#10 - JRL 7265
Chicago Tribune
July 25, 2003
As business, politics collide, Russia suffers
Georgie Anne Geyer, Universal Press Syndicate
Georgie Anne Geyer is a syndicated columnist based in Washington.

An ominous struggle for positioning and power between the Kremlin and the oligarchs has become the talk of Moscow.

Yet there is one thing all the protagonists agree upon: The Yukos oil company story, pitting Vladimir Putin's Kremlin "chekists" against the new economic barons of the state, is deadly serious and could destroy the "New Russia."

The story began on July 2 with the arrest of the prominent Yukos shareholder Platon Lebedev on charges he had stolen state property in a 1994 privatization deal. It quickly ballooned into l7 hour-long searches of Yukos' company offices by government prosecutors, aided by armed storm troopers wearing masks. On that one day alone, the company faced a sell-off of shares and a loss of $1.9 billion in its market value, and soon presidential economic adviser Andrei Illarionov was predicting a "new civil war" over the issues.

But it was not Lebedev, who now languishes in Lefortovo Prison, usually reserved for traitors or terrorists, the Kremlin forces were after. Instead, they have been trying to destroy the power of Yukos CEO Mikhail Khodorkovsky, the oligarch who founded the company--and the reformed robber baron who has become the darling of the international economics community.

Khodorkovsky became the richest man in Russia by taking over the old industrial plants when the Soviet Union collapsed in 1991. He formed the Yukos oil giant, whose market capitalization within years shot up to $6.8 billion.

After a few years, Khodorkovsky became a veritable example to the West, paying out dividends and running the most modern and transparent company in Russia. To get some idea of the company he keeps, on the board of his charitable Open Russia foundation are names such as Kissinger and Rothschild.

But Khodorkovsky, while he was being lionized in the West, was operating on various levels that apparently enraged those in the Kremlin (known ironically as the chekists after the brutal early Soviet era "Cheka," or secret police) who surround President Putin. Khodorkovsky was also supporting political parties in opposition to the Putin chekists; he has dared to say that the Russian Duma, or parliament, would be better off if two-thirds were independent of the Kremlin group.

Was he pushing to run for president? Certainly many thought so; the next Duma elections are in December, and the next presidential elections are in March 2004.

This time around (Putin has already exiled two other business emperors, Boris Berezovsky and Vladimir Gusinsky, and largely confiscated their assets) it is not at all easy to tell who is in which camp or exactly why. To prominent historical dissidents such as Ludmila Alexeeva, a politically savvy woman who is president of the International Helsinki Federation for Human Rights, the case revolves simply around the fact that "a faction within the chekists in the Kremlin wants to roll back privatization. Putin wants to build up the weight of evidence, not wanting to appear to be taking the side of the oligarchs. He wanted to get rid of the guys he saw as personal threats--and the ones who had alternate power bases."

Others believe the Kremlin chekists simply want to confiscate the assets of the wealthy oligarchs, many of whom are Jewish and thus fit into old prejudices. The struggle could open the entire question of property ownership that was generally closed after the bitter takeovers of the first few years of the '90s, leading to economic chaos within Russia.

As Moscow Times editor Lynn Berry told me, "The Yukos case is important. It will show where Putin's going. You start to revisit property rights, and where do you stop? Nobody will invest--and money is just starting to come in."

This is true. While no one yet knows what form the economy will take, it is growing at a respectable rate of 6 percent to 7 percent a year. This growth is far too highly dependent upon oil prices and natural extraction industries, while Russia's manufacturing industries have withered on the vine; but at least the $20 billion that has been going out every year is now beginning to come back, mostly from banks in Cyprus, where it has been waiting for some resolution of the economic chaos within Russia.

Now, all that could end, as this new political risk--linking politics to economics-- comes into the picture.

Yukos, one Western diplomatic analyst sums up, "has become the pawn in the fight between the group in the Kremlin and the economic reform group over who will control Russia in a Putin second term. The security types in the Kremlin see the future of the country as coming through the revitalization of the defense sector. But Yukos means a revitalization of oil and gas and an integration into the international markets. You modernize, you have to come to terms with giving up power, with accepting alternate centers of power."

In this fascinating and elliptical story, one sees how fragile that acceptance still is today.