The Russian Economy More than Just Energy ?

Executive summary Russia has enjoyed a decade of high economic growth because of the eventually successful market reforms in the 1990s but also an oil boom. For the last six years, however, the Russian economy has become increasingly dysfunctional because the authorities have done nothing to impede corruption. The energy sector has been a generator of corrupt revenues, and its renationalization has concentrated these corrupt incomes in the hands of the security police elite. Russia depends on the European Union for most of its exports and imports, but no free trade agreement is even on the horizon. Investments, by contrast, are relatively well secured through international conventions. In global governance, Russia has changed its attitude from being a joiner to becoming a spoiler. The disruption of supplies of Russian gas to Europe in January 2009 displayed all the shortfalls both of the Russian and Ukrainian gas sectors and of EU policy. The EU needs to play a more active role. It should monitor gas supplies, production, and storage. It should demand the exclusion of corrupt intermediaries in its gas trade. It should demand that Russia and Ukraine conclude a long-term transit and supply agreement. The EU should form a proper energy policy with energy conservation, diversification, unbundling, and increased storage. This is a good time to persuade Russia to ratify the Energy Charter. The EU should also demand that Ukraine undertake a market-oriented and transparent energy sector reform.