The Yukos Endgame; Putin Is Looking for Strategic Control, Starting with the Effective Renationalization of Russia's Largest Oil Giant

By Brown, Frank; Titova, Nadezhda | Newsweek International, July 5, 2004 | Go to article overview

The Yukos Endgame; Putin Is Looking for Strategic Control, Starting with the Effective Renationalization of Russia's Largest Oil Giant


Brown, Frank, Titova, Nadezhda, Newsweek International


Byline: Frank Brown, With Nadezhda Titova

What is Vladimir Putin's real game in the Yukos affair? As the tax charges against Russia's largest oil company and its jailed former CEO, Mikhail Khodorkovsky, wind through court, the government has said it simply wants to collect the billions it is owed. Others say the case is payback for Khodorkovsky's financing of election rivals to Putin. But the one clear aspect of this affair is how it is likely to end, say oil executives and attorneys close to the case. Yukos will, in essence, pay its tax bill with stock, or end up in the hands of a company friendly to the Kremlin, effectively renationalizing the firm and giving Putin better control of a strategic resource. "Putin wants to be Sheik Yamani in 1973," says a longtime American observer of the Russian market.

Sheik Ahmad Zaki Yamani was the Saudi Arabian Oil minister who leveraged oil as a political tool and was instrumental in founding the OPEC oil cartel. Putin clearly is not looking to bring the West to its knees--Yamani was seeking revenge for the 1973 Yom Kippur war--but the ways in which he has eyed oil for geostrategic gain often go overlooked. In the past year the Kremlin has been reasserting control over a sector widely privatized after the fall of the Soviet Union; Putin is making it clear that energy decisions with foreign-policy consequences are not for businessmen to make. In the Kremlin's view, one of Khodorkovsky's great sins was to push for an oil pipeline from Siberia to China--Russia's top security threat in Asia. Putin has scrapped that idea in favor of a more expensive and less commercially viable pipeline to Japan.

The Kremlin has never articulated a new policy, instead using catchphrases like "strategic natural resources" to broadcast the change and letting sympathetic think tanks explain it. "There is a strong [Kremlin] lobby to create a fully unified commercial and geopolitical approach," says Stanislav Belkovsky of the National Security Council, a think tank linked to the nationalists in Putin's inner circle. One tenet of their world view is, "If foreigners control pipelines, then they can control prices."

Oil insiders cite a pattern of government moves to rein in private firms. In November, the state-run natural-gas behemoth Gazprom approached British Petroleum's Russian subsidiary, TNK-BP, and, a BP spokes-man says, asked for a role in its planned $15 billion pipeline to gas fields in Siberia. A Gazprom spokesman denies this, saying the company is concerned only about the legitimacy of TNK-BP licenses for the fields.

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The Yukos Endgame; Putin Is Looking for Strategic Control, Starting with the Effective Renationalization of Russia's Largest Oil Giant
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