#9 - JRL 8258 - JRL Home
Moscow Times
June 18, 2004
Editorial
Not Much Cause for Optimism

As the high-profile trial of Mikhail Khodorkovsky and Platon Lebedev gets under way, it is hard to imagine there being a particularly happy ending to the whole Yukos affair -- despite the burst of market optimism inspired by President Vladimir Putin's comments on Thursday, apparently staving off the threat of the oil major being put into bankruptcy.

For perspective, it is worth recalling the not entirely dissimilar drive by the Kremlin at the start of Putin's first term to seize control, via state-controlled Gazprom, of Vladimir Gusinsky's Media-MOST group. In a nutshell: Gusinsky spent a few days in prison on charges of fraud, was released, struck a "freedom-for-shares" deal with the Kremlin, the charges were dropped, he fled the country, and then announced to the world that the deal -- signed "under duress" -- was off. What followed was months and months of ugly legal wrangling. The clear political agenda, combined with inept handling, turned the whole thing into a public relations nightmare for the Kremlin that did lasting damage to Putin's reputation.

The president's objectives, in sanctioning the legal attacks on Yukos/Khodorkovsky, are equally clear: to wrest control of Yukos away from its core shareholders and probably to ensure that the former Yukos CEO is locked up and out of the way until after the 2008 presidential election -- thereby sending a strong message not just to Khodorkovsky, but to the entire business elite, to steer clear of politics and avoid crossing the Kremlin.

With things having gone as far as they have, any lesser outcome would be seen as a serious loss of face for the Kremlin.

For this reason, the authorities are far more likely to show heavy-handedness than they are moderation or attention to legal niceties. As the Gusinsky experience demonstrated, "negotiated settlements" are fraught with pitfalls -- moreover, at least up to now, Khodorkovsky has shown himself to be an altogether tougher nut to crack.

If past experience is anything to go by, the Yukos saga could drag on for many more months, causing serious damage to the investment climate and to Putin personally.

But even once it is over, the authorities will find themselves in a Catch 22 situation of their own making. If the Yukos affair turns out to be an isolated case, as seems likely, it will only serve to highlight the selective application of justice and the general arbitrariness of the legal system.

If, on the other hand, it spreads to other oligarch companies, it would give more of an impression of a genuine attempt to impose the rule of law, but would create enormous instability -- at least in the short-term -- and seriously undermine investor confidence.