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Putin Pursues Russia's Oil Oligarchs

By Orszag-Land, Thomas | Contemporary Review, August 2004 | Go to article overview

Putin Pursues Russia's Oil Oligarchs

Orszag-Land, Thomas, Contemporary Review

PRESIDENT Vladimir Putin could not have chosen his time with greater luck, foresight or care for the Kremlin's looming confrontation with the oligarchs. Troubled by record high oil prices, all the moneymen of the world are nervously watching the shabby Meshchansky Courthouse in Moscow at the start of a controversial trial of some super-rich executives of Yukos Oil Co. on embezzlement charges that could keep them in prison for a decade. We shall witness a fight on a razor blade.

The Russian president won at the last elections this spring the domestic support he needed to end the present effective power-sharing of the Kremlin with the oligarchs. But he must retain the confidence of Western investors to keep the oil flowing, on which the Russian economy depends. Putin's external power-base is delicately balanced on the desire of Western governments to foster the emergence of fledgling democratic institutions and the rule of law across post-Soviet Europe and their dependence on continued stable Russian oil supplies at a time of mounting uncertainty over the Middle East markets such as Saudi Arabia.

The star defendant at the trial is Mikhail Khodorkovsky, the richest man in Russia and the largest shareholder of Yukos. He has already issued an open letter from his cell at Moscow's Matrosskaya Tishina jail begging the Russian people for forgiveness and advising fellow tycoons to share their wealth with the poor and to accept the leadership of the President. But his company has also lodged an appeal with the European Court of Human Rights over alleged persecution by Russia's tax ministry, whose demand for 99bn roubles ($3.5bn) in back taxes has just been approved by the court. Yukos says this can drive the company into bankruptcy by the end of this year.

Putin has inaugurated his second term in office by launching a programme of economic reforms focused on tax cuts to be offset by projected levies on the oil industry. He secured a phenomenal 72.1 per cent of the vote in the March elections. He is enjoying an entirely genuine, popular lead over all his opponents combined, reinforced by the might of the repressive state security organs and the cowed mass communication media which have managed to keep them quiet. Putin's new image as a tough modern-day tsar has won favour with his people who have been traditionally ruled with an iron hand from the centre.

But his electioneering has been criticized by observers of the Organization for Security and Cooperation in Europe and the Parliamentary Assembly of the Council of Europe for abuses of government resources, bias in the state news media and even instances of ballot stuffing. The results have been nevertheless welcomed by Russia's major allies on both sides of the Atlantic, reflecting the importance of the Putin Kremlin in such major areas of concern as the state of the world oil markets.

Significantly, in the preceding parliamentary elections in December, Putin had also won virtually absolute control over the 450-seat lower chamber, the Duma. He now enjoys sufficient backing even to alter the constitution, if he wished, in the absence of support by the opposition. The time has thus come for the Kremlin to end its temporary, effective power-sharing with the oligarchs. These are the country's super-rich captains of industry--particularly the lucrative oil industry whose wells produce 9m barrels a day and earn a quarter of the national income.

The oligarchs grabbed their riches in the messy mass privatization that followed the collapse of Soviet domination a decade ago. They did that by using connections and guile to buy state assets at knockdown prices. Today, they control as much as 70 per cent of the Russian economy. Putin has now set out to pick them off one by one. A commentator has aptly compared the present conflict to the historic confrontation between Peter the Great and his boyars.

One of the most prominent among the oligarchs is Khodorkovsky, a colourful and prominent figure aged only forty, credited with a $15.

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