International sanctions refer to a wide range of actions that certain states take against others in order to pressure them to change aspects of their foreign and domestic policies.

In addition to targeting states, sanctions may also be directed at companies in which a significant portion of the capital is owned by states targeted by sanctions, or at politically exposed individuals, or persons with relevant political connections.

U.S. Sanctions in the Energy Sector

On January 10, 2025, the U.S. Department of the Treasury imposed sanctions on Gazprom Neft and Surgutneftegas (two of the most significant Russian oil producers and exporters) and more than 180 vessels (including the so-called “shadow fleet”), oil traders, oilfield service providers, insurance companies, and energy officials, aiming to target Russia’s energy revenue sources.

The Office of Foreign Assets Control (OFAC), a division of the U.S. Department of the Treasury responsible for enforcing economic and trade sanctions, identified a significant number of affiliated branches of Gazprom Neft and Surgutneftegas, which are subject to sanctions. All entities owned 50% or more, directly or indirectly, by Gazprom Neft, Surgutneftegas, or their sanctioned affiliates, are also subject to sanctions, even if not explicitly identified by OFAC.

Among the affected affiliates is NIS AD Novi Sad („NIS“), a subsidiary of Gazprom Neft based in Serbia.

Originally, the sanctions were scheduled to come into force on February 27, 2025, but their implementation has been postponed by 30 days.

Legal Challenges

Immediately after the announcement of the sanctions, an important question arose in the Serbian business community regarding the fate of contracts in which NIS is a party and the impact of the sanctions on existing contractual relationships.

Why Are U.S. Sanctions Significant for Contractual Relations in Serbia?

While the reasons for U.S. companies, which are subject to the imperative regulations of their home country, being obliged to comply with imposed sanctions and restrictions are clear, the question arises as to how these effects extend to other companies.

This will, understandably, mostly concern multinational companies operating in multiple countries with global supply chains. These companies often have business interests, and sometimes subsidiaries, in the U.S., which makes them directly subject to penalties for non-compliance with sanctions.

The impact of sanctions is especially significant in the financial sector. As mentioned, if a bank has branches in the U.S., those branches could be directly sanctioned. Sanctions may include asset freezes, bans on doing business in the U.S., or even bans on financial transactions with U.S. financial institutions. However, banking operations may be even more seriously jeopardized by sanctions.

U.S. sanctions have a broader global reach, as the U.S. financial system and its currency (USD) play a key role in global trade and finance. A bank that does not comply with sanctions could lose access to the U.S. financial market, including the SWIFT system, which would be a serious problem for international transactions.

Therefore, it was no surprise that all banks with foreign capital operating in Serbia would close NIS accounts as of the date the sanctions come into force.

Many companies that work with NIS have begun considering the grounds for terminating these contractual relationships, which mainly involve long-term supply agreements for oil and its derivatives for industrial and other needs, as well as the supply of consumer goods for NIS gas station stores, where these contracts do not provide for the possibility of simple unilateral termination with automatic effect.

What Legal Options Exist in This Case?

1. Force Majeure

Simply put, force majeure refers to circumstances that make the performance of a contractual obligation impossible, in which case the debtor is not liable for non-performance. Responsibility here includes civil liability for damages caused to the other party due to non-performance of the obligation, as well as possible liability based on a contractual penalty if it was stipulated in accordance with the regulations.

In this particular situation, many have primarily focused on the force majeure doctrine and analyzed the concluded contracts to check whether sanctions are provided as a circumstance for such an effect.

However, this is not necessarily required.

In Serbia, the force majeure doctrine is not explicitly defined by law. In domestic judicial practice and theory, circumstances under Article 263 of the Law on Obligations („LO“) – circumstances that arise after the conclusion of the contract which the debtor could not prevent, avoid, or overcome – are predominantly referred to by the term “force majeure.” However, even this provision does not explicitly mention force majeure.

