Quite suddenly, YUKOS has become a household word. For more than six months, the Kremlin's offensive against the Russian energy conglomerate and its CEO, billionaire oil executive Mikhail Khodorkovsky, has virtually dominated both the international press and the Russian political landscape. The clampdown provides an important glimpse into the turbulent domestic power politics of contemporary Russia, where a monumental struggle is brewing between the government and the country's powerful oligarchs. But it also serves as a bellwether of sorts for Russia's energy future – a future that now appears increasingly uncertain.
Anatomy of a Power Struggle
The scandal started in July with the arrest of YUKOS' second largest shareholder, Platon Lebedev, on decade-old corruption and fraud charges. Multiple governmental probes into other YUKOS personnel and corporate activities - covering everything from tax evasion to murder – quickly followed.
Ostensibly, these measures were aimed at rectifying corrupt privatization deals concocted during the early 1990s. But the real reason for the clampdown had everything to do with politics. Khodorkovsky had emerged as a public backer of two competitors to the pro-Kremlin "United Russia" parliamentary faction in the Russian State Duma, and had himself dipped a toe into political waters, hinting he might step down as CEO in 2007 in order to mount a presidential run the following year.
These moves violated the Kremlin's tacit political arrangement with the country's oligarchs, under which their gains from privatization were preserved so long as they agreed to stay out of national politics. The resulting backlash has left Russia's richest man behind bars and the Kremlin with controlling interest in the country's largest private oil company.
Since then, the Russian government has shifted its attention to damage control. In efforts to calm investor jitters, President Vladimir Putin has already announced plans to accelerate Western access to Russia's vast state-owned energy holdings, and has emphasized his continued commitment to the rule of law, as well as tax and property reforms.
Still, the destabilizing effects of the YUKOS affair are likely to linger. For one thing, the systematic dismantling of Russia's most transparent and westernized company is sure to have rattled international confidence in the country's overall political and economic stability. And given the unpopularity of Russia's oligarchs, as well as the growing boldness of Mr. Putin's authoritarian domestic policies, the YUKOS affair could merely be a prelude to a larger governmental offensive – one designed to eliminate political opposition and consolidate Kremlin control over vital Russian economic sectors. Indeed, such concerns appear to be well-founded; the Kremlin's parliamentary allies have already managed to instigate a subsequent, post-YUKOS investigation into the influential Sibneft oil company run by oligarch Roman Abramovich.
For another, the nature of the coup casts serious doubt on Moscow's commitment to economic integration with the West. In recent months, Mr. Putin had articulated the ambitious goal of doubling his country's gross domestic product by 2008. This objective is now very much in doubt; Russian capital flight – in steady remission over the past year – has again surged in response to the crackdown, with a net outflow of more than $13 billion in private funds now estimated for the second half of 2003.
Significant as well is the fact that the crackdown on YUKOS coincided with serious bids from both ChevronTexaco and ExxonMobil to acquire major stakes (25 and 50 percent, respectively) in the Russian oil giant. All this suggests that the Kremlin efforts were, at least in part, timed to head off the expansion of a western foothold in the Russian energy sector. Subsequent talk by officials in Moscow of vastly increased governmental control over the Russian energy sector has only reinforced such speculation.
These revelations do not bode well for a return to business as usual with Putin's Russia. Neither does the fact that the clampdown has dealt a serious blow to Russia's global energy standing.
Over the past several years, YUKOS had become a major player in Russian energy plans, spearheading the much-touted Asian pipeline linking Siberia to China's Xinjiang Province and occupying a key role in plans to ferry Western Siberian oil to the U.S. and Europe via Murmansk. While YUKOS' role can and likely will be assumed by other, more pliable Russian energy firms, the company's co-option has at minimum delayed several projects essential to Moscow's energy ambitions.
Partnership in Peril?
For the United States, the YUKOS affair has done much to highlight the potential pitfalls of partnership with Russia. Since September 11, Moscow's vast energy wealth (some 60 billion barrels of proven oil reserves and an estimated 30 percent of global natural gas deposits) has made it an attractive alternative to volatile Persian Gulf crude.
Prospects for a U.S.-Russian energy alliance have also been enhanced by the close personal ties that have evolved between Presidents Bush and Putin. So bright were these hopes that Russia's president recently aired plans to have his country provide fully 10 percent of U.S. energy imports by the end of the decade.
The crackdown on YUKOS, however, has called all of that into question. American officials, eager to decrease vulnerability to Saudi political instability and OPEC market manipulations, now confront a different sort of danger – the threat to stable energy imports posed by the rising political volatility of an emerging supplier.
This vulnerability, and the need for energy diversification, has only been reinforced by Moscow's accelerating anti-democratic drift. And with attractive alternative markets like Canada and West Africa ready and able to serve as replacements, the Kremlin might well discover unexpected costs associated with its domestic power grab.