What does the Yukos Affair Mean for Russia?

On Tuesday, July 12, 2005, Carnegie Endowment for International Peace hosted Leonid B. Nevzlin, the controling shareholder of the oil company Yukos. Carnegie Endowment’s Director of the Russia and Eurasia Program, Anders Åslund, moderated the session. Highlights from Mr. Nevzlin’s remarks are summarized below.

The 1996 presidential election effectively ended democracy in Russia. Great pressure from the political elite against independent media led to the monopolization of media under President Vladimir Putin. Reforms also came to a halt in Yeltsin’s second term, leaving Putin with an unreformed bureaucracy, which he has been able to maintain and empower due to high oil prices. The resulting Soviet-like regime has centralized resources, weakened the opposition and strengthened nationalistic tendencies. It will remain in power until action becomes unavoidable. A crisis could erupt as a consequence of a fall in the oil price, or the spread of the Chechnya conflict throughout the Northern Caucuses, and then the regime would crumble.

The danger in Russia lies in the population’s patriotic and nationalistic feelings. While Dmitry Rogozin is only a decorative nationalist, real nationalists based in the army could take over the Rodina Party or form a new nationalist party. If a real election were held today, Unified Russia would lose. For example, in recent St. Petersburg municipal elections, United Russia was forced to use fraudulent preliminary voting to have its members elected .

In a May 17 interview, Kremlin Deputy Chief of Staff Vladislav Surkov’s insisted that Mikhail Khodorkovsky’s imprisonment is not political repression because "Misha" was never a political threat. Surkov accused Khodorkovsky of attempting to buy factions in the Duma but then dismissed this strategy as flawed since without changing the constitution Khodorkovsky still had no chance of becoming PM. However, this was probably how the danger of Khodorkovsky was sold to Putin, which explains the sudden deterioration of their relationship.

Putin initially approved the Yukos-Sibneft-ChevronTexaco swap, which was projected to be the deal of the century. Khodorkovsky was given the authority to act and informed Putin on progress in monthly meetings. At a certain point, Putin, possibly due to Roman Abramovich’s influence, suspended the monthly meetings. In order to speed up the deal and make it more lucrative, Khodorkovsky entered into talks with Exxon Mobil. These were merely a show since Exxon Mobil has a policy of only acquiring controlling shares of companies and Khodorkovsky knew the Kremlin would never approve such a deal. During a trip to the U.S. in late September 2003, Putin was asked by the CEO of Exxon Mobil, Lee Raymond, whether he knew that Exxon intended to acquire 51 percent of Yukos. Putin was furious and accused Khodorkovsky of lying. Soon after Khodorkovsky was arrested and the Kremlin alleged that it was opposed to a Yukos-Chevron deal from the beginning. Reportedly, German Gref told Putin that if the deal went through only Bill Gates would remain richer than Khodorkovsky; Putin replied that it was time to put Khodorkovsky in jail.

Abramovich is more intelligent and possibly more powerful than Putin. Regardless of whether he is number one or two in Russia, he is very close to Putin and has some kind of guarantee which allows him to act with impunity, for example be a Russian governor while living in London, owning the soccer club Chelsea andselling Dibneft. The nontransparent Gazprom buyout of Sibneft could indicate that the two have formed a commercial group.

Deputy chief of the Kremlin staff Igor Sechin is best described as a real KGB general. He simply follows Putin’s orders without independent thought. This, considering Sechin’s personal views, is a blessing.

Rosneft President Sergey Bogdanchikov is the main financier of the administration’s corrupt dealings. Russian judges and journalists are not only controlled by fear, they are also very well paid by Bogdanchikov. Basically, they are rewarded for making whatever decision the government wants.

There is no true opposition in Russia today. The old democratic leaders, Yegor Gaidar, Anatoly Chubais, Boris Nemtsov, Grigory Yavlinsky, have bankrupted their political capital. Therefore, Garri Kasparov is correct in seeking new partners for the 2008 presidential election. Mikhail Kasyanov is a real figure and a unifying force. The recent attack on him was actually a gift that should increase his popularity.

The international community needs to approach the next presidential election systematically and send observers to all of Russia’s regions. Work should start today because with no free media or independent judiciary, free and fair elections cannot occur even with a perfect Election Day.

The United States was crucial to the rise of democracy in Russia in the early 1990s. After the collapse of the Soviet Union, Russia was in economic shambles, dependent on the U.S. and international institutions; however, the 1998 crisis ended its relationship with the International Monetary Fund (IMF) and the World Bank (WB), and the ensuing rise in oil prices has made U.S. influence negligible.

U.S. needs to acknowledge that the democracy project in Russia has failed and publicly state that Russia is a dictatorship. Any leverage, such as refusing Russia World Trade Organization (WTO) or Group of Eight (G8) membership, or maintaining the Jackson-Vanik amendment, should be used to pressure Russia in a democratic direction.