Russia’s “Oil-for-Knowledge” Scheme

Whenever you fill up your European compact car’s gas tank, or that of your American SUV, you pay as much as a Russian schoolteacher earns in a month. And every time you pay, you subsidize a regime that relies on energy, not information, as its main product. You finance the pre-modern and the inefficient, and perhaps worse: every time you pay, you may be collaborating with political evil.

Russia began 2006, the year of its chairmanship of the G-8, by launching a gas war with Ukraine. Having a virtual monopoly on supply, Russia decided that it could dictate prices. But Ukraine has a virtual monopoly on delivery, so Russia blinked in this standoff as soon as gas supplies to Western Europe dropped.

Modern economies rely not on monopolies, but on competition. Contemporary Russians consume competitive products: Nestle cereals, Mercedes cars, Hollywood movies. The problem is that they do not make them.

Russians pay for this consumption from the profits of gas and oil. State-owned and private multinational companies drill fuel in Russia and sell it to Europe and North America. The government partially redistributes profits by collecting taxes and paying salaries. Gas prices are growing, and so are Russian salaries. This causes inflation, because, other than fuel, Russians do not produce much else. To avoid inflation, the government deposits a large part of its profits into a Stabilization Fund.