Balkan Oil War

A new kind of war is facing war-weary Bosnia. This time it's nothing to do with guns or bombs. It's all about oil, but the suffering could still be severe for this small country struggling to repair its economy from the conflicts that tore it apart in the 1990s.

What's happened is that neighbouring Croatia has moved to choke off the cheap oil Bosnia used to get from Slovenia, in the hope of forcing it to buy dearer Croatian supplies. On January 12, Zagreb announced without any prior consultation that transit of oil across its territory would be confined to a limited number of routes and border crossing points.

The official excuse was that Croatia wanted to protect its environment and combat the smuggling of oil derivatives. But no such restrictions were imposed on the country's main oil company, INA, which now will enjoy a dominating advantage over Slovenian oil.

Slovenian and Bosnian authorities reacted angrily, claiming the measures were discriminatory and violated international conventions requiring countries to accord foreign oil industries the same treatment as that enjoyed by domestic companies.

The Croatian, Bosnian and Slovenian governments are still negotiating but with little signs of reaching compromise. Industry analysts agree the move will radically change the oil business in the whole region.

Over the past ten years, oil has one of the most profitable industries in the Balkans with Croatia and Slovenia competing for the growing Bosnian market. Bosnia's own oil refinery in Bosanski Brod, damaged and looted during the war, has since resumed limited production, satisfying only a small part of the country's expanding needs. Even that amount is a subject of constant bickering between the country's Serb, Croat and Muslim (Bosniak) communities.

Despite loud complaints from Bosnia and Slovenia, as well as warnings from within Croatia itself, the government of Croatian Prime Minister Ivica Racan went ahead with the restrictions.

Zagreb has restricted the flow of oil into Bosnia to four border crossings: two along its northern border at Bosanska Gradiska and Orasje, and two in the south-west near Kamensko and Crveni Grm. A Bosnian government request for a fifth at Izacic near Bihac in the west of the country was rejected.

If Izacic had been approved, Bosnia might have accepted the other restrictions. But Zagreb claimed an outlet there could harm the environment of its nearby Plitvice national park. Sarajevo replied that this rejection proved Croatia's restrictions had nothing to do with smuggling or the environment and everything to do with boosting the country's petrochemical industry.

Bosnia's geo-political position makes it dependent on neighbours for oil and most other forms of trade. Aside from borders with Croatia and the Federal Republic of Yugoslavia, Bosnia has only one other small exit to the outside world. This is the small coastal town of Neum which serves mainly as a vacation centre and cannot berth large ships.

Sarajevo viewed Croatia's move as yet another attempt to isolate Bosnia, invoking bitter memories of the war when many of the country's cities were besieged.

Making the situation even worse, Croatia's choice of border crossings

excluded Bosnia's Muslim-dominated areas. Three are located in areas with a Bosnian Croat majority, Orasje, Kamensko and Crveni Grm, while the fourth, Bosanska Gradiska, is in territory dominated by Bosnian Serbs.

The Muslim-dominated western part of Bosnia, already in deep economic trouble, will be hardest hit by the new restrictions. Selection of Izacic would have given the area a crossing point of its own. Now the economy looks set to worsen in the entire Bihac region.

Bosnia and Slovenia have decided to hit back. Slovenia is taking the softer line in filing a complaint with the World Trade Organisation but Bosnia has opted for stronger measures.

On January 17, the Sarajevo authorities ruled that Croatia's thriving exports of oil derivatives would only be allowed in through a border crossing not on the Croatian list. And Bosnian customs at the four crossing points chosen by Zagreb will accept only oil tankers from third countries, effectively shutting out Croatian oil.

In addition, the three Bosnian communities set aside their differences and moved to boost production at the Bosanski Brod refinery. As a result, the refinery is expected to resume full production in a few months. Bosnian leaders and industrialists are trying to raise five million US dollars for reconstructing and upgrading the refinery's facilities. The aim is to produce unleaded petrol and euro diesel in line with latest European quality and environmental requirements.

If the money is found quickly, production could start as early as this summer, said Vojin Mujicic, director of the Bosanski Brod facility. Such a development could transform Bosnia from import dependency to an exporter of oil products.

Should this plan work, the Croatian economy and its INA oil company could

be the biggest losers of this "Balkan Oil War". In recent years, INA has been exporting to Bosnia oil derivates worth 80 million dollars a year. This made Bosnia the number one importer of Croatian oil with a 23 per cent share in the country's petroleum exports.

To make the situation even worse for Croatia and its oil industry, Bosnian

leaders are preparing regulations which would establish new quality

requirements for export of oil derivates to Bosnia. These regulations

would be in accordance with European standards which INA cannot now meet.

Zdravko Latal is the Bosnia-Herzegovina correspondent with the Slovenian

daily Delo and Croatian business magazine Privredni Vijesnik.