A majority stake of the Serbian oil monopoly NIS will be sold to Russian energy giant Gazprom and Russia will route part of the gas pipeline through Serbia. A Serbian government statement announcing the deal did not reveal the financial terms. The deal is to be signed in Moscow on Friday.
Serbia endorsed the deal just days after Russian President Vladimir Putin won Bulgaria's support for the project, known as the South Stream pipeline, which further dashes the European Union's hopes of reducing its growing energy reliance on Russia.
Russia promised to extend the pipeline into Serbia and build a huge gas storage facility in the north of the country, to turn the Balkan nation into a major hub for Russian energy supplies to Europe.
But the pipeline deal with Serbia apparently comes at a price. Some Serbian officials said that Russia's initial offer of $600 million (400 million euros) for a 51 percent stake in NIS represented just one-fifth of the company's market value.
Gazprom and Serbian officials have haggled over terms, triggering infighting in the Serbian Cabinet. It was not clear if Russia bettered the offer, but the small pro-Western G-17 party said Tuesday the terms of the deal are still unfavorable to Serbia.
Belgrade has turned increasingly away from the West and toward Russia, which supports Serbia's refusal to accept independence for its southern province of Kosovo.
Serbia's nationalist prime minister, Vojislav Kostunica, who pushed hard for the contract with Moscow, said the "strategic" deal with Russia will give Serbia a reliable supply of energy "for the coming decades."
Serbian Foreign Minister Vuk Jeremic said in neighboring Romania on Tuesday that "it is an important strategic deal that has to do with securing energy supplies to Serbia ... and the rest of the Western Balkans."
Kostunica has denied accusations by the opposition that favorable terms for Russia in the deal amounted to payback for Moscow's support over Kosovo.
"The deal is the direct result of an agreement between Russian and Serbian politicians, with Kostunica and his people standing to make political gains over it," said Misa Brkic, a Serbian economic analyst.
He and other analysts also said that the main pro-Western faction within Kostunica's Cabinet, the Democratic Party, dropped its opposition to the deal because it needs the prime minister's support if its candidate, incumbent President Boris Tadic, is to defeat an ultranationalist challenger in the country's runoff presidential vote on Feb. 3.
South Stream was announced last year by OAO Gazprom, Russia's state gas monopoly, and Italy's ENI SpA, which set up a joint venture to study the 550-mile, $10 billion (6.8 billion euros) pipeline project.
South Stream would run under the Black Sea from Russia to Bulgaria, and from there could split off in several directions: north through Hungary to reach Austria, south through Greece and on to Otranto, a port near the southeastern tip of Italy, and west to Serbia.
Gazprom's policies, and the Kremlin's confrontational approach to the West, have raised fears that Russia, and even Serbia, would use their control of energy supplies to the West for political leverage - threatening to cut off countries that oppose their policies, and rewarding those that support them.
South Stream would undercut the parallel Nabucco pipeline project - sponsored by the United States and the European Union - and dash the EU's hopes of reducing its growing reliance on Russia, which now supplies up to 40 percent of Europe's gas and up to a third of the oil imports of some European countries.