Russia is heading for a new showdown with the West over a $50 billion damages award to international shareholders in the collapsed Russian oil giant Yukos. The company which was run by oligarch Mikhail Khodorkovsky was forced into bankruptcy in 2007 by a massive tax claim. It was taken over by state-owned energy rival Rosneft and Khodorkovsky was given a ten-year jail sentence for fraud. His supporters maintain that the prosecution was politically motivated because he had fallen out with President Vladimir Putin over the funding of opposition politicians. Yukos shareholders around the world were left with nothing. The huge damages award made last year by an arbitration court in the Hague has been rejected by Moscow. The Russian position is that the court did not have the power to rule, not least because Russia was not a signatory to the international agreement on which the arbitrators' decision was based. In June, a consortium of shareholders began proceedings to enforce the Hague ruling, seizing Russian state assets in Belgium and France. Similar court orders are being sought in the US and the UK. Protesting that the shareholder action is politically motivated, the Kremlin has rushed a law through parliament which empowers it to seize Western assets in retribution. The stage is, therefore, set for a tit-for-tat series of asset grabs which will further heighten tensions between Moscow and the West. International investors have been pulling out of Russia in droves over the past decade. The Obama-led sanctions regime, following Putin's occupation of Crimea and open support for separatist rebels in Ukraine, made Russia even less attractive. If Putin does not back down, it is likely that foreign business will quit his country altogether. The Russian president will probably argue that outside cash and expertise are no more essential than Western-produced delicacies such as Parmesan cheese, the import of which has been banned in retribution for Western economic sanctions. He will doubtless point out that Russian technology is so outstanding that, until their sale was halted, it even provided the motors for US space rockets. An isolationist Russia maintaining and strengthening ties only with China will take the Russian economy a long way back toward Soviet times. Western economists see this as a disaster for the country. Vladimir Putin probably does not. He deeply regrets the dissolution of the Union of Soviet Socialist Republics and appears intent on rebuilding many aspects of the old Communist state, including a command economy. Rewinding to that economic position means that there will be a limited role for direct foreign investment and only a marginal need for indirect investors. The $50 billion Yukos row has given Putin the lever he needs. Instead of buying or slowly freezing out international businesses, the Kremlin can now seize those assets without the need to compensate anyone. This will of course trigger more court judgements in favor of investors and more asset seizures. In time there will be nothing left to seize in Russia. When international courts start attaching the income of state-owned energy giant Gazprom from its gas sales to Europe, Moscow will doubtless turn off the taps. Would this be an own-goal or a mighty Kremlin blow asserting its independence from the shenanigans of Western business and Western courts?
