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#6 - JRL 7257
Washington Post
July 20, 2003
Oil Wars

IN RECENT DAYS, Russian police have taken files and hard disks from the offices of Yukos, the second-largest Russian oil company, and arrested one of the company's chief executives. Raids have also been conducted in the offices of Sibneft, another oil company, which just happened to be negotiating a merger with Yukos.

Why Yukos? Why now? Whatever the legal explanation, it doesn't answer the question. Because of the way Russian business and tax laws are written, it is virtually impossible to run a large company without violating some of them. Because of the way capitalism has evolved in Russia, it is also virtually impossible to name a large company whose origins do not lie in the murky post-Soviet era, when state assets were transferred through a variety of semi-legal means into private hands. If Yukos is guilty, then so is everybody else.

The attack on Yukos is not, then, purely a legal matter, but a political one too. In Moscow, some believe it is connected to Yukos's stated support for politicians who oppose the president. Others proffer a more complicated explanation, involving a power struggle in the Kremlin between those who still support the idea that Russia should continue moving, however slowly, toward a liberal society and members of the old security services who want to turn back the clock (and may want Yukos's assets as well). Still others believe the affair is connected to rumors of a coming merger between Yukos and Exxon or Shell, a move that would create the world's largest oil company, bring substantial foreign capital -- and foreign influence -- into Russia and make Yukos's chairman, Mikhail Khodorkovsky, both immensely rich and virtually untouchable.

Whatever the real explanation, the affair is damaging for Russia, on a number of counts. For one, the attack on Yukos has been widely understood as an attack on the most "Westernized" Russian company -- Yukos is one of the few large Russian firms that has tried to make its operations more transparent -- and indeed has already wiped millions of dollars off the Russian stock market. If Yukos is destroyed, then any company can be -- hardly an encouraging sign for foreign investment, or indeed any investment, and hardly an advertisement for the rule of law. The very fact that there is so little information about the affair reflects badly on the Russian presidential administration as well: Many of its members are alleged to be involved in various ways, but few have spoken publicly.

While it may not be appropriate for the United States to come to the defense of a particular company, this affair should cause the administration to wonder whether Russia really is ready to be a stable American ally, as some believe, and whether it is correct to describe the country as a "democracy," as is now customarily done. Whatever the nature of the power struggle within the Kremlin, it is clear that at least some of those in charge do not see the value of economic stability, do not believe in the further Westernization of the Russian market and will continue to make political arrests under the guise of the criminal justice system.

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