For many years there has been relative peace within the Balkans. The UN Rambouillet Agreement, led by Bill Clinton and Tony Blair was seen as the dawn of a new age, where the Cold War would end and liberal order would prevail.
But over recent years peace has come under strain. Conflict in the Middle East, Russia-Ukraine, the Sub-Sahara Africa and now rising tensions in Kosovo, which is demonstrating very dangerous signs of boiling over. Violence erupted in northern Kosovo in September, and Belgrade responded with a military build-up on its border with its neighbour.
Vučić, an admirer of Putin’s tactics may attempt to reimpose Serbian control over Kosovo, while the world is distracted by the war in Ukraine. A war here would have serious ramifications for the Balkan region, and the peaceful legacy from the 90s, and potentially undermine the increasingly impotent UN.
In March 2024 the US government issued a report via ODNI (the Office of the Director of National Intelligence) that specifically highlighted Bosnia & Herzegovina and Kosovo as areas of concern.
The impact of Russia.
Russia’s full-scale invasion of Ukraine continues, and the knock-on effect on the Balkans’ region is significant, not only from a risk of a further expansion of the war but that these countries appear particularly vulnerable to Russian disinformation campaigns.
Russia has traditionally had strong ties with Serbia, and together with Bosnia and Bulgaria, has not supported anti-Russia sanctions.
A notable recent tie is the establishment of a ‘humanitarian centre’ in Niš. However, credible reports suggest that this centre might be an intelligence hub or a covert military base. Additionally, paramilitary groups with ties to the Kremlin, such as the Night Wolves and the Wagner Group, have a presence in the region.
Impact of Türkiye.
Erdogan has been positioning Türkiye as an energy hub, for the transport of hydrocarbons from Iran, Central Asia, and Azerbaijan. In the Autumn a new deal was agreed between Erdogan, Serbia’s Vučić, Dodik from Republika Srpska and Azerbaijan’s President Aliyev facilitated by Hungary’s Viktor Orban to pump a further billion cubic metres of gas from Türkiye through the Balkans to Hungary. This is in addition to the volumes already pumped through pipelines such as “Turkstream” to the Southern Balkans and Italy. It is no secret that these routes are a backdoor for Russian oil and gas into Europe.
Impact of China.
China and Russia maintain common interests on diplomatic issues in the West Balkans, seeing it as a region at the forefront of the growing polarisation of the world. They both oppose, for example, recognition of Kosovan independence, or further EU expansion. But China is also playing an increasing role in the region’s economy, not because it is a large market for Chinese goods, but because it is a stepping stone to the much larger European market. Under the Belt and Road Initiative, it has invested or loaned over $30 billion to these countries.
However, this investment is not without controversy. The US intervened to block China’s takeover of the Croatian port of Rijeka, and a Chinese-backed highway in Montenegro remains unfinished, but we’ll come back to this later.
What is the UK government doing?
A Lord’s Committee has been monitoring the situation and made the following recommendations to the government:
- Continue to work with and press Serbian and Kosovo leaders to implement commitments made in the Brussels and Ohrid Agreements.
- Re-evaluate whether to join Operation Althea, a peace-keeping mission.
- Provide funding for a BBC Albania Service equivalent to the BBC Serbian provision, to help counter the spread of disinformation in the region.
- Employ longer-term finding instruments for development programmes in raw regions, helping the countries plan for long-term economic success.
- Deepen economic ties with the region and complement the EU’s efforts to stabilise the region, co-ordinate sanctions and anti-corruption programmes with the EU to drive down kleptocracy.
Impact on international trade.
Investment and alignment
The Balkans region relies heavily on international exports for its economic development and stability. The EU created bilateral FTAs, referred to as “Stabilisation and Association Agreements” (SAAs) with each of the Western Balkan Partners:
- Albania (2009)
- North Macedonia (2004)
- Montenegro (20120)
- Serbia (2013)
- Bosnia and Herzegovina (2015)
- Kosovo (2016)
In effect, the SAAs constitute the legal instrument for alignment to the EU acquis and progressive integration into the EU market. The SAAs have established a free-trade area over a transitional period which has now ended for all but Kosovo (2026).
The Agreements foresee the elimination of duties and non-tariff restrictions on bilateral trade and cover goods in all Chapters of the Harmonised System. Only a few exceptions, concerning some agricultural and fishery products, are not fully liberalised and are subject to reduced duties and/or preferential quantitative concessions.
The UK is committed to bolstering the economy of these countries, in the hope it will prevent war. In March 2024 the government announced it will boost British exports and investment into the Western Balkans with up to £15.75bn available in the region in export finance. In particular, the government will support projects that will accelerate the transition from coal and develop wind power, to reduce the region’s reliance on Russia.
This investment is partly driven by the growing popularity of the far-right Eurosceptics, and the many elections taking place in 2024 (including within the EU), that might encourage more polarisation on policies across the Balkans.
Some of the funding will be used for the Morava Corridor Motorway in Serbia, which remains unfinished as mentioned earlier, as connecting the industrial city of Krusevac to other commercial centres and the port city of Bar in Montenegro is essential for long-term economic development in the area.
The Middle Corridor
As the risks of Houthi rebels continue in the Suez Canal and Red Sea, Europe and China have been exploring their options. The ‘Middle Corridor’ is a trade route that would link China to Europe through Central Asia and the Caucasus, essentially the ancient Silk Route. This runs from Kazakhstan’s eastern border with China and transports goods via the Caspian and Black Sea, rather than the Cape of Good Hope diversion that is currently adding c.19-37 days to all imports from China.
The Middle Corridor is not a singular transportation route, but rather, a network of interconnected road, rail, and sea routes. It leverages various infrastructure investments that are ongoing to increase cargo capacity.
Once the infrastructure is ready it would reduce transit times to c.14 days.
Currently, the Middle Corridor has relatively few points of friction and conflict along its route. The largest friction point—the war in Ukraine and its spillover into the Black Sea—could be mitigated by utilising a Turkish land route from the Caucasus. However, what happens to the Middle Corridor if war does break out in the Balkans, or Russia repositions its Black Sea Fleet?
Do you have questions about how geopolitical tensions might affect your supply chain?
