Ben Judah - Fragile Empire - How Russia Fell in and Out of Love With Vladimir Putin

The rashness of Khodorkovsky, his susceptibilities to moods and changes of heart, perhaps even to acting, gripped him like a mania. He started dressing differently – out went the 1990s thick-rimmed glasses, the moustache and the dress sense that seemed so laughably Soviet. In came new-century style rimless glasses, turtleneck jumpers, jeans and an apparent zeal for fighting corruption and turning Yukos until a model company. At first, Moscow laughed. Had Khodorkovsky undergone a change of heart? Or was he playing the lead role in an elaborate, expensive, PR show? It was both. Genuine attempts were made to improve the company – but he had cottoned on that even reputations can be laundered, and that there were Western accountants, Western lawyers and image-makers all too happy to do it. He drafted in global management consultancies to rebuild the Yukos interior and began spending more and more time in London, Washington and New York, talking about his charity work.

The man who began as Komsomol’s experimental capitalist came up with a new slogan: ‘Honesty, Openness, Responsibility’. He wasn’t the only one trying to rebrand himself. The only difference was that, unlike the other oligarchs, he began to believe his own PR. Khodorkovsky began to genuinely think that he was a moral actor, a value-creator, a strategic genius – that he had ‘built’ Yukos rather than having been ‘given’ Yukos.

He had good reasons for this. Khodorkovsky had become obsessed with efficiency and was convinced of his own magnificent genius, as he had achieved nothing less than a production miracle in the part of Russia that matters most – the oil fields of western Siberia. Destructive and inept Soviet techniques had damaged the fields to such an extent that production had almost halved in the 1990s. Russia simply did not have the technology or the competence to exploit the oil that remained. It was Khodorkovsky who first decided to cut through the Russian hydrocarbons establishment and import Western advisors and techniques wholesale.

Through new fracking, flooding and pump techniques Yukos reversed the production decline in western Siberian. The old Soviet fields were losing less oil and new fields were pumping out far more effectively. The results were spectacular. The average flow rate from Khodorkovsky’s wells doubled between 1997 and 2002. 24He was at the heart of a revolution as his techniques were copied across the industry. Russia’s growth in oil production was so steep that it constituted half the growth in oil production in the whole world between 1998 and 2004. 25The country that had been exporting just 3.3 million barrels a day in 1998 was exporting over 6 million in 2005. 26

And Khodorkovsky knew full well that the government couldn’t have done this. Private companies had seen production rise by two-thirds but state-controlled ones rose only by a quarter. 27Not only was Russia producing more, but what it was producing was worth more. There was now no stopping Khodorkovsky’s addiction to efficiency and booming sense of self-worth. In 1998 the country had been making only $28 billion from oil and gas – it would hit $243.6 billion by 2005. 28He felt he was the one turning Russia’s fortunes around.

In this convinced, contemptuous mood, Khodorkovsky was the first to see right through Putin’s telepopulism as pure PR, that it was all stunts not state building. Putin had done nothing to increase oil production. Khodorkovsky was the first person to realize that Russia had exited economic crisis, but was still in a governance crisis. The things that could be solved by an economic upswing were getting better, but the things that needed government competence to solve – such as corruption, terrorism and extortion – were as bad as before. When Khodorkovsky looked at the way Putin ran Russia, he saw the way that Yukos had been run ten years earlier. He saw the President as a shoddy manager.

This irked Khodorkovsky, because he was now gripped by an efficiency mania as oil prices soared. He started to want to do for the country what he had done for his company. Especially since he knew exactly what was going on inside the Kremlin. He had sources, former employees and friends right up to Putin’s office. He was also their neighbour: the Yukos gang lived together in exquisite villas in the new Russia’s Beverley Hills, the exclusive Zhukovka gated communities off the Rublevka highway to the west of the city – this was Putin’s home too. Khodorkovsky would complain that the President’s morning escort that closed the highway to traffic made him late for work. Who did this Putin think he was anyway – closing the lanes like a tsar?

Khodorkovsky thought he was better than this St Petersburg ‘chinovnik’ – this bureaucrat. By now he was the richest man in Russia, worth $8 billion; he was also the richest person in the world under forty. He expressed such thoughts privately, then he started dropping the hint publicly. He no longer wanted money. Khodorkovsky increasingly wanted power. Rumours began to circulate that he wanted to be president. Then he made an announcement that he would quit business when he turned forty-five in 2008, exactly in time for what was supposed to be the first ‘post-Putin’ presidential election. The hiss was growing louder that he wanted Putin’s job. His comments did the bare minimum to dissuade people. Referring to himself and his long-time business partner, he quipped:

Leonid Nevzlin and I have reached the conclusion that we have enough personal money to keep us happy. In that sense, money plays absolutely no role. Money is an instrument to be used for other things. It is an instrument like ammunition in the military – you have to constantly replenish it. 29

They had already taken aim at the Duma – and were winning the battle for influence in the notoriously chaotic, corrupt chamber. As late as 2003 the Putin clan were, like team Yeltsin, struggling to control it. They did not have a majority. In 1999, the government party only had 64 seats out of 450 in parliament and had only secured 23.32 per cent of the vote. The Kremlin had forged the United Russia party out of factions adding up to 235 seats, but its hold was shaky. Symbolic of their lack of control in Putin’s first term, fist fights even broke out in the Duma as angry, chanting communist deputies blocked German Gref from reaching the speakers’ podium to present the Land Privatization Bill.

This lack of control gave the oligarchs (especially Khodorkovsky) the ability to rent, buy and bribe the deputies. The Kremlin was not the only source of political financing in town, as Khodorkovsky had a rival patronage system. Yukos had bankrolled the liberal and pro-American opposition parties, Grigory Yavlinsky’s Yabloko and Boris Nemtsov’s Union of Right Forces. Khodorkovsky had made hefty donations to Putin’s party. Donations to Fatherland all-Russia, the party that had hoped to challenge Unity, had made the Yukos executive Vladimir Dubov a deputy on its list. He was soon made chairman of the Duma’s taxation committee.

This was the way the Moscow elite saw Khodorkovsky putting his politics into practice. It was discrediting the stand he took publicly. It did not look like publicly interested liberal politics, but the politics of big oil, pure and simple. Khodorkovsky, of course, admitted he was engaged in ‘lobbying’, but the Kremlin did not see it this way. They were furious. The speaker of parliament bemoaned that on oil legislation it seemed ‘as if there are 250 Vladimir Dubovs in the chamber’. 30

This was no hysterical remark. The government was repeatedly defeated in its attempts to increase taxes on the oil sector. Putin and his men wanted to increase the state take in oil profits as high as possible, whilst Khodorkovsky was fighting for it to stay as low as it had been in the 1990s. The reform-minded German Gref was distraught, having calculated that this cost the treasury $2 billion a year. 31It would be wrong to see the Yukos affair as Putin’s overreaction to aggressive lobbying. This was not lobbying, but a battle over who would grow rich on the new oil boom – private companies or the state.