After Yukos, West doubts Putin's motives

Russian President Vladimir Putin begins his summit with democratic European leaders Thursday with dented democratic credentials.

Mr. Putin insists that the arrest of Russian oil tycoon Mikhail Khodorkovsky on tax and fraud charges is simply a case of law enforcement. But analysts say that concerns in Europe and Washington - about the selective use of the law and a government freeze of some 40 percent of the shares of Khodorkovsky's company - are putting Russia's future under a cloud.

"Putin has brought a much greater respectability for Russia in the world" during three years in office that have brought swift economic growth, says Stephen O'Sullivan, head of research at the United Financial Group in Moscow. But now, he says, "That has clearly been called into question. If it was even-handed, people around the world would be applauding," Mr. O'Sullivan says. Instead, Russia's richest man is widely seen to have been targeted because of thinly disguised political ambitions that challenged Putin.

The affair has given rise to a fresh sense of instability, at a time when Russia's markets were beginning to boom.

For centuries, Russia has been defined by the strong hand of the state, exercised by authoritarian leaders. Putin vowed to bring instead a "dictatorship of law" to Russia, when he took power after the turbulent post-Soviet era of the 1990s led by his predecessor, Boris Yeltsin.

But often the law has been used as a tool to topple the super-rich business tycoons, or "oligarchs," who emerged during the rigged privatization of Soviet assets in the 1990s and who expected their political clout to match the size of their checkbooks. Two were forced out of Russia and had to relinquish control of vast media and other holdings. Mr. Khodorkovsky, who Forbes figures is worth $8 billion, was the latest who did not adhere to the July 2000 deal Putin struck with the tycoons not to dabble in politics. He's now eating fish soup in a bleak Moscow detention center.

"This is part of a long-term game plan orchestrated by Putin himself, to eliminate sources of opposition," says Michael McFaul, a senior fellow of the Hoover Institution at Stanford and an analyst with the Carnegie Endowment for International Peace. "Anybody who has power [in Russia] is totally scared," said Mr. McFaul, during an interview in Moscow.

Khodorkovsky is known to have funded several parties, including opposition parties. In recent years, the tycoon has also worked hard to improve his image in the West. His philanthropy has included contributions to the US's Library of Congress and to the Carnegie Endowment for International Peace, the New York Times reported Wednesday.

On the EU-Russia summit agenda is a discussion of "common democratic values that underpin EU-Russian relations," according to an EU statement issued Tuesday. Regarding the Yukos case, EU leaders meeting Putin are to "recall the need for the fair, nondiscriminatory and proportional application of the law by the Russian authorities," and that defendents "must be granted due process."

US officials have also taken a tough line, even as Russian-born American ci- tizen Simon Kukes took over the leadership of YukosSibneft Tuesday, after Khodorkovsky stepped down as CEO in a statement from his jail cell Monday.

Ironically, that move may enable the oil baron to take on Putin directly if he wishes, in a presidential vote next March, or in the 2008 election. Oil industry veteran Mr. Kukes - who played a role in the Kremlin-approved sale of a $6 billion stake in Tyumen Oil Co. to British Petroleum recently - is among three Americans in the top leadership of YukosSibneft, which is Russia's largest oil firm.

Moscow renewed its crackdown on Yukos Thursday by threatening to remove operating rights to key oilfields.

"Clearly there is a political factor here which, in our view, may well be the driving factor and [explain] why the law is being applied selectively to one oligarch and not to anyone else, at least at this stage," said a senior State Department official, according to Reuters. "There have been some very pointed conversations at high levels .... Over time, this issue could have some broader implications for the relationship, but I think it's far too early to make any predictions in that regard."

Putin has worked overtime to reassure investors that Russia still deserves their cash, that a review of 1990s privatizations is not underway, and that his policy known as "managed democracy" is intact. Before leaving for Rome, he told Italian journalists that there was "nothing extraordinary" in the Yukos case, and that top executives were often arrested in the US "directly in their companies' offices" with "handcuffs." He accused the US of "double standards" and said "no one questioned the existence of the rule of law" in those arrests. Noting rumors of a renationalization, Putin said "we must not allow events to develop in this negative way."

But Prime Minister Mikhail Kasyanov - an ally of Putin's pro-business chief of staff Alexander Voloshin, who has resigned over the Yukos affair - broke ranks, saying he was "deeply concerned" by the share seizure, the largest in the post-Soviet era.

US investment bank JP Morgan said it anticipates "further unnerving changes in the government in November," and that Moody's Investors Service had been "premature in giving Russia investment-grade status." Moody's said Wednesday it had put Yukos's debt rating on negative outlook.

Concern about a drift toward authoritarian rule extends beyond the boardroom. Independent television was reined in early in the Putin era, and there are signs that print media, too, is coming under pressure.

Pavel Felgenhauer, a well-known independent military analyst and columnist, whose writing is frequently scathing about Kremlin policies toward Chechnya and strategic affairs, says he was told last week that one of his client papers, Moskovsky Komsomolets, was dropping him after receiving a letter from the Putin camp, alleging that he was a "supporter" of exiled oligarch and Putin foe Boris Berezovsky.

"They are cracking down on what is left of a free press," says Mr. Felgenhauer, who adds that he doesn't know or like Mr. Berezovsky and has never worked for any of his media outlets. "This is an authoritarian regime, and such regimes are dangerous for those they are suppressing inside and to their neighbors."

While Putin said this week that freedom of speech in Russia is an "indisputable fact" that "we will protect" Felgenhauer says the string of recent events means that, over time, "Russia will not modernize; it will stagnate, or even collapse economically."