Western Balkans need to cut Russian energy ties and speed up EU power market integration, Bruegel says

Western Balkan countries need to move faster to wean themselves off Russian energy, integrate more deeply into the European Union’s electricity market and accelerate the shift away from coal if they are to strengthen their security and advance their EU ambitions, according to a new report published by the Brussels-based think-tank Bruegel.

The study argues that energy policy has become one of the most strategically important battlegrounds in the EU’s neighbourhood since Russia’s full-scale invasion of Ukraine in 2022, forcing both Brussels and aspiring member states to rethink long-standing dependencies and the pace of economic and regulatory convergence.

“To upgrade their energy sectors, Western Balkan countries should transition away from dependence on Russian energy, converge with the European Union through electricity market coupling and phase out coal,” the report said, adding that “significant strain characterises each of these transitions.”

The Western Balkans – Albania, Bosnia & Herzegovina, Kosovo, Montenegro, North Macedonia and Serbia – are far from uniform in how they are navigating these shifts. Serbia and Bosnia remain heavily exposed to Russia in oil and gas, while hydropower-dependent Albania is “the leader in the green transition”, and Montenegro is “relatively advanced in each of the three areas”, the report said.

But none of the six has yet aligned its energy regulation sufficiently with the EU to allow full electricity market coupling, a process initially pencilled in for 2027 but now looking increasingly unrealistic.

Strategic electricity corridor

Bruegel said there were compelling reasons for Brussels to push for faster integration. Despite being outside the EU, the Western Balkans already play a critical role in Europe’s power system.

“Up to 70% of electricity flows in the Western Balkans pass between EU countries,” the report said, underlining the region’s importance as a transit corridor linking southeastern Europe to the rest of the bloc.

Deeper market integration would make that system more efficient and resilient, the authors argued, while also helping to insulate both sides from geopolitical shocks.

“Faster integration would also enhance system efficiency, provide security against Russian interference and bring the benefits of complementary electricity markets to both the EU and the Western Balkans,” it said.

The European Commission has already committed to linking the region more closely to the EU’s internal electricity market under its 2024-2028 Growth Plan for the Western Balkans. Brussels sees energy as a practical area where cooperation can both support the green transition and build trust in a politically fragile neighbourhood.

“Energy is a pragmatic area for cooperation, potentially contributing to trust-building between different countries within the region,” Bruegel said.

Russia’s lingering grip

Yet the legacy of Russian involvement in the region’s energy sector remains one of the biggest obstacles.

“Russia remains influential for the energy sectors of Serbia and Bosnia & Herzegovina, primarily through oil refinery ownership and past reliance on Russian gas,” the report said. By contrast, Albania, Montenegro and Kosovo have no exposure to Russia in energy, while North Macedonia has made “significant efforts” to cut its dependence.

The most sensitive issue is ownership of oil refineries. All three refineries in the Western Balkans – one in Serbia and two in Bosnia – are majority-owned by Russian interests. The Serbian refinery, Naftna industrija Srbije (NIS), is by far the largest and most profitable, but it has also become a focal point of geopolitical tension.

NIS has been majority-owned by Russian state energy giant Gazprom and another Russian company since 2009, a structure that Bruegel said is “perceived as risky because Gazprom is Russia’s state energy giant, suggesting that Russia exerts direct influence over Serbia’s energy sector”. 

That risk materialised after the United States imposed sanctions on Russian oil companies in October 2025. As NIS is listed on the US Specially Designated Nationals list, the refinery lost key customers and access to finance, forcing it to halt production.

The shutdown was a severe blow to Serbia’s economy. Bruegel estimates that NIS previously contributed 2.5% of Serbia’s GDP, generated about €2bn in budget revenues in 2024, supplied up to 80% of the country’s motor fuels and employed 14,000 people.

“Serbia should use this moment to remove its oil infrastructure from Russian control,” the report said. “This is important not only for the continued operation of the country’s energy sector and of Serbian industry, of which the transport sector is particularly at risk.”

The think-tank said Serbia could use expropriation laws to force a buyout of Gazprom’s stake, followed by a sale to new investors. While Hungary’s MOL Group has expressed interest, Bruegel argued that broader EU involvement was needed, given the “high profit margins and significant Russian security-related risks”.

In Bosnia, the situation is more complex. The two Russian-owned refineries there are loss-making and survive only through financial support from their parent companies, making liquidation or restructuring politically and legally difficult.

Smaller role for gas 

Natural gas plays a smaller role in the Western Balkans than in the EU, accounting for just 9% of the region’s total energy supply, compared with around one-fifth in the bloc. Montenegro and Kosovo use no gas at all, while Bosnia and Albania rely on it for only 3% and 2% of their energy respectively.

The biggest users are Serbia and North Macedonia, where gas makes up 14% and 11% of energy supply.

Before the war in Ukraine, all gas consumed in Bosnia, North Macedonia and Serbia came from Russia, transported via the TurkStream and Balkan Stream pipelines. Since 2022, efforts have been made to diversify.

North Macedonia has already switched to Azerbaijani gas, and a new interconnector to Greece, due in 2027, will link it to the Trans-Adriatic Pipeline. Serbia has reduced its dependence on Russian gas from 100% in 2021 to 82% in 2024, also by tapping Azeri supplies.

But Bruegel warned that Russian leverage remains strong. Talks were held in 2025 about extending Serbia’s gas contract with Russia, and tensions over the NIS refinery could prompt Moscow to squeeze gas deliveries.

“There is a risk that [Azerbaijan] imports gas from Russia to ensure export volumes to the West,” the report added, meaning diversification on paper might not fully eliminate Russian influence.

In Bosnia, plans are under way to build a new pipeline linking the country to Croatia’s liquefied natural gas terminal on the Adriatic, but Bruegel questioned whether locking in long-term gas infrastructure made sense in a region that should instead be focusing on electrification and renewables.

“More focus on renewables (solar and wind) and regional electricity-sector integration would be a cheaper, safer and cleaner alternative,” it said.

Integrating the Western Balkans 

Beyond geopolitics, the biggest technical challenge is integrating the Western Balkans into the EU’s internal electricity market. While the region’s grids are already synchronised with continental Europe, regulatory alignment is lagging badly.

“Achieving market coupling by 2027 is unrealistic,” Bruegel said, pointing to uneven progress across the six countries and the added burden of complying with the EU’s carbon border adjustment mechanism (CBAM), which will require them to price carbon at levels similar to the EU’s roughly €80 per tonne.

Only Montenegro currently operates an emissions trading system, with a much lower carbon price of €24 per tonne, suggesting a sharp shock for utilities and consumers once EU rules are applied.

Still, the benefits of integration are potentially large. The Western Balkans’ mix of hydropower, wind and solar could complement generation in neighbouring EU states, smoothing out volatility and lowering costs. “The existing physical connections provide a basis for efficient markets,” the report said.

The other pillar of the transition is the phase-out of coal, particularly lignite, which still dominates power generation in much of the region. Despite abundant renewable resources, the “green transition has not gained momentum … because of still high dependence on lignite coal,” Bruegel said.