In recent years, Members of Congress, Bush and Obama Administration officials, and analysts have noted the dependence of many European countries on Russian energy. Some experts have expressed concern that Russia is using this energy dependence as part of a larger effort to limit the sovereignty and pro-Western orientation of vulnerable neighboring countries such as Ukraine, Moldova, and Georgia. In addition to bolstering the sovereignty of these countries, the United States has also had a vital interest in keeping strong ties with NATO and EU member states. Some observers believe that these relations could be harmed in the long term if many of these states became too dependent on Russian energy. In 2008, the European Union depended on Russia for 23% of its natural gas consumption. However, this figure conceals the fact that this dependence is unequally distributed. Some EU countries, many of them in central and eastern Europe, are dependent on Russia for most or all of the oil and natural gas they consume. For example, the Baltic states are entirely dependent on Russia for natural gas. Non-EU countries bordering Russia are also overwhelmingly or entirely dependent on Russian oil and natural gas. Moreover, EU countries may become more dependent on natural gas supplied by Russia in the future, as deposits in the North Sea decline. In 2008, 40% of the EU's natural gas imports came from Russia and 33% of its oil imports. This report begins with a brief discussion of the Russian oil and gas industries, including their efforts to purchase energy infrastructure in central and eastern Europe and reduce energy subsidies to neighboring countries. A second section deals with the impact of Russian energy policy on neighboring countries, all of them formerly part of the Soviet Union, de facto or de jure , and all heavily dependent on Russian energy imports. Many of these countries are concerned about what they see as Russian efforts to manipulate that dependency to achieve political goals. A final section deals with U.S. efforts to promote the energy security of these countries and on Congress's response to the issue. Russian oil and natural gas industries are very important players in the global energy market, particularly in Europe and Eurasia. Russia has by far the largest natural gas reserves in the world, possessing over 30% of the world's total. It is eighth in the world in oil reserves, with at least 10% of the global total. Another key trend has been the concentration of these industries in the hands of the Russian government in the past decade. This latter phenomenon has been accompanied by an authoritarian political system under the tight control of President Vladimir Putin, a former officer of the Soviet KGB intelligence service. Both the leadership of state-controlled Russian oil and gas firms and the Russian government are dominated by former members of the Russian intelligence service, now called the Federal Security Service (FSB), or are personally close to Putin, or both. In late 2007, Putin designated First Deputy Prime Minister Dmitri Medvedev (whose functions included overseeing Gazprom) as his successor. Medvedev was elected president of Russia in March 2008, in a vote viewed by many observers as not free and fair. Medvedev, although a close Putin associate, is not a former FSB officer. After Medvedev took office, Putin took the post of Prime Minister. The personal and political fortunes of Russia's leaders are tied to the energy firms, as Russia's economic revival in the past decade has been due in large part to the massive revenues generated by energy exports. However, many experts believe that the Russian leadership's state-oriented approach may be counterproductive for Russia in the long run, as output growth in Russian oil and gas fields is stagnating. They say Russia's oil and gas industries will likely need foreign investment and expertise, more efficient management, as well as less government regulation and taxation. The global economic crisis hurt Russia's energy firms, Russia's economy, and Russia's international clout, as energy prices tumbled. Since the collapse of the Soviet Union in 1991, the largest firm in Russia has been the state-controlled natural gas monopoly Gazprom. (The Russian government holds just over 50% of its shares.) It has a monopoly on gas pipelines in Russia. It controls about 85% of Russian gas production and over a quarter of the world's reserves of natural gas. Its impact within Russia is even more significant. It is the single largest contributor to the Russian government's budget, providing about 25% of tax receipts. It also controls banks, industrial holdings, farms, and media outlets. Gazprom has been useful domestically to Russian leaders. It provides most of its production at a loss (at prices much lower than those in Europe) to Russian companies and consumers, who often cannot or will not pay, thereby helping to ease social pressures. In exchange for subsidizing Russian domestic consumers, Gazprom receives a virtual monopoly on exports to richer customers abroad. Two-thirds of Gazprom's revenue comes from European customers. Many experts say Gazprom needs to substantially increase domestic prices for gas if it is ever to become