With the rise of nationalism and end of Communism in Yugoslavia in 1989–90, Mikelić found himself in a republic, Croatia, caught between two rival nationalisms – Croatian and Serbian. Mikelić opposed both, and, in August 1990 he and a number of other Serbs, Croats and others in the SKH formed the Socialist Party of Croatia – Party of Yugoslav Orientation, to oppose the SDP under Ivica Račan and the Serbian Democratic Party led by Jovan Rašković. The party's secretary was a Croatian, Goran Babić, and the membership and leadership included a large number of Croats, and also Muslims, Hungarians and other nations and nationalities, though pro-Yugoslav Serbs were most numerous. The party supported the preservation of federal Yugoslavia and Croatia as an equal republic of that federation, with the Serbs as a constituent nation as they were until July 1990, opposing both demands for confederalisation and Croatian independence and autonomy for the Serbs or the redrawing of borders. In late September 1990, when Croatian police were sent to investigate Serb forces being organized in Petrinja, the Serb forces attacked the Croatian police force without warning. Mikelić, whose party was the first to inform the Federal Presidency of these dramatic events, was accused of organising a Serbian rebellion by the Croatian government. Later in 1990, Mikelić had a near-fatal car accident in Bosnia. He spent several months in hospital in Belgrade. The Socialist Party in January 1991 joined the League of Communists – Movement for Yugoslavia, but its influence in Croatia was not great. The HDZ also asked him to quit his job running Gavrilović, threatening to blockade the company if he did not resign. Mikelić spent the next few years in Serbia, continuing his business activities. He was often asked to join the Socialist Party of Serbia of Slobodan Milošević, but never did, deciding not to attend their meetings and congresses, and instead associating with the Yugoslav Left.
Mikelić returned to prominence in the political scene in 1994, when he was elected Prime Minister of the Serbian Republic of Krajina. As Prime Minister, Mikelić promoted economic, monetary and judicial ties with the Republic of Serbia, supported the idea of unification with Republika Srpska, and was leading Krajina towards eventual unification with Serbia and Montenegro, with Belgrade's backing. This was undermined, however, in early 1995 when the Z4 Plan was presented before the economic integration had got going, and Croatia decided not to renew the UNPROFOR mandate. Milan Martić, President of RSK, and Milan Babić, RSK Foreign Minister, declared that they would not consider Z4 until the mandate was renewed. Mikelić regarded them as committing a major error in appearing to be obstinate, though he himself accepted Z4 only as a basis for negotiation, as it offered autonomy only to 11 municipalities, which formed less than half of the RSK's territory. Mikelić was dismissed in June 1995. Milan Martić, RSK President, claimed at one government meeting in early 1995 that Milošević had called him and backed his rejection of Z4. Mikelić thought this odd, as Milošević had been encouraging his economic agreements with Croatia, which were intended to lead to gradual reintegration. At a meeting with him shortly after this, Mikelić asked Milošević if what Martić had said was true. Milošević denied it vigorously, and Mikelić believes him to have been telling the truth, given Milošević's role in encouraging reintegration in 1994.
