Germans Troubled by Russian Oil Tycoon’s Case

In a cloak and dagger operation just over a week ago, Russian secret service agents nabbed Mikhail Khodorkovsky, the billionaire Russian oil tycoon who heads Yukos, a company on the verge of becoming a major international player in petroleum sales.

On Thursday, the Kremlin seized 44 percent of the company’s stock as the investigation against Khodorkovsky and other senior executives on tax evasion charges continues.

The moves roused fear in foreign investors, who fear that, after a decade of opening up its markets, Russian President Vladimir Putin could be shifting away from free markets and democracy. Worse yet, they led to chaos on the Russian stock market, where shares of Yukos and the main stock index in Moscow have fallen 20 percent since Khodorkovsky’s arrest and the stock seizure.

Underscoring the fears of the business community, United States State Department spokesman Richard Boucher on Friday asked the Russian government for assurances the arrest of Khodorkovsky was not politically motivated. After all, Khodorkovsky, regarded by Forbes magazine as Russia’s richest man, has been a leading funder of left-wing opposition politicians who are seeking to unseat Putin in upcoming federal elections. Media reports in recent weeks also indicated that the tycoon was courting U.S. oil multinationals like ChevronTexaco and ExxonMobile as investors in Yukos, which Khodorkovsky has grown into the world's fourth-largest oil company.

‘Serious questions’ about rule of law

"The freezing of assets yesterday has indeed raised serious questions about the rule of law in Russia," Boucher said at his daily press briefing on Friday, "and we've noted that it sparks concerns among domestic and international investors about respect for ownership rights in Russia ...We think the Russian authorities need to dispel concerns that Yukos case is politically motivated. They need to ensure that it is judged fairly and with full regard for due process of law, applied in a non-selective fashion."

The German government, meanwhile, warned that Russia’s case against the oil executive must follow the international standards for rule of law – otherwise it could jeopardize European-Russian business ties. Berlin said it viewed the actions taken by the Russian government against billionaire oil tycoon Mikhail Khodorkovsky as a test case for investment security in Russia.

"We’re assuming that in this case, the principals of a constitutional state will be observed," said Thomas Steg, a spokesman for Chancellor Gerhard Schröder. Following rule of law, Steg said, is essential for Russia to succeed in integrating with the international economy. The ability of foreign companies to invest in security and with stable planning is essential for a deepening engagement and cooperation between Russia and the European Union, he warned. However, the government spokesman refused to comment on the specifics of the case.

Moscow rejects criticism

Over the weekend, the Russian Foreign Ministry issued a statement deriding the State Department’s questioning as "at the very least, tactless and disrespectful." The Foreign Ministry said the U.S. had overlooked similar cases in other countries.

Mixed reactions from German executives

Reactions in Germany have been mixed. Some business leaders have said the Yukos case could stem the flow of investment from Germany, Russia’s largest single trading partner. Russia is also an extremely important market for Germany, whose companies exported €11.4 billion worth of goods there in 2002. But the German chamber of commerce in Moscow says the companies it represents see no immediate threat to their investments.

"I have asked many companies (about the developments), and all have said, ‘our investment policies aren’t going to change – nor is our planned investment exposure'," Andrea von Knoop, who heads the Moscow office of the Association of German Chambers of Industry and Commerce (DIHK), told the news agency Reuters. The vast majority of the 2,000-odd German companies represented in Moscow are going on with their business in Russia under the assumption that the investment environment will remain stable, with considerable upside potential.

According to von Knoop, Khodorkovsky’s arrest is a sign that the legal system in Russia also applies to many oligarchs who built their wealth under dubious circumstances. The government’s seizing of Yukos stock, she said, was a normal procedure for such cases.

Though Russian President Putin has stated that the arrest was neither politically motivated nor a move to expropriate a private oil company, some German executives believe the moves could have far-reaching implications.

"I think that through the confiscation of shares, one thing will be achieved: the lucrative petroleum market will not fall into foreign hands without controls, especially in American hands," Oliver Wieck, the business manager of the East Committee of the German Economy, told German public radio broadcaster Deutschlandfunk.

"Of course, it goes without saying that that doesn’t exactly encourage foreign investors to step into the Russian market," said Wieck. "In regards to future investments, we’ll have to look very critically at the situation and future developments."

But von Knoop warned German executives against overreacting.

"We’re observing a further interest in investment in Russia," she said. "That is a result of the consequences of reforms brought under Putin, impressive economic indices – growth for five straight years – and it’s getting closer to stability." The DIHK Moscow bureau chief said her organization did not believe the Russian government is embarking on a course of expropriations. "We feel the reaction in Germany is excessive."