Russia-Serbia ties stretch to breaking point

By bne IntelliNews September 2, 2008

Dominic Swire in Prague -

Serbian politicians have looked on in dismay at Russia's official recognition of the breakaway Georgian territories South Ossetia and Abkhazia - exactly what Serbia doesn't want to see happen with Kosovo. Yet the move is only one of many that's stretching the fabled ties between the two countries to breaking point.

The relationship between Serbia and Russia was underlined in January when Serbia signed a deal to sell 51% of state-run oil firm NIS to Russian energy giant Gazprom for what was widely regarded as a bargain €400m. On September 1, the Serbian daily Danas reported that Deloitte & Touche, the auditors hired by the current Serbian government to assess the value of NIS, has put the total value of the company at €2.5bn. At the time, analysts believed that part of Serbia's motivation for this generous deal was to secure Russia's support in its fight against the recognition of Kosovo's declaration of independence. "Russian support means everything we do right now is virtually legitimate. If you have some very influential country like Russia behind you, then the things you do have a certain weight," reasons Mladen Dodig, head of research at Synergy Capital in Belgrade.

Yet Russia's decision to recognise the independence of South Ossetia and Abkhazia has led to accusations of double standards, something which Russian Foreign Minister Sergei Lavrov vehemently denies. He says it is wrong to draw comparisons with the situation in Serbia. "The difference is evident between Belgrade's policy towards Kosovo and how [Georgian President Mikheil] Saakashvili's regime behaved towards South Ossetia and Abkhazia," Lavrov told the international press, referring to Tiblisi's recent use of force in the region following a declared ceasefire.

But not everyone is buying Lavrov's interpretation, with many countries sitting up and looking to reassess their relationships with Moscow, says Dr Michael Denison, senior analyst at Control Risks. "[Russia is] essentially accepting an intellectual argument for Kosovo's independence by citing it for their own security purposes. That puts them into a separatist camp that scares the horses not only in Serbia but in other states, which have been, if not allies, Russia's preferred strategic partners," Denison says, citing similar tensions in China regarding Taiwan and Tibet, as well as India's policy towards Kashmir.

We told you so

The move presented Serbia's government with a dilemma. Explicitly supporting Russia would contradict their policy towards Kosovo, yet condemning it would certainly anger Moscow. Instead, the foreign ministry issued a somewhat resigned statement effectively saying: we told you so. "The Republic of Serbia officials have continuously warned that the unilateral declaration of independence of Kosovo and Metohija, just as the recognitions of this illegal act, could have the nature of a precedent and destabilize other regions in the world... It can be surmised, with regret, that these predictions have come true."

Yet the spat in Georgia is only one of several recent moves by both countries that have tested the strength of the bond between the two Slavic countries. The relationship took its first blow earlier this year when Serbia's pro-Russian government was replaced by a staunchly pro-Western leadership that has placed EU membership as its number-one priority.

It was the previous government that negotiated the sale of NIS to Gazprom. However, Economy Minister Mlađan Dinkić from the country's new leadership decided to employ Deloitte & Touche to independently value the company, which the local newspaper report says is due to deliver that much higher figure in a confidential presentation to members of PM Mirko Cvetkovic's cabinet on September 1. There have been murmurs for months from various officials about the need to renegotiate the sale of NIS to Russia, something Moscow has publicly stated isn't acceptable. However, if the €2.5bn figure is true, then pressure from various quarters to halt the sale could become too great to ignore.

As if to rub salt into the wound, Serbian Defence Minister Dragan Sutanovac recently announced on Serbian television that his country would soon be signing a security agreement with Nato. It's a move that is bound to ruffle feathers in Moscow following the controversy surrounding Georgia and Ukraine's possible entry.

This straining of relations could not have come at a worse time for Serbia, as Belgrade desperately needs Russia's backing as it prepares to persuade the UN Security Council to review the legality of Kosovo's independence in its September session. "The question is whether Serbia can overlook this political shift in Russia and whether Russia can overlook Serbia's overtures to the EU," says Denison.

Either way, it seems both sides are in for a stormy few months.

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Russia-Serbia ties stretch to breaking point

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