Lack of Transparency in Russian Energy Trade

A major challenge to the new democracies of Central Europe is the corruption and lack of transparency in the importing of oil and natural gas from Russia and other energy producing states once part of the Soviet Union. This situation also undermines good governance and ethical business practices in the large and wealthier countries of Europe.

EU membership provides only limited energy security to the new democracies. The European Union has no enforceable policy regarding transparency and competition in the energy trade, nor does it have a common energy strategy concerning accountability by Russian state companies such as Gazprom and Transneft. In Western Europe, there is a disturbing lack of understanding of, and support for, greater energy security in the Central European states. And there is no significant support in Western Europe for a common EU energy market.

Wealth accumulation from the energy trade is often used by powerful groups in the East to buy support in Western countries for Russian economic and security policies. This situation is exacerbated by the lack of legal reporting requirements in the West concerning the outside funding of political and business groups. It is already difficult for Western energy firms to make business decisions in the former Soviet area, due to the deeply rooted lack of transparency in Russian, Ukrainian, and Central Asian commercial dealings and to an absence of impartial court systems to enforce internationally recognized contracts between business firms. The most serious threats result from the danger of intervention at any point in the commercial process on the part of elite cartels who dominate the energy trade, particularly in Russia, Ukraine, and Central Asia. These cartels are composed of governmental leaders, intelligence officials, and favored business oligarchs. The composition of these elite groupings can and often does change suddenly, with a shift in the local political balance, only adding to business uncertainty.

As this report points out, there are several concrete measures that Western governments and the European Union could adopt that would result in greater business transparency, less corruption, and increased energy security, particularly in the more fragile democracies of East and South Central Europe.