija/vesti/1460653/izlaz-krize-odlaganju-sankcija-americke-kaznene-mere-nis-mogle-izazovu-ozbiljne-posledice. 

[9] JANAF, Press Release, 10 January 2024, available at https://janaf.hr/news/1991#0.

[10] Government of the Republic of Serbia, Official Request to US for Postponement of Sanctions on NIS, 4 February 2015, available at https://www.srbija.gov.rs/vest/en/242590/official-request-to-us-for-postponement-of-sanctions-on-nis.php.

[11] RTS, “Waiting for the American Decision on The Request to Postpone Sanctions Against NIS”, 25 February 2025, available at https://www.rts.rs/lat/vesti/ekonomija/5660518/cekajuci-americku-odluku-o-molbi-za-odlaganje-sankcija-nis-u-.html.

[12] RTS, “Đedović Handanović: There is No Room for Panic and Fear; Citizens Will Be Able to Refuel Just as Before”, 26 February 2025, available at https://www.rts.rs/lat/vesti/ekonomija/5660746/djedovic-handanovic-nema-mesta-panici-i-strahu-gradjani-ce-moci-da-toce-gorivo-kao-i-do-sada.html.