The main purpose of the paper is a comparative analysis of quantified country risk premiums of Croatia and Serbia and determination of country risk influence on investment decisions made by potential investors through expected levels of return on capital. This will be presented on an example of a similar company from each country as at 30 June 2014. In the first part of the paper various definitions of country risk will be discussed and classification of sources of country risk will be provided. Analysis of socio-political, economic and natural disaster risk of Croatia and Serbia will be given in continuation. The analysis will mainly rely on political risk map, corruption perception index, world competitiveness ranking and analysis of macroeconomic factors. In the main part, the focus will be placed on analysis of calculation methods of country risk premium of Croatia and Serbia and means of measuring exposure to country risk of two oil and gas companies Ina-Industrija nafte d.d. and Naftna Industrija Srbija a.d. Methodology will be based on the one suggested by Aswath Damodaran, professor on Ncw York University Stern School of Business. Assessment of exposure to country risk produced a range of cost of capital of the two companies. As a result of this paper the value of cost of capital for INA on 30 June 2014 was probably between 9.5% and 10.0%. while for NIS it was probably between 11.5% and 14.0%. Country risk premium and the method of its calculation were the key influence on the presented cost of capital ranges.