a viable business. Russia has agreed to gradually increase some domestic gas prices to bring them closer to world market levels by 2011. The move was taken in response to EU criticisms of the price subsidy in negotiations over Russia's entry into the World Trade Organization (WTO). Gazprom's key current gas fields are in decline, its infrastructure is aging, and substantial investment will be needed just to maintain current, nearly stagnant production levels. Most foreign observers believe Gazprom could use foreign investment to provide expertise and capital. In late 2005 Russia abolished the "ring fence" that barred foreigners from owning Gazprom shares. Foreign ownership of Gazprom shares is modest; the largest foreign investor is the German firm E.ON, with a 6% stake. However, Gazprom's actions in other areas appear to point toward more state control and not toward more foreign investment. For example, in 2006, Gazprom bought out half of the interest of Shell and other foreign companies in the Sakhalin-2 gas field project at a very low price after the Russian government found alleged environmental problems in Shell's management of the project. Russia is also pressuring the Russian-British TNK-BP oil firm to hand over its Kovytka gas field in Siberia cheaply to Gazprom, after Gazprom refused to approve an export route for the gas. In the 1990s, the Russian government did not have a large stake in Russian oil production. The major oil companies were controlled by politically well-connected businessmen, dubbed oligarchs. This policy changed in 2003, when Mikhail Khodorkovsky, head of the giant Yukos oil firm, was arrested on tax evasion and other charges. However, most observers believe that the real reason for the arrest was that President Putin believed Khodorkovsky was showing unacceptable signs of political independence from the Kremlin. Yukos was hit with government claims for back taxes and declared bankrupt. In 2004, its key oil field assets were bought very cheaply by the Russian state-owned oil firm Rosneft. The Yukos affair is not the only example of this trend. In 2005, Gazprom bought another major oil company, Sibneft, from oligarch Roman Abramovich, at a cut-rate price. The firm is now called Gazprom Neft. After the move, the Russian government controlled over 30% of Russia's oil production. In 2006, Putin said that the state would not take control of additional Russian oil companies. However, the strengthening of state control over the industry may be conducted by other means. The Russian government has placed pressure on foreign oil companies to sell their stakes in lucrative Russian oil fields to Russian state firms. The non-state oil firms that remain, such as Lukoil, are careful to retain close connections to Russian political leaders, in order to retain control of their businesses. Despite increasing direct and indirect state control, Russian oil firms continue to seek ties to foreign oil companies, provided that they are satisfied with a minority ownership stake. In addition to increasing control over oil production, the government controls Russia's oil and refined product pipelines, through the state firm Transneft. This monopoly gives the Russian government leverage against Russian private firms, foreign investors and foreign countries, if needed. For example, Transneft is the largest shareholder in the Caspian Pipeline Consortium (CPC). The CPC pipeline carries oil from Kazakhstan to the Russian port of Novorossiysk on the Black Sea. This gives Russia a near monopoly on the transport of Kazakh oil destined for western markets. Other members include ExxonMobil and Chevron, which are involved in the exploitation of the Kazakh oil fields. In addition, Moscow has presented the Western oil companies with repeated financial demands, and threatened them with legal proceedings for allegedly unpaid taxes to Russia if they do not comply. Through its energy firms, Moscow has pursued several objectives. Russia has tried to purchase a controlling stake in pipelines, ports, storage facilities, and other key energy assets of European countries. Russia needs these assets to transport energy supplies to Western European markets, as well as to secure greater control over the domestic markets of the countries of the region. In several cases where energy infrastructure was sold to non-Russian firms, Russia cut off energy supplies to the facilities. Russian firms have attempted to buy energy infrastructure in western European countries, provoking unease in the EU. The EU has pressed Russia to open up its pipelines to western firms and to provide stronger protections for foreign investment in Russia's energy sector. Russia flatly rejected EU demands that it ratify the 1994 Energy Charter Treaty, which enshrines these principles. EU efforts to include the key components of the Energy Charter into a new Russia-EU Partnership and Cooperation Agreement (PCA) have also been stymied. The EU Commission has proposed an EU energy policy called "unbundling" that would prohibit energy-producing companies from owning distribution networks. It would also bar foreign companies from investing in EU distribution networks, unless that country permitted such investment in its own networks.