Stability? What stability?

Russia’s richest man has been arrested and officials have seized his stake in Yukos, an oil giant. Whatever the motive, the move has unnerved investors

Most observers at least agree on one thing now: that the prosecutors’ campaign against Russia’s biggest oil company, Yukos, which culminated at the weekend in the arrest of its boss and major shareholder, Mikhail Khodorkovsky, had President Vladimir Putin’s approval. Nobody but he, it is generally assumed, could sanction the arrest of the country’s richest man and most public businessman. But Mr Putin is unlikely to approve of the way in which the arrest has become something of a political and macroeconomic crisis, leading to accusations of foul play and shaking the Moscow stock exchange and the rouble. Indeed, the affair has left a lot of investors feeling almost as uncomfortable as Mr Khodorkovsky, especially after Russian officials seized a 44% stake in Yukos belonging to him and his allies on Thursday October 30th.

Since the first arrest of a Yukos shareholder, Platon Lebedev, in July, followed by a series of investigations into misdeeds at Yukos and related companies, Moscow has been awash with conspiracy theories about the motive behind it all. Mr Khodorkovsky was clearly a threat to the power both of the state itself and of people linked to state-owned businesses. He reputedly used his lobbying power in parliament to block a draft law on oil-industry taxation, had spoken out against the government’s policy on pipelines, alleged that there were corrupt deals in state firms in a public meeting with Mr Putin, and hinted at political ambitions in the future.

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But was the campaign against Yukos initiated by Mr Putin, in response to Mr Khodorkovsky’s increasing political influence? Or was it, as Yukos itself has repeatedly alleged, the work of a group of Kremlin cronies, most from a security-service background, fighting for control against another Kremlin clan close to big business? Was the ultimate goal to confiscate Mr Khodorkovsky’s wealth, to put out his political fire, or just to carve off a slice of the empire that he has built up since acquiring state assets for a song in the 1990s, as several other top “oligarchs” did? Was it an attempt to scare foreign companies away from buying a stake in Yukos—both ExxonMobil and ChevronTexaco have been discussing just such a move—so that Russian oil would remain in Russian hands? Or was it merely an attempt to get rid of Mr Khodorkovsky himself before they buy, since with a big foreign partner he would be virtually untouchable?

The most probable explanation is some mixture of them all. Mr Khodorkovsky had made more than enough enemies to get into trouble. All the same, some think that Mr Putin, like Henry II asking who would rid him of the meddlesome priest Thomas а Becket, may have authorised the investigations into Yukos without realising what they might lead to. Or he may simply have thought that Mr Khodorkovsky would do the rational thing and back down. Instead, however, the oil baron went on making speeches about his persecution, buying a newspaper (oligarch-controlled media companies are one of Mr Putin’s great bugbears) and continuing to use his political influence: earlier this month, no less than 101 members of the Duma, the lower house of parliament, signed a letter to the chairman of the court that is investigating Yukos, complaining about the alleged mistreatment of one of the suspects. Alexander Voloshin, the Kremlin's chief of staff and no friend of the secret-service clan that has been out to get Mr Khodorkovsky, has apparently tendered his resignation over the oil man's arrest, though the Kremlin has not confirmed this.

On the face of it, the hounding of Mr Khodorkovsky is similar to the campaigns against Vladimir Gusinsky and Boris Berezovsky, two other magnates who were stripped of most of their assets and chased out of Russia three years ago. Then, too, Mr Putin feigned distance from the affair; but it became clear that the two men, both of them close advisers to Mr Putin’s predecessor, Boris Yeltsin, were being punished for refusing to stick to the terms of Mr Putin’s bargain with the oligarchs to stay out of politics. After they left, those businessmen who kept to the rules were free to keep increasing their wealth.

There has, predictably, been an outcry about the damage that Mr Khodorkovsky’s arrest could do to investor confidence. The Russian stockmarket fell, dragged down by Yukos shares, when trading opened on Monday. The oil firm's shares slipped further on Wednesday, on news that prosecutors were seeking to have another big shareholder, Vasily Shakhnovsky, stripped of his parliamentary immunity so he can face charges of tax evasion. They fell again on Thursday after the seizure of Mr Khodorkovsky's shares and have now lost more than a quarter of their value since his arrest.

Meanwhile, for foreigners who do business in Russia, Mr Khodorkovsky’s arrest is unnerving but it may not necessarily change their views; most already know that their best protection is still not the law but their krysha, or “roof”—a well-connected power broker. Mr Putin, the best-connected power broker of them all, said on Monday that he would not enter into any bargains to limit the Yukos investigation, but neither would he extend it into a broader campaign against those who got rich in the 1990s. He called for an end to “all speculation and hysteria” about the arrest.

Hysterical or not, some rich Russians do now feel their country a less safe place to be rich in. The net capital inflows that drove up the stockmarket earlier this year have turned into net capital flight since Mr Lebedev’s arrest. A few oligarchs, such as Roman Abramovich—the oil magnate who bought Chelsea, a top English football club—have been steadily selling off their Russian assets. Others have simply left: Leonid Nevzlin, one of Mr Khodorkovsky’s associates, recently applied for Israeli citizenship. The oligarchs’ money had a big role to play in building up Russia’s economy; an important source of the growth that Mr Putin desperately wants is going to be lost.

And while the purges of Mr Gusinsky and Mr Berezovsky might have been excused as a new president’s house-cleaning and a way to bring some stability after the chaotic Yeltsin years, the attack on Mr Khodorkovsky shows that stability is somewhat illusory. Though the laws and conditions for investment have improved greatly in the past few years, there remains an underlying conflict between capital and the state, a by-product of Russia’s enormous concentration of wealth. Economic reform will not solve that; only economic diversification, a much slower process, will.

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