The Balkans issue: where European energy and politics meet


The energy security problems in the Western Balkans would be for the EU to recognize the key role that the Western Balkans can play. Brussels also needs to recognize that the exceptional legal dysfunctionality in the region directly affects the Union’s energy security as it makes it very difficult for investors to put in place the finance to build the required infrastructure.

The Western Balkans could play a major role in improving the EU’s and its own supply security and reducing its dependence on Russian gas. Through investment in a liquified natural gas (LNG) terminal, reverse flow capacity, the IAP and new offshore and onshore resources, the region could make a significant contribution. However, all these states have substantial and systemic rule of law problems. This dysfunctional legality is likely to make most investors very wary of entering these markets and providing the capital necessary to complete these projects.

The dysfunctional legalism of the Western Balkan states after the Crimean annexation and Russian revisionism is, therefore, a threat to the European Union’s supply security. The Western Balkans are a key crossroads between the hydrocarbon resource rich states of Central Asia and the Middle East and the EU’s energy consumers in Western and Central Europe. The region’s dysfunctional legalism as described above undermines the willingness of international investors to develop new pipelines, terminals and new energy sources.

This situation is made worse by two further factors. First, Russian interests, which take advantage of local rule of law failures combined with their commercial influence to ensure that the region remains virtually wholly dependent on Russian energy supplies. Second, an underlying protectionism which again undermines EU attempts to liberalise Western Balkan markets.

The Western Balkans can improve Europe’s energy security in several ways.

The region has the prospect of becoming part of a new southern corridor for gas resources from the Caspian. This would involve developing a pipeline dubbed the Ioanian-Adriatic Pipeline (IAP) and carrying up to 5bcm of gas as far north as Croatia. IAP would be an extension of the Trans-Adriatic Pipeline (TAP) which will carry Azerbaijani gas from Greece to Italy. The current TAP project is currently the largest confirmed gas supply project which will come online in the next years. It will bring in all around 10bcm from the shores of the Caspian to Europe. TAP’s connecting pipeline, the Trans-Anatolian Natural Gas (TANAP) pipeline, can be upgraded to almost double capacity with compressor stations. Given the grave supply security situation and the fact that the initial pipeline will be built, there is likely to be considerable pressure to seek extra gas for TANAP/TAP either from the Caspian or from Northern Iraq.

Despite the importance of these huge gas infrastructures, a supply dependance remains.

Russia is the dominant supplier of oil and gas. Save for Croatia, no other state in the region has significant ‘own resource’ gas. This supply dependence gives Russian firms, notably Gazprom, significant leverage over states in the region. The most notable recent example is found in Serbia.

Serbia had already delivered almost the entirety of its oil and gas sector to Gazprom in 2008.

Serbia is part of the Energy Community. This applies the EU acquis in energy (and flanking measures in competition and environmental law) to the states of the Western Balkans, Moldova and Ukraine.

There are a number of questions here. How can a candidate Member State simply ignore requests from a regulator such as the Energy Secretariat regarding the compliance of the energy aquis? What is a Candidate Member State doing seeking to  increase its own supply dependence, and that of other EU and candidate Member States, on Russia?

The second problem is that of anti-open market state protectionism in domestic energy markets which undermines the willingness of investors to enter this sector in the Western Balkans. The most comprehensive example can be found in Croatia. Croatia was a member of the Energy Community for eight years before it joined the EU in July 2013. It is obliged under its Energy Community rules to liberalise its energy market. On becoming a Member State it is obliged to fully comply with the EU rules on free movement and over a three year time period fully liberalise its energy market. Protectionist policies in Croatia, although reduced, are still a problem because Croatia could have a key role in improving Europe’s energy security.

Given the level of legal dysfunctionality and protectionism, combined with other factors such as Russian influence, the Union needs to develop an effective strategy in this region to protect and then enhance its supply security. The EU needs to develop a two pronged approach to deal with these problems. At a horizontal level, a rule of law and anti-corruption programme needs to be put in place across the region to tackle legal dysfunctionality.

In respect of the energy sector itself, the EU could seek a significant upgrade of the Energy Community Treaty. The Energy Community Treaty seeks to apply the EU’s energy acquis but does not actually have the tools to ensure enforcement. The Energy Secretariat does not have the enforcement powers against states and companies that the European Commission has. Nor is there a court in which states and companies can be held to account. “Europeanising” the Energy Community Treaty system would make it much more difficult for states to resort to protectionism, limit Russian influence and enhance the application of the rule of law. Investors would know that EU open market and liberalization rules could be relied upon because they would be guaranteed by a supranational agency and court with direct applicability.

The net effect of a more ‘Europeanised’ Energy Community, ensuring greater compliance with open market energy rules, greater transparency and more effective surveillance, would be a significant enhancement to the Union’s supply security in the region.

The Union also needs to give consideration as to whether it should introduce into the accession conditions the requirement that no candidate Member State can increase its supply dependence. Such a requirement would be of practical benefit to the Union in reducing its supply dependence risk, while at the same time making it more difficult for Russia to succeed in increasing Europe’s supply dependence. Serbia and other candidate states would have to consider carefully which energy projects they undertake and whom they worked with in developing their energy markets. Hence it is worth the Union considering prescribing a ‘supply security’ condition into the accession process for candidate Member States.

There also has to be a recognition amongst the elites of the states of the Western Balkans, whether in the EU or aspirant Member States, that the ‘Tito Game’ played in the former Yugoslavia – i.e. playing the West off against Russia – is no longer an option.  By either joining the EU or entering upon the accession process, the successor states of the former Yugoslavia have made a definitive choice of the West and the EU.

The Western Balkans could play a significant role in enhancing the Union’s energy security at a time of increasing insecurity. However, the EU has to take problems of legal and energy market dysfunctionality seriously and develop a credible, and not just a reactive, response. The Union potentially has the tools in EU law, the accession process and the Energy Community Treaty. It needs to develop them and then be prepared actually to apply them. Meanwhile, the local elites have to recognize that,  by entering the EU or the accession process, they have made a decisive choice to which they must now be true.


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