Where the Gas Goes Gazprom, Russia's state-controlled gas company, is the world's largest producer of natural gas. The country supplies many European countries with a majority of the natural gas they use.
||2006 Exports (in billions of cubic feet/year)
||% of Total Domestic Consumption
||Serbia & Montenegro
Sources: "Domestic Consumption," EIA International Energy Annual, 2007; "Exports 2006 and 2007," Gazexport as cited by Energy Intelligence, March 2008; "Sales to Baltic and CIS States 2007," CIS and E. European Databook. 2006 from Gazprom Annual Report.
Control Of Serbia's Energy Industry
Critics aren't so sure. The Gazprom deal came at a critical time, just as the Serbian province of Kosovo was preparing to declare independence, which Belgrade and Moscow opposed. Many believe pro-Western President Tadic, who was running for re-election, couldn't afford to displease the Kremlin.
In a cafe in Belgrade's down-at-heel Moskva Hotel, parliament member Slobodan Maras, of the opposition Liberal Democratic Party, criticizes Tadic for buying Russian political support.
"Signing away our energy industry was a huge price to pay for what we got," he says. "Now the Russians can direct our energy policy."
There's much more at stake than simply the Serbian energy market. Belgrade is part of a fierce struggle between Russia and the West over the future of energy supplies to Europe. A number of European companies had hoped to buy into Serbia's energy industry but withdrew because of the cost.
But despite the recent economic turmoil, Gazprom found the money because it wants to make Serbia the European hub of its planned new South Stream pipeline from Russia. The project is meant to compete with a planned European Union pipeline from the Caspian Sea that would cut out Russia by delivering Central Asian gas through Georgia. The Georgians say energy was a major factor behind Russia's invasion of their country last year.
The United States champions the European Union's Nabucco pipeline. U.S. Deputy Assistant Secretary of State Matthew Bryza, who has led the effort, says Russia's plan is part of a strategy to win control over the European gas market.
"That for us is worrisome because monopolistic control works against the efficiency of the market, distorts markets, and that means that our European allies pay much more for natural gas than they need to," he says.
Murkiness Surrounds Deal
But the view from well-heated Washington sharply differs from how ordinary people see things in Serbia, a country that's been on the brink of economic collapse for years.
Lighting her stove in the high-ceilinged kitchen of an old central Belgrade apartment, Ivana Gevic says the Gazprom deal is the only way to make sure gas supplies don't run out.
"But I'm worried Serbia is becoming enmeshed in a murky, high-stakes deal," she says.
In October, a shady intermediary company suddenly raised the price Serbia will pay for Russian gas by 60 percent. Critics say the intermediary is one of the obscure structures the Kremlin is using to secretly control the company's profits.
'Energy Strengthens Russia's Hand'
Final negotiations between Gazprom and Serbia were further complicated by Gazprom's insistence on paying only half the estimated value for Serbia's state oil company. The deal could still fall apart, but energy analyst Sasha Djogovic says Serbia, hit hard by the recent economic turmoil, has no real alternative but to agree to Gazprom's terms, and that's something Russia is exploiting.
He says the decision was based not only on economic reasons, but for political reasons, too. The energy sector is Russia's hand for strengthening its political power in the world, he says.
Such has been the success of Gazprom's strategy, Moscow is even setting up an organization of gas-exporting countries that some are calling a natural gas version of OPEC.
Djogovic warns that unless the West develops a common response, it risks losing the competition over European energy supplies. "In the energy market," he says, "Russia is a shark."