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Yukos Affair Seen Having Serious Economic Consequences for Russia - 2003-11-01

The dramatic events that began with last weekend's arrest of the chairman of Yukos Oil in Russia are being closely watched by Western observers as well as by multi-national companies that have become increasingly active in the huge Russian market.

To most Western analysts, the arrest of Mikhail Khodorkovsky on tax evasion and fraud charges is seen as politically motivated. They are viewing it as an assault on the Western-style capitalism that has taken hold in Russia.

Anders Aslund, a Russian expert at Washington's Carnegie Endowment for International Peace, says the detention of Mr. Khodorkovsky and the seizure of a huge block of Yukos shares will scare away potential investors.

Mr. Aslund says by agreeing to the arrest of Mr. Khodorkovsky, Mr. Putin has thrown his support behind hard liners in the judiciary, the police and the military who advocate tough action against business leaders who openly challenge Kremlin policies.

"What President Putin has done is to have reduced himself from the president of Russia to president of the KGB," he said. "And he is unlikely to maintain political support. And most obviously the businessmen will mobilize against him."

Mr. Aslund believes that in a fight with the oligarchs who control the Russian economy it is not certain that President Putin will win.

"I think that really is the big question now. How soon before President Putin realizes that he has gone too far? And that his popular support is likely to collapse very soon," he said.

Russia has parliamentary elections in December and presidential elections in March. Mr. Khodorkovsky, Russia's richest man, has been active in financing liberal parties that oppose President Putin.

Tim Seymore of the Troika and Dialogue Bank in Moscow agrees that in attacking Yukos Mr. Putin is saying that only those big business leaders who cooperate with the Kremlin will prosper.

"One thing we've all had to question in the last six months and at various times during Putin's tenure is, who is really calling the shots," said Mr. Seymore. "Putin has consolidated considerable power behind what we call the "siloviki," which is the power behind Putin that includes the KGB, or the FSB which is the new KGB, it's the police, it's the military."

Yukos controls huge oil reserves. It produces one point four million barrels a day, has 60 thousand shareholders, and is regarded as the most transparent and most Western in management style of any big company in Russia.