U.S. State Department Comments On Yukos

The U.S. government on August 12 weighed in on the situation surrounding the beleaguered Russian oil giant Yukos. State Department Deputy Spokesman Adam Ereli reiterated the position that Washington has stated in the past–that, as he put it on this occasion, “All parties need to arrive at a solution that resolves this case in accordance with the rule of law and due process, without influence from political considerations, and that respects those principles.” Furthermore, “The appearance of a lack of due process and a threat to private property rights have resulted in both the Russian and the international business communities being on their guard,” he said, adding that the way the case has been handled “also raises questions about respect for investment rights in Russia and has led to increased capital flight and a decline in new investment that is certainly having an impact on the Russian economy.”

Ereli said that Secretary of State Colin Powell had raised “the issue of Khodorkovsky”–a reference to former Yukos CEO Mikhail Khodorkovsky, who is on trial for large-scale fraud, tax evasion, and other alleged crimes –with Foreign Minister Sergei Lavrov during the June NATO summit in Istanbul. Assistant Secretary of State for European and Eurasian Affairs Elizabeth Jones also raised the issue of Yukos with her Russian counterparts in Moscow at the end of July, he said (State.gov, August 12).

The State Department spokesman’s comments coincided with those of an unnamed White House official, who confirmed a report in the Wall Street Journal that U.S. National Security Adviser Condoleezza Rice had spoken to Kremlin chief of staff Dmitry Medvedev over the weekend of August 7-8 about the effect the Yukos case was having on the oil market. “They talked about issues involving Yukos,” the official was quoted as saying (Agence France-Presse, August 12; Moscow Times, August 13). On August 12, crude oil prices jumped well above $45 a barrel (Associated Press, August 13).

As Washington was expressing its concern over the Yukos case, the embattled company’s minority shareholders got a rare bit of good news when the Justice Ministry announced that it had hired German investment bank Dresdner Kleinwort Wasserstein to value Yukos’ main production unit, Yuganskneftegaz, which is slated for auction to cover the company’s tax arrears. Experts say this should help allay fears that the facility will be sold off to insiders at knockdown prices, as should comments made on August 11 by Federal Energy Agency Director Sergei Oganesyan. He warned that Yukos might be forced to cut production if its bank accounts are not unfrozen. Oganesyan also said that only a “large Western oil company” would be able to buy Yuganskneftegaz, which was valued at $30.4 billion at the end of last year, if it is sold in “an honest and transparent auction” (Interfax, RIA Novosti, Moscow Times, August 11).

Vedomosti quoted a source “close to the presidential administration” as saying that both Oganesyan’s comments and the decision to hire Dresdner Kleinwort Wasserstein to appraise Yugnaskneftegaz were coordinated with President Vladimir Putin, who wants to “lower tensions” resulting from the Yukos affair. The source told the newspaper that Putin was moved to “change tactics” in relation to Yukos by “expressions of dissatisfaction from two of the world’s largest importers of oil–the United States and China” (Vedomosti, August 13).

The latest developments in the Yukos case followed yet another series of contradictory actions by state bodies in relation to the company. The Justice Ministry announced late on August 9 that it had ordered the arrest of Yuganskneftegaz’s shares, thereby overturning an August 6 ruling by the Moscow Arbitration Court declaring an earlier arrest of the production facility’s shares illegal. That court ruling had increased the value of Yukos shares by 17%, but the subsequent move to arrest Yuganskneftegaz’s shares yet again sent Yukos stock plummeting as much as 21% (Moscow Times, August 9-10).

These huge fluctuations further fueled speculation that officials are using insider information for trading in Yukos shares. Novaya gazeta cited experts as saying that speculators with advance warning of the arbitration court ruling and the ensuing Justice Ministry announcement overturning that ruling may each have earned anywhere from $700,000 to $1 million a day using that insider information. “In all, it is generally believed, the Yukos affair has earned well-informed persons and structures something on the order of a billion dollars,” the bi-weekly wrote (Novaya gazeta, August 12; see also EDM, August 6).