ANALYSIS:Russia is using oil and gas to lubricate and leverage its burgeoning relationship with Serbia, writes DAN McLAUGHLIN
DMITRY MEDVEDEV’S arrival today in Belgrade, as the first Russian president to visit Serbia, will send a strong message to the West that the Kremlin is determined to hold on to its main ally in the Balkans, even as the region makes a concerted push towards EU and Nato membership.
The talk will be of ancient alliances and unbreakable Slavic bonds, but the substance of Medvedev’s visit will deliver vital emergency cash and long-term investment prospects to Serbia and strengthen Russia’s position in a Moscow-friendly enclave surrounded by pro-western states.
Top Russian officials say Medvedev will deliver a €1 billion loan to his cash-strapped hosts, who need the money to cover their expected 2010 budget deficit and finance much-needed infrastructure projects.
Serbian ministers have suggested the loan will be offered on more favourable terms than a €3 billion aid package already agreed with the International Monetary Fund, which helped stabilise the country’s economy but also committed the government to a tight spending plan. The cash injection could also see Russian companies take key roles in projects to build a metro system in Belgrade and a ring-road around it and deepen their involvement in Serbia’s energy industry by investing in a new gas-fuelled power station and a €200 million improvement of heating plants in the Serbian capital.
As the most persuasive tools in Russia’s foreign policy armoury, oil and gas are central to its burgeoning relationship with Serbia.
When Medvedev visited Belgrade as a deputy prime minister in February 2008, it was to set the seal on a landmark agreement that saw the Serb government sell the state oil monopoly, known by the acronym Nis, to Kremlin-controlled gas behemoth Gazprom.
The deal went through despite howls of protest from some Serb politicians, including liberal economy minister Mladjan Dinkic, who called the €400 million that Gazprom paid for perhaps Serbia’s finest industrial asset “humiliating”.
The Russian company, of which Medvedev was once chairman, also agreed to invest €500 million in Nis over the next few years, but that did not stop critics calling the deal – which did not go to international tender – a blatant quid pro quo for Moscow’s support over Kosovo.
The Kremlin stood firmly behind Belgrade in its ultimately fruitless effort to prevent Kosovo declaring independence and being recognised by most major countries, blocking all western gambits in the United Nations Security Council.
Moscow successfully parlayed Serb gratitude into strategic reward, securing not only Nis at a knockdown price but swiftly tying Serbia into the South Stream gas pipeline project that is Russia’s direct rival to the EU’s Nabucco scheme.
Both are intended to bring gas from central Asia across the Black Sea to the Balkans, then feed it north into the heart of the EU, but while Nabucco is aimed at reducing the bloc’s dependence on Russian energy, South Stream would only increase it. Advocates of the project, which includes construction of a big gas storage site in Serbia, say it will make the country a major energy hub in southeastern Europe and provide it with much-needed revenue from gas transit fees.
For Belgrade, the plan is part of a delicate balancing act which it hopes will allow Serbia to maintain and develop its close political and economic links with Russia, while still attracting US and EU investment and moving towards its stated goal of EU membership.
During Medvedev’s visit and beyond, Russia and Serbia appear poised to maintain a two- track strategy, co-ordinating political opposition to Kosovo’s independence while deepening their business links. As something of a sweetener on the eve of the president’s arrival, the Bank of Moscow – which opened a Serbian branch last year – gave Nis a €100 million loan.
“Despite the efforts of protectors of Kosovo’s independence, they will not succeed in presenting it as an irreversible process and in closing that issue,” Medvedev said in an interview with a Belgrade newspaper.
Russia will support Serbia when the International Court of Justice holds a December session on Kosovo’s independence, while its officials will expect a favourable hearing in Belgrade today when, in Medvedev’s words, they discuss “plans for the realisation of big joint projects”.
By coincidence or not, Medvedev will land in Belgrade on an intriguing day for the wider region.
In Bosnia, senior EU and US officials will try to persuade local Serb leaders to accept painful reforms that would help the country move out of a damaging political impasse and towards EU and Nato membership. Russia has already said it will not support any solution that is opposed by the Bosnian Serbs.
In Poland, meanwhile, US vice president Joe Biden will arrive today at the start of a trip that will also take in the Czech Republic and Romania this week.
As Biden strives to reassure central Europe that it will not be frozen out by the new White House administration’s drive to “reset” relations with Russia, Medvedev will seek to ensure that Moscow’s ties with a key ally at the heart of the Balkans cannot be undone by Washington or Brussels.
Dan McLaughlin is based in Budapest and reports on central and eastern Europe for The Irish Times