The content of this institute is primarily defined in theoretical works and court decisions, and in one decision (Judgment of the Higher Commercial Court Pž 8706/07 from December 11, 2008), force majeure was defined as an unpredictable, unavoidable, and inevitable external circumstance that prevents the debtor from fulfilling their obligation with exceptional force.

It is not decisive whether the contractual parties have explicitly recognized a particular circumstance as force majeure in advance. In fact, even without a force majeure provision in the contract, the imperative provision of Article 263 of the LO may still apply.

Even if the contractual parties stipulate in the contract that a particular circumstance will be considered force majeure, this is not enough for the court to automatically recognize such an effect in the event of a dispute. In other words, there is no automatism in this situation, and it will be necessary to determine whether the effect of that circumstance, in the specific case, is such that it prevents the fulfillment of the obligation.

The rule for relieving the debtor from liability is supplemented by the rule in Article 354 of the LO, according to which the obligation itself terminates when its fulfillment becomes impossible due to circumstances for which the debtor is not liable. The consequences for the contract are further regulated by Article 137, paragraph 1 of the LO, which provides that when the fulfillment of one party’s obligation in a bilateral contract becomes impossible due to events for which neither party is responsible, the obligation of the other party also terminates.

Relieving the debtor from liability for damages caused by a breach of contract represents an exception to the general rule in Article 262, paragraph 2 of the LO and is therefore interpreted and applied restrictively.

Accordingly, in the case of a dispute arising from a contract with NIS, the court would assess the specific circumstances, the obligations of the contractual parties, and the effect of sanctions on them, as well as the possible consequences for the other party if the sanctions are not respected. In other words, it is possible that the court may take the view that, in a specific contractual relationship, U.S. sanctions have the effect of force majeure, while in another case, they may not.

In domestic practice, courts have already taken the position that excusable effects on the debtor’s obligation, equated with force majeure, exist in situations where non-performance of the obligation results from pressure and fear, rather than the debtor’s voluntary action (Judgment of the Supreme Court of Cassation Prev 173/11 from February 9, 2012), which can, to some extent, be equated with the effect of sanctions in certain situations.

2. Termination of Contract Due to Changed Circumstances

The Rebus sic stantibus rule in Article 133 of the ZOO refers to the possibility of terminating the contract (and changing it, though this is not relevant for this article) if, after the conclusion of the contract, circumstances arise that make it more difficult to fulfill one party’s obligations, or if they prevent the achievement of the purpose of the contract, to the extent that it is clear that the contract no longer meets the expectations of the parties and that it would be unjust to keep it in force as it is.

In this case, the party invoking the occurrence of the described circumstances may request that the contract be terminated, and in this case, we are dealing with judicial termination.

It should be noted that the determining circumstances under Article 133 of the ZOO only make the fulfillment of the obligation more difficult (not impossible) or affect the achievement of the contract’s purpose. Therefore, the possibility of applying this doctrine should again be assessed in light of the specific circumstances and the effect of sanctions on the specific contractual party and their obligation.

3. Agreed Termination Clause

It is very common for contracts to include certain circumstances that automatically lead to the termination of the contract. Here, it is not about the impossibility of fulfilling the contract but rather that the parties agree that if these circumstances occur, they no longer wish to maintain the contract in force. A typical example of such a circumstance is the initiation of bankruptcy proceedings against a contractual party.

Recently, it has been increasingly common for sanctions to appear on this list of circumstances, especially in contracts in the financial services sector. Although this is not a solution for the current situation for those contracts that do not contain such a provision, it should certainly be considered in the future when concluding contracts, particularly those that establish long-term debt relationships, in which the conditions for fulfilling the contract may change over time.

In Place of a Conclusion

As can be seen from the previous analysis, there is no single answer or solution that can be applied to all contractual relationships with NIS. The reasons for this are the very specific political situation, the complex sanction mechanism, and the variety of established business relationships. How these disputes will further develop remains to be seen.

*Co-authored by attorneys Ivana Ružičić and Ivan Todorović

This article is to be considered as exclusively informative, with no intention to provide legal advice. If you should need additional information, please contact us directly.