February 2004

International Politics

Russia, Yukos and elections intertwine
Vol. 224 No. 2
Oil and Gas

Russia, Yukos and elections: There is no business like the oil business. The Yukos case has become the very symbol of changes that Russia will experience in forthcoming months. When Mikhail Khodorkovsky, the flamboyant, charismatic Yukos director/owner was arrested in his personal jet plane and thrown into the Moscow Matroskaya Tyshina jail, it was obvious that some kind of sea change was happening.

Some days later, the presidential administration head, Alexander Voloshin, quit in a public move of disapproval, taking with him dozens of collaborators leftover from former President Boris Yeltsin's era. Then, there were no doubts that the Yukos case was much more than just a tax evasion and money laundering issue. It was an important break with Yeltsin's era, a major turning point in post-Soviet Russia's short, but lively history.

Not that the charges that have been raised against YUKOS managers and owners – not just Khodorkovsky but also Platon Lebedev and some others – were insignificant. To the very contrary, the federal prosecutor had cleverly built this case and certainly did not mind the attendant publicity that came with it.

Yukos' offices had been raided many times by the fiscal police, and Lebedev was arrested in early July 2003. This had been linked first to the Apatit case, where both Lebedev and Khodorkovsky had already been convicted of various charges, including fund misappropriation and fiscal evasion. Quite quickly, new accusations were formulated, ranging to money laundering and even murder.

In the latter reference, the 1998 assassination of Neftyugansk Mayor Vladimir Petukhov, the Yukos head of security, Alexei Pichugin, was also involved. Petukhov had complained many times that Yukos had not paid local taxes to the city of Neftyugansk and had accumulated considerable tax arrears. He was to the point of filing a formal legal complaint before the federal court when he was killed, the very birthday of Khodorkovsky. This could have been coincidental, of course. But it might not have been, and who is to say for sure?

It has been said widely that President Putin ordered Khodorkovsky's arrest to get rid of a political competitor. This is quite possible, as Khodorkovsky had made no mystery of his political ambitions. He had gone so far as to publicly cross the President on foreign affairs, mostly on the Iraqi war issue. In a previous column, this writer had emphasized how touchy the mix between oil and foreign policy is in Russia. One can thus think that Khodorkovsky crossed an invisible but well documented line. The noisy support he got from the US media certainly did not improve his case, at least from the viewpoint of Russian presidential advisers.

However, fiscal and economic charges have been accumulating over Yukos for many months. The Federal Accounting Court has published many memos on fiscal law infringement by Yukos and other firms. In early September 2003, the Federal Prosecutor's office publicly announced that more than 3,000 cases of this type were investigated.

Last but not least, if one takes the Federal Prosecutor's accusations at face value, then Khodorkovsky would have embezzled the equivalent of one year's worth of all Russian retirement payments, or one year of all Russian civil servant wages. Embezzling at that level is more than just a fiscal issue; It is a true political problem. In the end, if no one is to be barred from politics in a democratic country, then one has to expect a minimum of fiscal decency from people seeking elected positions. This is only common sense.

With Voloshin publicly quitting the Putin administration, the Yukos case turned into a major political fight between Putin's advisers – some of them linked to the former KGB and colloquially known as Siloviki in Russian – and what is left from Yeltsin's administration. So far, Khodorkovsky had received some mild support from Prime Minister Mikhail Kasyanov. But Kasyanov, himself, had been under fire for a while, having been accused of being a puppet of Yeltsin's clan, the notorious “family.”

The rout of two free market-oriented political parties, SPS and Yabloko, during the Dec. 7 general elections, and the success of a new, left- oriented, political group called Rodina (Homeland) are also fueling speculation. Most talk has centered on possible vote manipulation. However, most SPS and Yabloko incumbents in individual contests were defeated badly by their opponents – a clear confirmation that right-wing politics are out of fashion in Russia. Both parties publicly supported Khodorkovsky; and Anatoly Chubays, the main architect of privatization, had been in third position on the SPS list. These are certainly very good reasons for their bad showing at the polls.

Rodina's success is no more surprising, no matter what has been written in the Western press. This political party was created by a young, gifted economist, Sergey Glazev, and by Putin's adviser on European affairs, Dmitri Rogozin. Glazev is known to have been on the Communist Party list in 1999. However, few people remember that he was in the 1992 Gaidar government, a position that he left to protest Yeltsin and Gaidar's showdown against Parliament in the summer of 1993.

In his own way, Glazev has supported the market economy. He is, however, a staunch opponent of privatizing raw material production. At the very least, he supports the introduction of high taxes on raw material exports. Rogozin is known to have cleverly managed the Kaliningrad issue with the European Union. Both men are professionals, highly regarded in their own circles. To castigate them as fascists, as Chubays did, is definitively stupid and politically foolhardy.

Rodina was the only group to air a coherent economic and political platform, linking market-oriented reform and state intervention in “strategic sectors.” This was a sharp difference with the disjointed Communist position. It is, then, no surprise that Rodina attracted many voters from the best-educated segments of Russian society. This party will become one of Russia's political pillars, a force to be reckoned with.

Given this background, it is easier to gauge the shockwaves of last fall's events in the oil and gas sector. The probability of privatization reversal is very slim. More probably, we will see higher export taxes and greater state regulation. To cross the Putin presidential strategy would be very unhealthy. In the end, the show will go on as it always does. There is no business like the oil business.

Jacques Sapir is Professor of economics at EHESS-Paris and at the Higher School of Economics in Moscow. He is a regular contributor to this column.

Related Articles FROM THE ARCHIVE
Connect with World Oil
Connect with World Oil, the upstream industry's most trusted source of forecast data, industry trends, and insights into operational and technological advances.