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Government Seizes Controlling Interest in Russia's Largest Oil Company - 2003-10-30

The Russian government has seized a controlling interest in Russia's largest oil company, Yukos, days after arresting the firm's chief executive. The development sent Russian stocks tumbling for the second time in days.

The Russian stock market, already jittery over the weekend arrest of Yukos Chief Executive Mikhail Khodorkovsky, fell sharply Thursday, after Russian prosecutors seized a majority of shares in the huge Russian oil company.

Moscow's MICEX index recorded losses of more than eight percent, and Yukos shares closed down 14 percent, after dropping 20 percent on Monday.

Yukos Spokesman Alexander Shadrin says prosecutors seized more than 50 percent of the company's shares in a move he called a gross violation of the Russian criminal code and Constitution. Mr. Shadrin told Russia's Interfax news agency that the shares seized do not have any connection to Yukos chief Mikhail Khodorkovsky. But the prosecutor's office claimed otherwise, in a brief statement confirming the move on Thursday.

Despite what some see as an escalation of hostilities between the Kremlin and big business, Mr. Shadrin says Yukos executives remain optimistic.

Mr. Shadrin says nothing bad can happen to the shares, as, he says, Russian law prevents them from being sold to third-parties. He also maintains that Yukos shareholders still have a right to take part in voting, and that it is still possible to recover a profit.

Word of the seizure came as President Putin was meeting at the Kremlin with leading Russian and foreign investors, who are growing increasingly wary of events surrounding the Yukos affair. The meeting had been long planned, and it was not clear if the latest actions against Yukos were discussed.

But Mr. Putin made clear earlier this week that he will not engage in any negotiations over the Yukos affair, as requested by Russian big business interests.

He has also sided with the prosecutors in the arrest of Mr. Khodorkovsky, saying it was within the framework of Russian law.

Russian secret police arrested and jailed Mr. Khodorkovsky last week on seven charges of tax evasion and fraud. At least two other senior Yukos officials are under investigation, and Russian prosecutors have raided the offices of Yukos-affiliated companies over the past four months.

Analysts and investors say the moves against Yukos are retaliation for Mr. Khodorkovsky's support of opposition parties running against Kremlin allies in the December parliamentary elections.