What does the outcome of the Yukos trial mean for Russia?

Why is the Yukos case so significant, and is the ruling by the European Court of Human Rights enforceable?

Professor Stefan Hedlund:

The Yukos case is significant, mainly in the sense that it was the defining feature of Putin’s presidency, arguably up to the present.

Yukos was Russia’s, when it was bankrupted, it was Russia’s flagship oil company. And it’s owner, Mikhail Khodorkovsky, was Russia’s wealthiest man and also a politically powerful figure.

He challenged Putin into a race of who would be president. The outcome was that Mr Khodorkovsky was thrown into prison for 10 years.

He was released last year as an act of mercy from Mr Putin and his oil company was bankrupted.

It is significant because the shareholders tried, ever since it was bankrupted in 2006, to file suits in every court they have been able to, claiming damages from the Russian government for having abused Russia’s legal system. And last week they won in the Permanent Court of Arbitration in The Hague, where they got US$50 billion in damages, and in the European Court of Human Rights where they got 1.9 billion euros in compensation.

Now, neither of these decisions will be easy to reinforce, Russia will refuse to pay. But it is very significant in the sense of egg on the face for Mr Putin, and in terms of damage to Russia’s reputation.

How will this impact on Russia’s credit rating and business climate?

Professor Stefan Hedlund:

It will impact very negatively in the sense that it vindicates all accusations against Russia for not having a proper legal system, for not having the rule of law, for having illegally and for political reasons bankrupted the country’s biggest oil company.

Everybody who has accused the Kremlin of that have now been proven right both by The Hague and by the European Court of Human Rights.

And that will add further to the burden of suspicion against the Russian economy that causes Russian shares and stocks to be traded at a very hefty discount because of fears of expropriation. So that discount on the Russian stock market will increase.

Russia’s credit, although US$50 billion is a lot of money, Russia will not pay that. But having that hanging over you means that your creditworthiness will go down.

Russia’s sovereign credit rating is already one notch above junk. And if it is downgraded to junk it means pension funds in the West cannot invest in Russian shares, so that’s a big deal too.

So the rulings that went against Russia have gone very heavily against the long-term outlook for the Russian economy for its ability to finance itself. And it is very bad politically for the Kremlin because it has been shown to have no respect for the rule of law.

(Photo credit: dpa)