Serbia’s industrial performance in 2025 cannot be understood without examining the disruption that emerged in the country’s oil refining sector and the broader strategic risks attached to energy security. The February 2026 issue of MAT – Macroeconomic Analyses and Trends makes clear that while Serbia preserved modest macroeconomic growth and continued to expand exports, one industrial shock had an outsized influence on overall production dynamics: the collapse of output in petroleum refining linked to the crisis around Naftna Industrija Srbije (NIS) and the Pančevo refinery.
The economic importance of this disruption goes far beyond one industrial branch. It touches manufacturing stability, trade performance, fiscal expectations, and Serbia’s exposure to geopolitical pressure through energy ownership structures. In 2025, total industrial production increased by only 0.9%, a weak result relative to previous expectations, and the MAT analysis explicitly points to the refining disruption as one of the decisive reasons the year ended below plan.
The damage became most visible in the final quarter of the year. In December 2025, Serbia’s total industrial production fell 5.7% year-on-year, while manufacturing output contracted 8.3%. Within manufacturing, the single most negative contribution came from the branch “production of coke and petroleum products,” where output collapsed by 94.3% compared with the same month of the previous year. The production index of this branch relative to the 2024 average fell to only 6.5, indicating that production had effectively been reduced to a minimum level.
This was not an isolated monthly fluctuation. The MAT report describes a progressive deterioration over the course of 2025. In the period from May to September 2025, production in the coke and petroleum products branch was already down by roughly 10% year-on-year. The decline then deepened to -30.3% in October, around -44% in November, and finally the sector reached near-standstill conditions in December. The report notes that the refinery’s output was reduced to a minimum, and that only in the latter part of January 2026 did operations begin to recover, with the first quantities of refined petroleum products leaving the refinery on 27 January.
The significance of this collapse lies in the structure of Serbia’s industrial economy. The refining branch is not just another manufacturing segment. It sits near the center of the domestic energy-industrial system because it affects fuel availability, input costs, logistics, downstream industrial activity, and trade in refined products. The MAT document underlines that this branch, viewed in isolation, can explain the entire fall of manufacturing output in December. In other words, the wider manufacturing contraction at year-end was not simply the result of generalized weakness across all industries; it was heavily amplified by the near shutdown of one strategically critical asset.
That fact matters for macroeconomic interpretation. Without the refinery crisis, Serbia’s annual industrial outcome would likely have been closer to plan and perhaps even somewhat stronger. The MAT authors explicitly state that the direct effect of the slowdown and eventual stoppage at the Pančevo refinery “mechanically ate up” most of the expected industrial growth. This is an important distinction because it shows that Serbia’s 2025 industrial weakness was not solely the result of cyclical demand conditions in Europe. It was also the result of concentrated domestic vulnerability attached to ownership and geopolitics in a systemically important energy company.
The roots of that vulnerability lie in the ownership structure of NIS. The report points directly to the issue that Gazprom Neft is the majority owner of the company and that the uncertainty surrounding sanctions against the Russian partner created mounting operational pressure. In earlier phases of the crisis, there had been hope that a legal and ownership arrangement could be found that would allow NIS to continue operating normally while still respecting the international sanctions regime. By the time of this MAT issue, however, that scenario had become increasingly difficult. The report states that full implementation of sanctions against the Russian partner, together with the interruption of supply through JANAF, made the earlier hope for a stable workaround much less viable.
That passage is critical because it reveals the deeper economic lesson of the NIS crisis. Serbia’s energy risk is not simply a question of commodity price volatility or hydrological conditions in the power system. It is also a question of ownership architecture and international political alignment. In the refinery case, industrial output was not primarily constrained by market demand or production inefficiency. It was constrained by political and legal uncertainty attached to the status of Russian ownership under sanctions pressure. The MAT report therefore concludes that the performance of this branch became subject not to economic considerations but to geopolitical flows outside Serbia’s control.
