Russia, Serbia and South Stream

For Russia, South Stream further consolidates its energy umbilical cord to Europe; whilst for Serbia it will serve as an important bridge between East and West – one that will increase its regional negotiating power.

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By Jovan Kovacic

Russia has as of late increased its PR campaign in south-east Europe, filling a void of visibility that the USA has left behind with its growing lack of enthusiasm. Focusing on bigger issues, its own problems at home and the war on terror, the USA – albeit some worthy institutional support to various countries, including Serbia – is showing signs of weariness with the region, best illustrated by the fact that it has left the Kosovo negotiations in the hands of the EU.

So Russia is doing what any aspiring reborn major power would do and it is now doing it with a cause – not just to protect its growing interests and influence but now also its investment, one of the biggest and most important in Europe ever, the South Stream gas-line.

The gas-line is also important for securing Serbia’s future – with the first weld of the pipeline having just been made, Serbia is being placed for the first time in its history as a vital spot of Europe’s energy map, with serious geopolitical and security ramifications. The economic benefits include the creation of thousands of new jobs, massive mobilization of the construction industry, transit fee revenues, lower gas prices. The €1.9b investment is anticipated to account for at least a 5% increase in GDP. It will increase Serbia’s energy security and consolidate its energy policy, hitherto prone to erratic changes by each government. It will also contribute to Serbia politically by increasing its regional negotiating power. Despite some views to the contrary, the gas pipeline serves Serbia as a bridge between East and West.

Russian diplomacy, no longer satisfied with standing in the shadow, has gone on the offensive recently, placing itself in the spotlight by diverting a potential disaster in Syria. It won a lot of fans in the international arena by its adamant non-intervention policy, but also thanks to inexplicable mistakes by the US administration which permitted itself a non-affordable luxury of an Iraqi déjà vu.

Just 20 years ago, a pseudo liberal Russia was in ruins. But it survived a serious financial crash in 1998 and has recovered and grown ever since.  Twenty years ago, the chief concern of the world was whether its nuclear stockpiles could or would fall into the wrong hands.

Today, the questions about Russia are completely different – development of democracy, the  rule of law and civil society; heavy economic dependence on energy exports and other raw or semi-processed materials; the odds against reliance on very large conglomerates and state-owned companies. These are now routine questions asked about a major power with a rapidly growing economy and influence, also proven by the fact that Russia has joined the ranks of its former Soviet-era foes. It has become a full-fledged member of the Group of Eight. It chaired the Group Summit in 2006. It recently hosted a G8 summit in Saint Petersburg. It is currently chairing the G20. It closely cooperates with the Trilateral Commission. It is a member of the WTO and a candidate country for OECD.

To the point, Russia is a much more stable and prosperous country, and indeed will become even more so as the BRICS group takes its rightful place on the world scene. And it seems to know precisely what it wants and how to get it.

While Western powers are undecided and delay over alternative projects like Nabucco to counter South Stream, thereby diminishing the likelihood of them ever materializing, Russia is firmly and consistently consolidating its energy umbilical cord to Europe and its main allies in its venture today are its historically traditional foes – Great Britain and Germany.

While perhaps content to see Russia grow as a counter-balance to China, the US are by no means happy about Europe’s increasing dependence on Russian gas supplies since it erodes its strategic influence on the continent, nor about the fact that South Stream erodes Ukraine’s leverage over gas flows as the valve keeper to Europe. On the other hand, Europe’s options for energy supply are limited each day with the growing instability of the Middle East in the aftermath of the Arab Spring, once applauded but now dubbed as a Siberian Winter.

Whether Russia’s apparent PR offensive over recent weeks can serve as a wake-up call to Washington to reactivate its role in the Balkans – especially Serbia, where it seems to be losing interest – remains to be seen. It is still torn by a desire to play a more active role in Belgrade, but that is at odds with its support to Pristina. With the Brussels agreement nearing implementation and the resolution underway, it might be possible to reconcile this dilemma, but there are several other non-political, institutional issues that need to be cleared in Serbia internally for the big US investors to come.

