Whither Putin After the Yukos Affair?

By Lilia Shevtsova

Originally published in The Moscow Times on August 27, 2003.

The Anti-Monopoly Ministry's approval of the Yukos-Sibneft merger two weeks ago would never have happened without the Kremlin giving the "go ahead." The assumption of the pundit community, eager to switch its attention to the unfolding election vanity fair, was that the attack on Yukos CEO Mikhail Khodorkovsky was over.

However, it is worth deliberating on the significance of the Yukos affair for Russia and its future developments. The Kremlin crackdown on one of the country's business moguls is not just another twist in the ongoing political struggle -- it says a lot about the very nature of the political system and may serve as a foretaste of shake-ups to come.

Nearly all the motives behind the attack on Yukos discussed in the media have had some role to play: Yes, we've seen the results of a clash between competing "families" in President Vladimir Putin's entourage; yes, representatives of state-owned Rosneft and Transneft made an effort to prevent Yukos from encroaching on their territory; yes, the chekists were looking for a pretext to bolster the electoral chances of United Russia and People's Party and to get their hands on oligarchic resources; yes, Putin himself wanted to stop big business from interfering in the State Duma elections; and so on.

But there have been exaggerations as well. Neither Putin nor his praetorians had any intention of starting nationalization -- the president's hungry wolves were just hoping for a slice of the pie. Khodorkovsky was not punished for supporting Yabloko, the Union of Right Forces or the Communists, nor for the merger with Sibneft -- all of this had been approved by Putin himself. Besides, Khodorkovsky is not alone in sponsoring candidates for the next Duma, nor is he alone in pursuing an aggressive business strategy (for a real predator, take a look at Oleg Deripaska). The president did not think seriously about using the attack for his election campaign. And the struggle over the Murmansk and Far East pipeline routes also had a limited impact on the summer events in Moscow.

Let us ponder what the whole affair means for Russia and Putin personally.

The attack on Yukos proves that Putin, after four years in power, has failed to consolidate his power base. He proved incapable of dismantling the existing system based on incompatible principles, antagonistic elites and constant clashes. The lack of developed institutions makes these clashes vicious and the results unpredictable.

Ironically the most devastating wars are waged between the two most interconnected elites: the business and bureaucratic elites. In 1996, business got the upper hand, defeating the clan of Boris Yeltsin's bodyguard Alexander Korzhakov. But even in government the tycoons failed to capitalize on their victory, and during Putin's presidency the state apparatus and its top echelon -- the so-called power structures -- have been taking their revenge.

Summer events have demonstrated the oligarchy's inability to defend its position and form its own corporatist agenda. Russian moguls have been shown up as nothing more than appointees of the apparatus who have been handed the right to control private property and are supposed to act within strict boundaries. What happened to Vladimir Gusinsky and Boris Berezovsky and is happening to Khodorkovsky proves that the oligarchy is a myth. Bureaucracy continues to be the dominant force within the Russian system of governance, as it has been through the ages.

The permanent tug-of-war between the two elites has manifested itself in the dogfight between the old and new families surrounding Putin. The Yeltsinites have accumulated major financial and economic resources, moving recently to gain control over arms sales and planning to pocket the new Duma. Putin's praetorians have proven to be weaklings by comparison. Their attack on Yukos was in fact a counteroffensive, desperate and ill prepared.

The chekists sought to prevent the Yeltsinites from forcing Putin to make a new deal with them before the presidential election in 2004. The president, apparently concerned about his limited "sovereignty," let his people act. To shake off the suffocating embrace of the old family, Putin had the option of appealing to society and reining in the clans by introducing greater transparency into the political process. But instead, he unleashed his loyalists.

Why now? The forthcoming elections are the catalyst. In Russian politics, the horse-trading takes place before -- not after -- the elections. The strategic objective, however, is not the elections of 2003-04 -- it is all about the 2008 presidential election when Putin will be off the list of contenders. Both old and new "families" have started to prepare for their biggest challenge -- the handover of power. All the key political actors understand that preparation for Putin's departure must start now. The upcoming elections are important primarily for the bargaining position they provide before the real deal is struck.

Putin's absence during the whole affair demonstrates the nature of his leadership. He does not like to take sides openly and persists in the "all things to all people" approach that helped him during the 2000 presidential election.

But this pattern was productive while he was posing as a stabilizer who was going to extricate society from Yeltsin's revolutionary cycle. Now Russia expects a more ambitious agenda from Putin and his evasiveness creates frustration. The recent decline in the president's popularity is a clear sign that he is moving in the wrong direction.

Putin has allowed things to unfold. Now he faces the tough challenge of reining in his own people and dealing with the domestic and international ramifications of the Yukos scandal. Even if he succeeds in restoring "shadow" checks in the Kremlin, it will be a temporary truce -- he cannot halt preparations for the post-Putin transfer of power. His second term may be wasted on keeping a lid on things. Unless Putin tries to change the system of clan wars and behind-the-scenes transfers of power, he is finished. He will not have the energy or stamina to pursue vigorous reforms and will end up a lame duck trying to keep the boat afloat.

And what of the main hero of our story -- Khodorkovsky? There were different reasons why people in the "power structures" were ready to go after him. But there is one major reason why he became the main object of this counteroffensive: While allied to it, Khodorkovsky is not a member of the Yeltsin family. The chekists still have no guts for a direct attack on Putin's godfather and his gang; they struck at Yukos instead, apparently hoping to make their decisive move next. Thus, Khodor, as he is called in Moscow, was used to issue a warning and as a pawn in the clash of the Kremlin clans.

Nonetheless, why Khodorkovsky and not Pyotr Aven or Mikhail Fridman (who are not members of Yeltsin's clique either)?

The reason is Yukos was the first Russian company that started to look for legitimacy not through maintaining cozy relations with the apparatus but by making the switch to transparency and legality. It was a challenge to the bureaucracy, which reacted immediately.

The Yukos affair has proven that Russia's stability is not sustainable. The rules of the game can be reversed at any moment. Economic considerations and property rights can become hostage to the political struggle.

It is true that the oligarchs who, in fact, aren't even oligarchs are not angels. There are no angels in Russian politics. Russian business has failed to initiate a dialogue with society and is still perceived as a hostile force. But at the same time, at least some oligarchs -- Khodorkovsky among them -- have understood that if they want to continue doing business in this country they have to change their behavior.

And in a situation where civil society is weak, these people may be the only force that can constrain the state's omnipotence. Cornered and exasperated, Putin in an attempt to free himself from old commitments has failed to find allies among big business and has moved in another much more dangerous direction -- toward dependence on the "power structures."

The way the Yukos story ends -- if it ever ends -- will tell us where Putin is headed and how Russia will develop in the next four years. Putin, it seems, is still deliberating.

Lilia Shevtsova is a senior associate of the Carnegie Endowment for International Peace.