This is precisely what makes the NIS issue a strategic economic risk rather than a sector-specific business problem. When a systemically important industrial asset becomes vulnerable to international sanctions, the consequences spread rapidly across manufacturing, foreign trade, fiscal collections, and investor confidence. The refinery’s reduced output weighs on domestic production statistics directly, but it also weakens export volumes, affects import substitution, and complicates planning for industries reliant on stable fuel supplies.
The trade data in the MAT document reinforce this point. Among the weakest export performers in manufacturing during 2025 was the branch production of coke and petroleum products, where exports fell by €66.4 million, or 14%, compared with the previous year.
This reduction in exports matters because Serbia’s total trade structure is heavily dependent on manufacturing. In 2025, total foreign trade turnover reached €74.927 billion, exports reached €33.068 billion, imports €41.859 billion, and manufacturing accounted for 87.6% of total exports. When one strategically important manufacturing branch experiences such a sharp disruption, the shock passes immediately into the external sector.
Yet the NIS crisis also unfolded within a broader energy context that was already placing strain on industrial performance. The MAT report notes that the sector “supply of electricity, gas, steam and air conditioning”, which accounts for 15.3% of total industrial production, experienced a long downward tendency beginning in December 2023, only stabilizing from the middle of 2025 onward. The eventual stabilization came thanks to higher production of thermal electricity from public power plants and increased generation from solar energy, while the main constraint on full recovery during the year was weak hydropower output.
Hydrology was a major factor. Due to drought, hydropower production in Serbia fell sharply from April 2025 onward on a year-on-year basis and also remained significantly below the medium-term average. Although conditions improved toward year-end, allowing hydropower output to rise 16.9% in November and 8.1% in December, annual hydropower production for 2025 still ended about 18.5% lower than in 2024. Only in January 2026, after more abundant rain and snowfall across the region and Central Europe, did output recover by 11.1% year-on-year and approach the long-term average.
Placed beside the refinery crisis, this hydropower weakness reveals the two main forms of energy vulnerability currently embedded in Serbia’s economy. The first is climate-related variability affecting hydro generation. The second is geopolitical and ownership-related risk affecting oil refining. One stems from weather and hydrology, the other from sanctions and international politics. Together they create a more complex energy-risk environment for Serbia’s industry than a simple supply-demand framework would suggest.
The industrial statistics show how quickly these risks translate into macroeconomic outcomes. In 2025, mining grew 4.7%, manufacturing grew just 1.1%, and the electricity, gas, steam and air-conditioning sector declined 1.8% for the year. At the aggregate level, industrial production rose only 0.9%. The MAT report makes clear that the modest annual result reflected not only weak European conditions but also these domestic energy disruptions.
The interaction with European weakness further deepened the problem. The report emphasizes that Serbia’s major eurozone trading partners were already in a difficult industrial phase. In January 2026, manufacturing PMI stood at 49.5 in the EU, 49.1 in Germany, and 48.1 in Italy, all below the 50 threshold separating expansion from contraction. The MAT authors characterize the eurozone industrial problem, especially in Germany, as structural rather than cyclical. That matters for Serbia because the country’s manufacturing system is integrated into European supplier networks. When external demand is already soft, Serbia has less room to absorb an internal refining shock without a visible hit to total industrial production.
The NIS crisis therefore collided with a macroeconomic environment that was already fragile. The timing made the impact worse. If European demand had been accelerating strongly, some of the domestic production weakness might have been offset through other export branches. Instead, Serbia was relying heavily on a few high-performing sectors such as automotive production and rubber and plastics manufacturing to keep industry and trade growing.
That concentration can be seen clearly in the export data. The automotive branch generated €995.7 million of additional exports in 2025 and accounted for 43% of the total increase in manufacturing exports. Rubber and plastics added another €405.5 million, or roughly 17.5% of the increase.
Those sectors helped offset some of the refinery-related loss, but the broader lesson is that Serbia’s industrial system has become more dependent on a narrow set of growth engines. When one systemic energy-industrial branch fails, the burden shifts to a handful of export champions to sustain the overall industrial narrative. That is not an ideal structure for medium-term resilience.
