- The Washington Times - Wednesday, July 30, 2003

Russia’s ambition to become an alternative oil supplier to the United States instead of the unstable Middle East and Russian integration into the global economy are under threat. For the last month, YUKOS, the largest Russian oil company — fourth-largest in the world — has been under a relentless attack from the Kremlin. Its founder, 40-year-old Mikhail Khodorkovsky, together with other oil moguls, has championed the privately owned oil pipeline to the Arctic port of Murmansk, but now his deputies are under arrest in Moscow and his corporate headquarters raided by government goons.

If YUKOS goes under, it is unclear who will develop the Northern pipeline project. Presidents Vladimir Putin and George W. Bush will have much to discuss at their Camp David summit in September.

This will not be the first time the Russian government is falling into its own bear trap. In the late 19th and early 20th centuries the czarist regime destroyed Russia’s double-digit economic growth — and its own rule — through ineptitude and greed. A post-World War I recovery in the mid-1920s was bled to death by Josef Stalin’s agricultural collectivization, execution of elites and laymen, and a man-made famine.

Since 1999, YUKOS has increased its market value 10 times, has hired Western executives, raised funds in New York, and introduced transparency and better corporate governance. In 2002, the company paid $4 billion in taxes.

The YUKOS fiasco has already plunged the Russian stock market, until recently one of the most lucrative in the world, into a $20 billion tailspin. Reported merger talks between YUKOS and Exxon and Chevron, to create the largest oil company in the world, will be on ice. Investors are selling off their Moscow stock portfolios.

This abuse of the legal system, inspired by the Kremlin, endangers economic freedom, property rights and democracy in Russia. Mr. Khodorkovsky supposedly has caused the ire of Mr. Putin’s entourage by supporting two small liberal parties, in December parliamentary elections. The Kremlin claims Mr. Khodorkovsky violated a secret agreement between Mr. Putin and the Russian oligarchs concluded in 2000: if you stay out of politics, you can do businesses.

Speaking on July 18, on the television channel NTV, Alfred Koch, a former privatization czar, said Mr. Putin’s Kremlin is planning to revise the results of the privatization. It makes good politics in Russia to bash “oligarchs,” who got their properties in the 1990s in an opaque privatization process. In a recent VTsIOM poll, 75 percent said they believe privatization needs to be revisited. KGB and military officers around Mr. Putin would like to chop up private companies and grab their assets. To do so, they are abusing politics by launching an anti-tycoon witch hunt.

Julia Latynina, a leading investigative journalist, is saying Mr. Putin now faces the choice of his career: support asset-hungry cronies from Leningrad KGB or stay the course of integration with the West, foreign investors, and economic growth. Mr. Putin will not be able to do both.

Bottom line, property rights in Russia are half-baked. While Mr. Putin ran in 2000 under the slogan “Dictatorship of the law,” in reality, his is a dictatorship of political power. Rulers define what the law is — or how it is used. In April, New York judge David Trager wrote a 120-page ruling, saying Russian courts are under influence from the government. If Russian courts can be used to destroy the richest man in Russia — Khodorkovsky is reportedly worth over $7 billion — they are unable to protect ordinary Russians or regular Western investors.

With KGB men running the Kremlin, Russia is abandoning its liberal glow. When two “undesirable” oligarchs were chased out of the country, the independent electronic media in Russia were effectively destroyed. Now, Mr. Khodorkovsky’s multimillion-dollar charity, Open Russia, is in danger, despite having such luminaries as Henry Kissinger and Lord Rothchild on its board.

It is a disturbing trend threatening democracy, a group of Russian novelists, musicians and poets warned in a letter to Education Minister Vladimir Filippov, published in Izvestiya July 19. Soviet-era persecuted authors, such as Boris Pasternak and Andrei Platonov and poets Anna Akhmatova and Osip Mandelstam, crucial to the comprehension of Russia’s tragic history, have been removed from the reading lists, the writers said. Historical truths about the totalitarian, repressive regime and its horrible consequences for the people, country and culture, are being whitewashed.

After the 1917 coup, the Cheka — Lenin’s secret police and the KGB’s predecessor has begun its reign of terror by “expropriation” of property. One hopes those who rule Russia today can learn from their own tragic history.

Ariel Cohen is a research fellow at the Heritage Foundation and author of “Russian Imperialism: Development and Crisis” (Praeger, 1998). His expertise includes international energy security.


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