Yesterday was the blackest day for the Russian economy since 17 August 1998, when the rouble went into free fall after Russia defaulted on its foreign debts. Overall, shares registered their sharpest decline for more than four years: the Russian Trading System Index (RTS) plunged at the start of trading, to close 10 per cent lower. Trading in the oil giant Yukos was suspended for an hour after a precipitate fall at the start of the day. It ended 17 per cent lower, and Sibneft, the smaller oil company Yukos has agreed to buy, lost 19 per cent of its value. The rouble fell against the dollar and the euro - its first decline for more than a year. Bonds also fell.
All this market alarm was generated by one event: the arrest at the weekend of Mikhail Khodorkovsky, the billionaire chief executive of Yukos, Russia's biggest oil company. Mr Khodorkovsky is being held inprison facing charges of fraud and tax evasion.
At least some of the alarm was generated by the deliberately ostentatious manner of Mr Khodorkovsky's arrest. His private plane was surrounded at Novosibirsk airport and boarded by heavies from the FSB, the successor to the Soviet-era KGB secret police. Mr Khodorkovsky and his entourage were ordered to throw down any weapons, handcuffed, hooded, then sent to Moscow. The whole episode smacked of a previous era - or another country. It is not necessary to believe Mr Khodorkovsky's advocates when they insisted he was not avoiding questioning or fleeing the law, and to regard this as no way for a business-friendly country to treat its richest man, whatever his crimes.
Mr Khodorkovsky's arrest sends one unambiguous message: exceptional wealth does not buy anyone immunity from prosecution in today's Russia. And this may have been the message it was designed to send. The Russian authorities had had Yukos in their sights for more than six months. Four of its senior executives had already been arrested or questioned. The company's offices had been raided three times and documents taken. But until Saturday, most Russia watchers had been convinced that the authorities would steer clear of Mr Khodorkovsky, arguing that his arrest would be too much of a risk to investment.
The extent of that risk became apparent from the market reaction - Russian and international. It also demonstrated how much Russian business success is still associated in the minds of investors with one individual. Remove - or impugn - that individual, and confidence haemorrhages.
Optimists would point out that, while confidence in Russia took a battering yesterday, foreign investors remained remarkably sanguine. As did Yukos, which named an interim chief executive and said negotiations with ChevronTexaco and ExxonMobil would proceed, although ExxonMobil was more cautious. Another large Russian oil company, Lukoil, yesterday finalised a $750m (£440m) syndicated loan deal with Western banks, while BP, which is buying a 50 per cent stake in the second-largest Russian oil company, TNK, said that difficulties at Yukos had no bearing on its own deal.
Analysts also noted that Russia's capital markets still play a minor role and that the misfortune of one company need not affect the overall picture. That the fall in the RTS and the rouble were not greater is testimony to the strengthened confidence in Russia's economic prospects over the past six months. Earlier this month, Moody's promoted Russia to investment rating for the first time, which propelled Russian shares to record levels.
Nonetheless, as the market reaction showed yesterday, Russia's treatment of Mr Khodorkovsky has done the country no favours with investors, or with budding Russian entrepreneurs.
At best, Mr Khodorkovsky has been arrested on genuine charges. In this case, there will be a fair trial, a conviction and a sentence that reflects the gravity of the offences - and the whole process will illustrate how far Russia has come in the objective application of the law and its progress towards becoming a law-governed state. But the timing and nature of the arrest, six weeks before Russian parliamentary elections, suggests a political aspect.
Given a political element, the next least-damaging explanation is that Mr Khodorkovsky broke the tacit agreement between President Vladimir Putin and Russia's richest businessmen - the "oligarchs" - soon after he was elected. According to this, Mr Putin undertook not to prosecute the oligarchs for the dubious ways in which they acquired their wealth in the chaos that accompanied the collapse of the Soviet Union. The oligarchs, in return, undertook not to use their money to buy political advantage. Among the tycoons deemed to have fallen foul of that understanding is Boris Berezovsky, who was recently granted political asylum in London as the Russian authorities were seeking his extradition.
Mr Khodorkovsky was known to be contributing to the Yabloko Party of Grigori Yavlinsky, a centrist party fielding candidates in opposition to Mr Putin's United Russia Party in the December elections. He also supported the economically reformist party, the Union of Right Forces. Neither, however, presents any threat to the President's party and its various allies in the Duma, so it is hard to see why action was taken against Mr Khodorkovsky, unless it was for the sole purpose of discouraging others.
Which leaves the more malign explanations for his arrest, which will inevitably deter new investors, even if the bigger and more seasoned operators, such as BP, remain constant. The treatment of Mr Khodorkovsky raises serious questions about the reach and application of the law in Russia - questions that Mr Putin had seemed to be trying to lay to rest. For while it may show that the rich are not above the law, it also signals that wealth brings unwelcome risks and that the law can be capricious in its treatment of entrepreneurial success.
Most worrying of all is the uncertainty surrounding President Putin's relationship to the investigations of Yukos. Mr Putin yesterday called for an end to the "hysteria" about property rights unleashed by Mr Khodorkovsky's arrest. He refused to meet leaders of the leading business organisation, the Union of Industrialists and Entrepreneurs, and insisted: "There will be no meetings and no bargaining about law enforcers' activity, of course, if they are acting according to Russian law."
In effect, Mr Putin was suggesting on the one hand that the law was quite distinct from the political process and would take its course, which would be confidence-inspiring if there were no suspicions about a political motive for the arrest. On the other, Mr Putin appeared to qualify the legality of the law-enforcers' action. This left an uncomfortable ambiguity that represented a change from just a couple of months ago.
After the first Yukos arrests, Mr Putin's chief of staff had tried to reassure Western investors that the President understood the impact on them when prosecutors targeted successful companies and was making his disapproval known. Now, the arrest of Mr Khodorkovsky invites one of two conclusions. Either Mr Putin regards Yukosand other oligarchs' companies as political threats and has decided to act. Or the prosecutors are acting against his wishes, in which case the President's writ does not run nearly as far as we have led to believe.Reuse content