Eurasian disunion – Russia’s vulnerable flanks - Part Thirty

Analysis 17 July 2018
Eurasian disunion – Russia’s vulnerable flanks - Part Thirty

The think tank Institute for Strategic Analysis continues publication of excerpts from a book “Eurasian disunion-Russia’s vulnerable flanks” to keep English-language readers informed of new trends, developments and analyses of President Vladimir Putin’s policies in former Soviet nations during his reign over Russia.

Part Twenty Nine

Croatia and Slovenia

Moscow aspires to open up Croatia for its energy penetration in the Adriatic region. One third of all Croatia’s energy imports, including crude oil and natural gas, originate in Russia, and nearly all of its gas imports are purchased from Gazprom. However, unlike Russia’s other regional customers, Croatia has been able to negotiate its purchases under conditions of spot prices rather than being locked into long-term contracts with Gazprom.

Moscow has endeavored to engage Zagreb in several politically charged energy deals. Gazprom attempted to acquire the controlling share of the Croatian energy champion Industrija Nafte (INA) in 2014, which demonstrated the symbiosis between energy, foreign policy, and official corruption. The Russian firm tried to buy the stake of Hungary’s MOL oil and gas company in INA and acquire another 5% stake on the Croatian stock exchange. Washington reportedly stepped in to discourage the MOL sale to Gazprom, but US influence over the Hungarian government has its limitations. Such a transaction would have given Moscow decisive energy leverage over both Hungary and Croatia.

The INA consortium represents an attractive target for Russian energy firms, considering the experience of the Croatian energy company in offshore and onshore operations and production in the Adriatic Sea and the Pannonian basin, respectively.79 MOL’s share in INA is just under 50%, while the Croatian government holds nearly 45%. The Hungarian company acquired management rights in INA in 2009, in a non-transparent deal that eventually resulted in the imprisonment of Croatia’s Prime Minister Ivo Sanader. In 2012, Sanader was found guilty of corruption, accused of taking a bribe from MOL to ensure the Hungarian company obtained management rights in INA. However, in July 2015, Croatia’s constitutional court revoked the verdict because of procedural errors and ordered a retrial.80 Given Moscow’s intervention in Ukraine and the Western sanctions on Russia, a potential deal with Gazprom would create problems for Croatia as an EU member forging long-term strategic cooperation with a Russian company.

Croatia has the potential of developing into a strategically important energy transit corridor to Central Europe, especially if the proposed Liquefied Natural Gas (LNG) terminal on the Adriatic island of Krk is built. This terminal would be linked with the existing Croatia– Hungary interconnector and continue to the Hungary-Slovakia border. The pipeline could also link with the planned Poland–Slovakia interconnector and with the existing Hungary–Romania interconnector. Such a project would complete an EU-backed Baltic Sea–Adriatic Sea–Black Sea network that would significantly reduce dependence on Russian gas by providing avenues of entry for diverse gas imports.

During Soviet time, Moscow constructed an energy network in Europe’s east that was deliberately intended to stifle regional integration and maintain dependence on the Kremlin. It has attempted to repeat this pattern under Putin’s rule. However, a major European energy project such as the projected North-South Corridor between Poland’s Baltic coast and Croatia’s Adriatic coast would prevent Moscow from using Croatia for its energy penetration throughout the region.

The Kremlin seeks to attract Croatia into its energy sphere in order to obstruct EU plans to construct an energy corridor across the Balkans or the North-South Corridor through Central Europe. In addition, Croatia possesses promising offshore energy reserves that Russia would like to exploit. Several Russian energy companies have offered investments to develop domestic pipelines to connect the planned LNG facilities in Krk and explore oil fields in the Adriatic. For instance, Rosneft has shown interest in the acquisition of Croatia’s INA and Slovenia’s Petrol, which would support Russian expansion in the region.

GazpromNeft has offered lucrative deals to Zagreb to enable it to use the Adria oil pipeline (JANAF) (connecting Croatia, Serbia, and Hungary) in reverse for Russian oil exports, instead of oil from the Middle East and other sources flowing into Central Europe through Croatia. 83 Such a reversal would cut Central Europe’s access to international oil markets, leaving the region more dependent on Russian oil from the Druzhba pipeline that crosses Ukraine and Belarus into the EU. By offering a pipeline extension from the South Stream project to Croatia, Gazprom also intended to block the Adria LNG terminal project on Krk, to prevent it undercutting Gazprom’s monopolistic ambitions. Rosneft, Lukoil, and Sibneft have also expressed strong interests in acquiring stakes in INA. Despite Moscow’s efforts, in July 2015, the Croatian government announced that it would construct an LNG terminal on Krk as a strategic investment that will contribute to the EU’s Energy Security Strategy.

Slovenia remains highly dependent on Russia’s gas imports, but its gas market is among the smallest in Europe, with an annual consumption of around 865 million cubic meters.84 Gas constitutes only 10% of the country’s primary energy supply, although Ljubljana pays one of the highest rates for Russian gas supplies: $486 per thousand cubic meters in 2013 Croatia’s Social Democrat–led government has focused on generating business with Russia regardless of the latter’s international censure. In a display of Moscow’s economic enticements, over 100 Croatian companies attended the Russian-Croatian Economic Forum and Business Conference in Moscow on February 17, 2015, while the Croatian Chamber of Commerce (HGK) and the Moscow Association of Entrepreneurs signed a cooperation agreement. 86 The Croatian delegation was headed by Economy Minister Ivan Vrdoljak to explore prospects in the chemical industry, construction, shipbuilding, tourism, and the car industry. US Ambassador to Croatia Kenneth Merten criticized the business forum, held at a time when the EU and the US were intensifying sanctions against Moscow for its attack on Ukraine.

Leaders of the opposition Croatian Democratic Union (CDU) asserted that the large business delegation sent the wrong message to the Kremlin that EU unity on Russian sanctions was brittle and that Croatia could be influenced by Moscow against Western solidarity. The forum took place one day after the EU broadened its sanctions against Russia to include an additional 19 individuals and 9 more companies. The list subsequently included 151 individuals and 37 companies. Under the sanctions, their EU-based assets were frozen and their entry to EU territory was prohibited.

On the propaganda front, Moscow applies pressure on various states from where volunteers have reportedly enlisted to fight Kremlin sponsored separatists in Ukraine. Despite the presence of Russian officers, soldiers, and mercenaries on the side of rebels in Donbas, Moscow perversely protests the participation of volunteers from countries such as Croatia on the side of the legally elected Ukrainian government. Officials vehemently protested a statement from Croatia’s Minister of Foreign Affairs Vesna Pusic confirming that a few Croatian volunteers were involved in combat operations on the side of the Ukrainian army.


Republished from a book "Eurasian disunion - Russia's vulnerable flanks".