Neither can D.C. be happy with the fact that a South Stream line goes through Republika Srpska on its way to the Federation of Bosnia and Herzegovina. Nonetheless, the line will help stabilize the security situation since there is a large imbalance of Western support in favour of Sarajevo. Parts of the international community have become by large a part of the problem and not the solution, and by indiscriminately favouring one side it is risking to undo all the accomplishments of Dayton and the early OHRs. The South Stream arm through the the RS will compensate this imbalance and Western diplomats should not be surprised that Banja Luka is embracing a friendly hand for the lack of another from the West, nor should they fault Moscow for grasping an opportunity presented on a platter by their rivals.

That said, friendship has never been or ever will be a defining factor in international relations – there are no emotions, only sheer political, economic and security interests that guide the foreign policies of countries. This has been lost on Serbia much to its detriment on numerous occasions. US-led NATO forces bombed Serbia in 1999, but Russia did not veto the action in UN Security Council. It was Russian forces that took control of the Pristina airfield and could have prevented NATO forces from landing in Kosovo that summer but pulled back. Another myth was dispelled several months ago when Serbs ranked only 14th among Russians polled about who their friends were. Germans and Ukrainians topped the poll. On the other hand, the USA and EU has since 2000 sent massive aid to Serbia worth billions of euros and Russia practically nothing.

Ignoring the rapidly changing political dynamics, Serbia is still not accepting the outstretched hand of friendship by NATO, memories still fresh from the 1999 bombing. However, it justifiably relies on Germany, its biggest foe in two world wars, for political backing on its road to EU membership. Today, Serbia owes a huge debt to Germany for accepting its hundreds of thousands of migrant workers, who send home billions of euros each year and thus play a huge role in sustaining Serbia’s economy.

As alliances rapidly shift, in historical terms, to suit the big powers, Serbia should stay neutral in the influence power struggle, at least until it fully recovers, but should never play a hostile role. It should be close enough to the fire to stay warm but not too close to get burnt. Serbia must never be fully dependent on any one side in any respect, but instead maintain mutual, cordial relationships with both sides and seek ways to profit most from these partnerships.

It has firmly set its sights on the EU, as it should, but it must also turn to distant and non-traditional potential economic and political partners. For example, like it found a partner in the United Arab Emirates a year ago. It should welcome India’s newly-underscored readiness to comprehensively invest in Serbia and New Delhi’s offer to transfer its vast and indispensable know-how. Globalization has made every country and continent in the world an accessible neighbour, and the fact that Serbia is now a border state to the EU makes it particularly attractive as a hub for EU-destined exports by third countries. For this it needs proactive, well-trained, smart, versatile and agile diplomacy and trade representatives.

A school of thought says that South Stream was a bad deal for Serbia. There is no public explanation from the previous government why the deal was struck as it was, but it claims to have been the best under the circumstances. Serbia probably could have negotiated a better deal if it had been at the time a more powerful country, unburdened by the Kosovo issue, with clearly defined goals and lines in the sand it would not cross. But all this is water under the bridge and a state, if it aspires to be a solid one with all the attributes which define statehood dating all the way back to Plato, must respect inter-state and all other agreements previous governments have signed, otherwise it sends a dismal message both to political stakeholders and to future investors.

On the whole, it is excellent opportunity for Serbia to have South Stream and the gas depository on its territory, it plays in its favour for a myriad aforesaid political, security, diplomatic and economic reasons.

However, to avoid bad deals in the future and to shore-up its negotiating position, Serbia must first clean up its house. It has to revitalize and develop itself to become the major player it deserves to be and regain friends and allies wherever possible. Serbia must rebuild itself both as a society and state from the ruins caused by wars, sanctions and rampant corruption. It must consolidate its democracy, clean-up state institutions and restore popular faith in them. Ruling parties must stop their tradition of treating ministries and government positions as spoils of war to reward the unfortunately often incompetent party faithful. It must mainstream its economic structure, rebuild the system of values and civil society, reform its judicial system, eliminate corruption and extremism, promote tolerance and accomplish numerous other equally difficult and important tasks. Of paramount importance is the articulation of medium- and long-term national goals to which all parties wishing their homeland well must strive to achieve regardless of their political differences. Administration must serve the people and help articulate and administer to their needs and not vice versa.

