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Oil prices spiking today to $42 per barrel as the worst possible scenario unfolds in Russia. Today's order from the Russian Justice Ministry to stop selling oil pushes the company toward bankruptcy, and guarantees that it will be unable to use its income to arrange payment of a disputed tax bill.
Meanwhile, bailiffs are proceeding with plans to sell Yuganskneftegaz, Yukos' largest subsidiary, for as little as 10% of its market value, to pay the tax bill. Two other subsidiaries, Tomskneft and Samaraneftegaz, are also being readied for sale. No buyers have been named, but it's expected that the buyers will be Kremlin-controlled oil firms, effectively nationalizing the the company.
In a separate development, a close aide of President Vladimir Putin has been voted chairman of the board of Rosneft oil company, which is owned 100% by the Kremlin. This has raised speculation that Rosneft will be the buyer of the Yukos' subsidiaries.
It's becoming clearer that Russian President Putin's intention from day one has been to nationalize Yukos, one of Russia's largest companies, and the supplier of 11.4% of the world's oil, and that the motives are political. The Kremlin has stonewalled or rebuffed several proposals to pay the back tax bill, and save the company to preserve investors' savings. Only one scenario seems acceptable to the Kremlin: Bankrupt the company, and nationalize its assets.
The Kremlin's move will strongly discourage foreigners from investing in Russia, and is certain to roil the international oil markets for months to come.
There are still too many unanswered questions to feel certain that we
know what Putin's full motivation is. Is this a desperate sign that
the Russian economy is a lot worse than we know about? Is this
related to the conflict between Orthodox Christian and Muslim
populations in its southern provinces (Chechnya, Ingushetia, Dagestan,
North Ossetia), increasingly involving countries Caucusus region
(Georgia, Armenia, Azerbaijan)? We have to wait and see.
(28-Jul-04)
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