Russia’s stock market, already on shaky ground, plunged at the news that the government is investigating another wealthy oligarch in what some are calling Yukos Round Two. 65-year-old Vladimir Yevtushenkov was placed under house arrest last week in Moscow. Yevtushenkov is a Russian billionaire, businessman and owner of Bashneft (Башнефть), a Russian oil company. He also owns Russia’s largest telecom service, MTC (MTC translates as M-T-S in Russian Cyrillic).
It did not take long for some business executives to draw parallels with this case to Mikhail Khodorkovsky and the Yukos Oil company. Khodorkovsky was arrested in 2003 and sent to prison as his company was broken into pieces, to be eventually acquired by firms controlled by the government. Market observers say that Bashneft may be a target for takeover by Rosneft, a state-owned oil company that is suffering due to Western sanctions.
Russian markets reacted to the news by falling sharply. Yevtushenkov’s parent company, Sistema, dropped 38 percent, more than $2.5 billion of its value. Sistema is also listed on the London Stock Exchange. Other Russian business oligarchs warned that the move would badly damage investor confidence in Russia, coming at a time when the country can ill afford further weakening of the economy.
The economy is coming under increasing scrutiny from Russia’s political opposition leaders: one of those being Alexei Kudrin, the former Russian finance minister and long-time confidant of Vladimir Putin. Kudrin joined the ranks of populist political protesters in 2010, and while he remains a Putin friend, he told reporters recently that the government is too focused on social issues, and should be investing heavily in the economy at this time.
Kudrin told attendees of a recent summit that, “In a difficult moment like this, it would be useful to increase government investments.” Speaking of Putin’s efforts to increase pensions and salaries in the midst of sanctions from the West, Kudrin said, “To cut government investment now and increase pay is inappropriate.” Kudrin has predicted that the Russian economy will continue to shrink into 2015.
The state-controlled energy giant Rosneft has recently petitioned the government for a $40 billion loan. In what could be seen as “Yukos Round Two” for Russia, some critics say that the apparent weakness of the energy company makes it a perfect candidate to benefit from taking over the assets and projects of Yevtushenkov’s Bashneft. Despite Kudrin’s pessimism, Russia’s deputy Prime Minister Arkady Dvorkovich believes that the Far East provinces will provide the growth needed to protect the economy from sanctions. Russia is counting on new development deals with China to stimulate energy projects in Russia’s East.
One gauge of the impact of sanctions is the Russian ruble, the national currency. As of last week the ruble had plunged, setting record lows. Most of the drop in value appeared to come over falling oil prices, new sanctions and growing tensions at home over the war in Ukraine. For the first time since the Yeltsin-era currency devaluations, the ruble fell below 38 rubles to the dollar. The ruble had dropped against the Euro immediately after Russia annexed Crimea in March of 2014.
A lower ruble will drive up inflation at home, but also deal a blow to travel and other luxury purchases for the average citizen. Putin’s popularity ratings are nearly 80 percent, and he is heralded as a hero in the media, much of which is state-controlled. Putin has consistently said that sanctions would help the economy become more self-sufficient and independent.
In general, the average citizen views Russia’s wealthy oligarchs as thieves. It is commonly believed that they took advantage of the public during the difficult economic transition from communism to capitalism in the 1990s and early 2000s. It remains to be seen whether the average Russian cares if Yevtushenkov’s Bashneft falls to “Yukos Round Two.”
By Jim Hanemaayer