Four months after The Hague ordered Russia to pay $50bn to the shareholders of former oil and gas giant, Yukos for indirectly expropriating the company, the likelihood of its compliance to the ruling and paying the fine continues to remain uncertain. The recent announcement that Russia is appealing the decision does not come as a surprise. To look at the ruling in isolation is limiting as the situation is far more complex than it first appears due to heightening tensions between Russia and dominant western powers. [source]
Yukos was crippled in 2004 by a number of moves by the Kremlin and Vladimir Putin in an attempt to diminish the power of political opponent, Mikhail Khodorkovsky. The verdict discredits Putin’s consistent claims that his actions towards Yukos were in order to remove assets from an oligarch and allow the Russian people access to the benefits of what was at the time the country’s largest oil company. However, the tribunal found that Russian authorities began to “bankrupt Yukos, assign its assets to a state-controlled company, and incarcerate a man who gave signs of becoming a political competitor”. The court also found evidence that Russia subverted the courts to imprison Khodorkovsky after mounting fear he posed a legitimate political threat to Putin. If Putin is to accept the claims that his authorities acted in a mafia-esque manner, he would also be openly recognizing that the country has operated in a corrupt manner. In order to protect his reputation both internationally and on home soil, Putin will see the need to protest against the decision.
On 12 November, it was announced Russia had officially lodged an appeal against the ruling. The country has consistently protested the judgement, with Russian deputy foreign minister, Vasily Nebenzya accusing the Dutch court of reaching a “politically motivated” decision. Russia maintains that it was not bound to the energy treaty under which the judgement was made as while it had signed the ECT initially, it had not ratified it.
The significant sum is 11% of Russia’s foreign exchange reserves (source: Financial Times) and ignores the minor Yukos investors who have not yet made claims against the nation. Russian politicians will fear should they pay the fine without protest, the flood gates will be opened for further claimants to come forward, and not only in relation to Yukos.
Relations between Russia and dominant Western powers have become increasingly frosty with speculation of the return of the Cold War featuring frequently among headlines. As such, the ruling plays particular significance with the harsh judgement having been made what is now a politically charged environment. The ruling is likely to be at the forefront of the deteriorating diplomatic situation, with politicians on both sides using the judgement as a vehicle to deal with wider concerns. While sanctions have unarguably had an impact on Russia, it should be noted that Europe continues to receive over 30% of its gas supply from Russia. The economic pressure Putin is experiencing should not be overstated.
As relations between Russia and the West continue to deteriorate, the Yukos ruling appears to be a particular bone of contention. The significantly high sum, twenty times higher than any past ruling made by The Hague, has led to Russia declaring that the decision was made with political motives in mind. With the appeal now formally submitted, insiders have noted that the process could now take years to reach resolution. The process is nearing a stage of legislative gridlock meaning the former Yukos shareholders are unlikely to see any of the $50bn in the near future.
What will be difficult for Russia to navigate is the unanimous decision made by the arbitrators, particularly as one of the individuals was elected by Russia. Should the decision been more contentious with a split in decision, there would have been more room for disagreement. Russia will now have to attempt to appeal against the ruling without being perceived as acting unlawfully.
It is unlikely Putin will accept the ruling and agree to pay the funds should his hand not be forced. If the overseas assets of Gazprom and Rosneft are seized under plaintiff instruction, the president may begin to behave in a more amenable manner. What is more likely however, is that an action such as this will aggravate the increasingly tense situation. The Yukos ruling is one of the small battles being fought within the context of increasing polarisation. Putin will fear that agreeing to pay the eye wateringly high fine will result in a victory for the West. Putin appears to have committed to a path of anti-west confrontation and the timing of the Yukos ruling means it is unlikely he will submit the $50bn without a fight.