The past few months have proven challenging for Serbia. The Kosovo issue is seemly spinning out of control, presidential elections, of which no one is sure of the outcome, take place on January 20 and its staunch ally Russia is offering a political backing-for-economic assets swap.

Seemingly pressed up against the wall, Serbia is battling hard on Kosovo. The West has acquiesced in Kosovo’s plans to unilaterally declare independence in the next few months. (The European Union, the US and the UN have seen the Kosovo conflict in its present form as unsustainable and likely to incite violence and want Kosovo’s independence as soon as possible.)

Serbia, though, has not remained passive. It responded with a declaration, adopted by parliament in late 2007, which deemed all international decisions on the issue as “threatening its territorial integrity”. A broader interpretation of the document indicates that Serbia is prepared to delay its EU prospects if it has to trade them for agreeing to Kosovo’s independence. Serbia and the EU were scheduled to ratify the country’s stabilisation and association agreement in late January.

Within this situation, which threatened Serbia with diplomatic isolation, Russia came up with an offer that served as a litmus test for Serbia’s tenacity – political and diplomatic – to stand by its cause.

Right at the time when Serbia announced its declaration, Vecernije Novosti and Dnevnik, Serbian daily newspapers, circulated news that Gazprom, Russia’s gas giant, had reportedly submitted a confidential offer for Naftna Industrie Srbie (NIS), Serbia’s oil and gas monopoly. Gazprom is said to have offered 400 million euro for a 51 per cent stake in Serbia’s much-praised national asset and a further 500 million euro in investments. It also requested exclusivity for its offer, which would mean there would be no prospect of a competitive procedure or putting the stake out to tender.

Two other exclusive conditions included postponing compliance with EU environmental regulations and a protectionist ban on crude imports to Serbia from third countries until 2012. These three conditions automatically excluded the prospects of accepting any competitive bids for a company whose privatisation has been repeatedly delayed over political and economic reasons.

At various periods, NIS has been courted by Russia’s LUKoil, Hungary’s giant MOL, Austria’s OMV, Poland’s PKN Orlen and Romania’s Rompetrol.

What is more, Russia is said to have bundled the bid with a proposal to lay a section of the South Stream oil pipeline through Serbia, which, in Russia’s view, would have brought proceeds from oil transit fees to Serbia’s state coffers.

And finally, the Serbian media reported that Serbia and Russia were scheduled to sign an inter-governmental oil and gas agreement on January 18 in Sofia, during the January 17-18 visit by Russian president Vladimir Putin to Bulgaria.

Though both local and international media subsequently dismissed the plans, Gazprom’s offer indeed existed and it revealed several important developments that may affect events in the coming months.

The offer served as a strong test for Serbia. It created a political rift in the government, with Serbian president Boris Tadic and prime minister Vojislav Kostunica leading the chorus of potential proponents and economy minister and privatisation minister Mladjan Dinkic one of the avid opponents to the offer. Tadic said all proposals guaranteeing Serbia’s gas supplies over the next 30 years were worth reviewing.

“We cannot sell NIS for nothing nor hand it over for political reasons,” Tadic said in an interview with Novi Sad-based Dnevnik. “For this reason we are in talks with one potential partner. On successful completion of negotiations, Gazprom could become NIS’s strategic partner. On failure, we will look for strategic partners elsewhere.”

The prime minister and energy minister gave Tadic their support. Prime minister Vojislav Kostunica said in a New Year address that Serbia was in talks with Russia on a bilateral agreement with prospects to guarantee energy supplies for decades to come. Energy minister Aleksandar Poppovic said the overarching goal for Serbia was to ensure “stability in energy supplies”.

Dinkic dubbed the offer as “humiliating and unacceptable” because Gazprom’s offer was far below the market price of NIS. The company, he said, controlled 60 per cent of the gas market in Serbia and an even larger percentage of the oil market. Its assets alone were worth 800 million euro and its book value was put to two billion euro.

“I am not angry at the Russians, they are great negotiators,” Dinkic said, as quoted by Dnevnik daily. “I am angry at our (people) ... who are downgrading Serbia’s national resources.”

The litmus test of Russia’s did create a rift in Serbia’s political spectrum and sparked speculations that it was the economic cost Serbia had to pay for Russia’s political support on Kosovo.

Yet it also revealed Russia’s new instrumentality in its resolve to sustain its dominant role on the world energy market. And it is a natural move, despite Russia’s broad-reaching strategy to diversify its economy and gradually redirect it to knowledge-based products and services. At present, Russia is the world’s top exporter of oil and the second-largest exporter of gas. Proceeds from oil account for 36 per cent of GDP and gas 12 per cent of GDP, which means that almost one of every two roubles Russia earns is from energy.

It is natural for Russia, a country whose official foreign policy excludes political interference in nations’ internal matters but which is seeking to muster international influence through economic means, to seek business assets in countries regarded as trusted allies.

Russia’s offer for Serbia’s NIS is a variation of a bid it pioneered in Ukraine and other countries. For years, Russia has been keen on owning a substantial chunk of Ukraine’s gas distribution network as Russia moves about 80 per cent of its gas destined for the EU through this network (the remainder passing through Belarus). Though the political elite in Ukraine has, for years, strongly objected to the move by placing the gas and oil distribution networks of the country into the pool of strategic assets, Ukraine has repeatedly had to weather the political wrath of Russia. The most radical measures being repeated cuts in gas supplies in the peak winter season, largely explained by Russia through leakages along the distribution system and theft of gas on the territory of Ukraine. The more moderate measures were the step-by-step increase in gas tariffs for Ukraine.

The gas spat with Ukraine, which at times has joined forces with Belarus, is ongoing and for the time being Russia has emerged as the interim winner. Russia remains faithful to its incremental increases in gas tariffs to the countries of the Commonwealth of Independent States in a bid to bring the tariffs up to European levels. Both Ukraine and Belarus have suffered huge blows as their economies emerged unprepared. Even in December Russia signed several state loans with Belarus in a bid to subsidise the ailing economy after the gas tariff rises.

It is likely that the same saga will occur with Serbia. The Balkan state is hardly likely to accept, in an accelerated procedure, the offer of Gazprom. Nevertheless, it might well be that Russia withdraws its unwavering support for Serbia and its battle to retain Kosovo within its territory. Russia, whose strong support for Serbia has been attributed to Russia’s own fears that an independent Kosovo would set a secessionist example for separatists within its borders, may well stick to its successful home policy for keeping local secessionists at bay.

Such a situation would bring Serbia to another crossroads; to choose which global power to cling to. Which way it may choose, however, will be clearer once Serbia makes another important choice – on who the next president would be on January 20.