Energy & Economics
Under Khodorkovsky's and Lebedev's leadership YUKOS was transformed from a nearly bankrupt Soviet style energy producer into Russia's largest, most efficient, and profitable oil company. Under their leadership, YUKOS's management incorporated best management practices, leading technologies and services from around the world, and invested heavily in infrastructure and in the people who run it.
The seizure and forced auction of YUKOS's jewel production unit, Yuganskneftegaz, in December 2004 by government-owned Rosneft was the watershed event which began the process of re-distribution of property within the oil and gas industry and other strategic industries in Russia. The purchase of YUKOS assets through a state-forced bankruptcy made Rosneft Russia's leading extraction and refinement company.
In the wake of the YUKOS Affair, growth of Russian oil production began to slow due to a shortage of long-term investment. "The oil market has been stalemated because of the YUKOS affair," said Anders Aslund, a senior associate with the Carnegie Endowment for International Peace and expert on the Russian economy. "When you're fighting over property rights, you don't do big projects."
Impact on the Economy
Investors and businesses interpreted the attack on YUKOS and arrest of Mikhail Khodorkovsky in 2003 to be an attack on property rights, inflicting billions of dollars of damage to the Russian economy and the nation's reputation as a whole - damages that will continue to accrue as long as Khodorkovsky remains in jail.
Many observers believe the release of Khodorkovsky would demonstrate to the rest of the world Russia's commitment to human rights, rule of law, and democratic and free market values. In fact, when it was incorrectly reported that Khodorkovsky was granted parole, the Russian stock market reacted positively, and then plummeted again when the rumors were found to be untrue.
In the first months after Khodorkovsky's arrest the Moscow RTS index plunged over 20 percent and triggered a massive capital flight. In the year after Khodorkovsky's arrest, capital flight – only $2.9 billion in 2003 – soared to $9 billion.
International investors were frequently warned by business analysts that Russia's retreat from the rule of law would inevitably undermine Russia's financial markets. In case after case, such as with TNK-BP and Exxon-Mobil, the Russian authorities have forced their will on foreign investors despite existing agreements.
Russia's newly aggressive foreign policy is at odds with risk-averse investors, who place a premium on risk management and who do not subscribe to market interventions that reward the favored few while punishing reformers, such as Khodorkovsky.
Unfortunately, the corruption that Khodorkovsky spoke out against has only worsened. Transparency International reported in September 2008 that corruption in Russia is at its highest level in eight years, ranking the country 147th in joint position with Kenya, Syria, and Bangladesh. Corrupt officials rob Russia of an estimated $120 billion annually, a sum equal to one-third of Russia's national budget.