The good news is that all major powers, including USA and Russia, agree Serbia should be in the EU. If membership in the EU is a Holy Grail for Serbia, then the Quest for the grail is equally, if not even more, important, because of the often difficult and painful time-consuming reforms it would be forced to make along that path. The European community must help Serbia to navigate these turbulent waters because it is in its own paramount interest. These reforms, once implemented, will make Serbia a modern European country with a respectable political, legal, financial and economic system which will be able attract big potential investors and banks – all to its benefit and economic and political security. At the end, this will be good for the whole Balkans and thereby Europe. In this context, it must be noted that despite occasional ups and downs which are not always Belgrade’s fault, Serbia has come a long way in building good-neighbourly relations and promoting mutual confidence and trust in ex-Yugoslavia.

Much of the above coincides with the praise-worthy stated goals by the new government which, to give further credit where its due,  has launched a valiant struggle to finally extricate Serbia of the Kosovo issue’s political and economic stranglehold, and thereby to enable the Serbs there to live normal lives.  This government is the first to courageously recognize the limitations in the “Art of the Possible” in international negotiations theory and bravely face the dissatisfaction by a part of its citizens. In a country where many quote history but very few have learned any lessons from it, this administration boldly told its citizens that the Brussels Agreement is the best deal they could possibly get and reminded them of the fate of Croatian Serbs as a consequence of the Z4 Plan refusal.

If the all the aforementioned tasks are to be achieved, the Serbian government should be supported and left in peace to focus on accomplishing the above Herculean duty and not be continually targeted by various political factions, both at home and abroad, which themselves are want for a better solution, or by petty inter-party squabbles for short term political gain but long-term loss. Repeated calls for fresh elections divert focus and sap the much-needed energy required to achieve the above if Serbia and its generations to come are to have a bright, prosperous and secure future.

In this context, public dispute over which government official or what company is to blame for the bad gas deal or gas sales is like hanging out dirty laundry for everyone to see – it is not just poor form but a highly-detrimental message to world stakeholders, not to mention potential investors. This serious issue, like many others, should be settled professionally and certainly not out of the public focus but without the unwelcome populist and base publicity it has so far generated.

Finally, if there are open issues in the gas deal, then they can be dealt with among “friendly” Russian and Serbian counterparts to find the best solution for all. South Stream is here to stay for a long time and partners do need to stay happy. But in business, somewhat like in marriage, it is seldom that both sides are equally happy – it all boils down to the power of the initial negotiating position and who brings what to the marriage table. So we are back to back to square one – but this time the odds are in favour of Serbia – judging by the statements and actions of the current government and president, it now finally seems to know what needs to be done and appears committed to doing it to finally come out as a historical winner.

Jovan Kovacic is the president of East West Bridge.

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32 Responses

  1. Related to EU perspective from my point of view Serbia should think if joining to EU is worth of time, money and bureaucracy it demands. Visa arrangements, free trade and some EU programs are possible also for non-members. My estimation still is that there will be some grey area between non- and full EU membership called e.g. “privileged partnership” which now is on planning stage to solve question about Turkey. However I think that at this moment it would be good idea to continue EU process but not because of fulfilling EU needs. The motivation should be the needs of the beneficiaries aka Serbs not EU elite in Brussels. Also from my point of view Serbia should not put all eggs in the same basket; economical cooperation with Russia and other BRIC countries can create real development on the ground instead slow development on the EU’s negotiation tables. (More e.g. in my post Serbia’s EU association is not a Must – )

  2. Anonymous

    You conviently left out the fact that there was never a UN vote over the Kosovo war for Russia to veto and you left out the fact all countries closed there air space to Russian supply planes when they took Pristina airport.
    To me it seems like you wanted your readers to look at Russia more negatively.

  3. Pingback : November 2013 Review | TransConflict

  4. Amer

    The celebration of the First Weld on Nov 24 may have been premature – the European Commission stated today – Dec 4 – that South Stream is in breach of European Union law (all EU countries) and the Energy Community treaty (includes Serbia). The countries had been informed of this back in October, when they were told their agreements with Russia would have to be renegotiated. Ukraine’s pipeline may be safe for the foreseeable future.

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