The MAT document also indicates why the authorities and market participants were watching March 2026 closely. The report mentions an encouraging development: a letter of intent under which MOL Group would acquire 56.15% of NIS and had signed the fundamentals of a binding agreement with OFAC. Yet the authors remain cautious, noting that the key moment would be the final realization of the transaction expected in March.
This pending transaction is economically important because it points toward the type of resolution the market views as credible. Serbia’s refining stability appears increasingly dependent on reconfiguring ownership in a way that removes or at least reduces sanctions exposure. In practical terms, that means the NIS problem is being resolved not through industrial policy alone, and not through market pricing alone, but through a political-legal restructuring of ownership and control. The case illustrates how energy security in Serbia cannot be separated from capital structure and international diplomatic constraints.
There is also a fiscal dimension. Serbia’s budget deficit in 2025 reached 271.4495 billion RSD, equal to 2.6% of GDP. While the MAT report does not directly attribute fiscal outcomes to the NIS disruption, any prolonged deterioration in refinery operations can affect excise collections, VAT flows, corporate income expectations, and the broader level of industrial activity. At the same time, public spending continued to rise, with expenditures growing 4.4% in real terms, including 19.8% growth in spending on employees and 12.5% growth in goods and services procurement. In a setting of rising expenditure pressure, losing stability in a major energy-industrial taxpayer and fuel producer only increases macro-fiscal sensitivity.
The balance-of-payments data provide another layer of context. The current account deficit reached €3.4801 billion in the first eleven months of 2025, up 13.1% year-on-year, while net foreign direct investment fell to €1.9437 billion, a decline of 52.5%.
This matters because in periods of lower FDI inflows and a wider current-account deficit, confidence in the functioning of strategic industrial assets becomes more important. International investors, lenders, and suppliers pay close attention to whether politically exposed sectors can operate predictably. The NIS episode therefore has implications that extend beyond petroleum products. It becomes a signal about Serbia’s ability to manage politically sensitive infrastructure under external pressure.
At a structural level, the refining crisis also reopens the question of Serbia’s broader industrial policy direction. The MAT issue itself is framed around the question of whether the country needs a revision of its industrial policy strategy. The NIS case offers one strong argument that it does. Serbia’s industrial and export model has been built around integration into international supply chains, but strategic resilience requires more than assembly capacity and export momentum. It requires secure control over critical energy inputs, clarity in ownership where sanctions risk exists, and the ability to prevent geopolitical disputes from disabling systemically important domestic production.
This does not mean Serbia can eliminate external dependency. As a small open economy deeply integrated into European trade, it will remain exposed to outside conditions. But the MAT report shows that some dependencies are more dangerous than others. Weather volatility affecting hydropower can be partly mitigated through diversified generation and stronger thermal or solar balancing. Ownership-linked sanctions risk in refining is harder to hedge unless the ownership structure itself changes. The first problem is a system-planning challenge. The second is a strategic statecraft challenge.
The near-term economic question for 2026, as the MAT authors put it, is whether normalization in the oil industry, together with the carry-over trends in electricity generation, food production, and the automotive complex, will be enough to preserve year-on-year growth in total industrial production. That is the right question. If the refinery stabilizes quickly and the automotive sector continues expanding, Serbia could recover part of the lost industrial momentum. If the refinery remains unstable or the ownership transition falters, then even strong performance in automotive manufacturing may not fully offset the drag from a strategically weakened energy branch.
The 2025 experience therefore offers a broader warning. Serbia’s industrial economy is no longer challenged only by the usual set of growth constraints such as weak external demand, technology gaps, or labor-market pressures. It is also challenged by the way energy, ownership, and geopolitics intersect. The NIS crisis exposed how quickly that intersection can move from a background strategic issue to the central determinant of national industrial statistics.
For Serbia, the lesson is not simply that refining matters. It is that industrial resilience increasingly depends on controlling the political risk attached to energy infrastructure. In a year when total industrial growth was only 0.9%, when manufacturing fell 8.3% in December, and when petroleum-product output collapsed by 94.3%, the boundaries between industrial policy, energy policy, and foreign policy effectively disappeared.
That is likely to remain true well beyond 2026.
