Wednesday, July 07, 2004

Russia Seizes Yukos

If you read my post on Yukos yesterday, then you know I'm no Brad DeLong or Paul Krugman. But the latest development in the Yukos saga is bound to affect our economy, don't you think?

The Russian government moved Wednesday to begin seizing assets of Yukos Oil Co. in the culmination of a politically charged tax battle that could either bankrupt or break up the country's largest oil producer.

Court marshals accompanied by special police forces raided the company's registry office in Moscow at the end of the business day to search for ownership documents for various Yukos properties. The marshals were enforcing last week's court judgment giving Yukos a Wednesday deadline to pay a $3.4 billion back tax bill.


The situation endangers a company that pumps more oil than Libya and accounts for one-fifth of foreign petroleum sales by Russia, the world's second-largest oil exporter. The latest figures published by brokerage houses Monday showed that Yukos produces 1.7 million barrels a day, surpassing its own records and every other Russian oil company.


The case drew international criticism this week for the politicization of Russian business and courts. "The so-called 'Yukos case' reflects these problems," the Paris-based Organization for Economic Cooperation and Development, said in its annual report on Russia, released Wednesday. "Whether the charges against the company and its core shareholders are true or not, it is clearly a case of highly selective law enforcement."

A senior U.S. diplomat said Tuesday that the case is "raising fundamental questions in the minds of many investors." There are "increasing signs that destruction of the company is the intended endpoint," he said. "At a minimum," he added, it's "an extraordinary game of brinkmanship" akin to a game of chicken with two cars racing toward a cliff and "they're getting very close."

In his analysis, the diplomat said, it appears likely that a "sizeable percentage of the company's assets [will] move into the hands of the state."

Will government seizure of a multi-billion dollar tax cheat ensure that Yukos' 1.7 million barrels continue to flow into our Hummers? Is this a naked power grab by Putin? How will our government respond? I have many questions, but few answers.