Russia's richest man — Yukos CEO Mikhail Khodorkovsky — is at the epicenter of several recent criminal investigations involving businesses and individuals surrounding him. At their core, these investigations reflect a political power play between Khodorkovsky and Russian President Vladimir Putin, as well as business competition between Khodorkovsky and other oligarchs. The outcome will affect much more than the fate of Russia's largest business empire. At stake is Russia's future: which way it will go, what internal and foreign policies it will pursue, and what will happen to the Russian economy. Putin wants Russia to become part of a "greater Europe" and to implement a system of state capitalism, while Khodorkovsky stands for a pro-U.S. Russia and unlimited liberal market rule. However, both men agree that local oligarchs and large foreign corporations should have control over the country's economy. The current struggle will not lead to the dismantling of oligarchic power in Russia: Although Putin will score some points, he is unlikely to force Khodorkovsky out of the country or win a definitive victory, meaning this round of the power struggle will not be the last. Even though some damage to Russia's investment climate seems unavoidable, reducing the size of — rather than destroying — Khodorkovsky's business empire will help preserve an opportunity for foreign capital in Russia. The string of investigations involving Khodorkovsky's businesses and associates is lengthy: · On July 2, officials detained billionaire Platon Lebedev, who is chief of Menatep Group and Khdorkovsky's closest associate — accusing him of stealing $280 million in the 1994 privatization of the Apatit fertilizer factory. At the same time, officials announced that Alexei Pichugin, a security manager with Yukos, had been arrested on charges of murdering two former business associates in Tambov and of involvement in other attempted murders. · On July 3, the Procurator General's Office began investigating two attempts on the life of Evegny Rybkin, a manager at Austria's East Petroleum Handelsgez, in 1998 and 1999. Rybkin is accusing Yukos' top managers of masterminding the plots. · The Procurator General's Office recently launched an investigation on tax evasion charges levied against Yukos by a Duma deputy. · Officials on July 8 launched another investigation, sparked by a complaint from state-owned oil firm Rosneft that Yukos stole its 19 percent stake in oil company Eniseineftegaz by illegally transferring the stake from Rosneft's account to an offshore firm owned by Yukos' owners. · An investigation into alleged tax problems of Sibneft — which is in the process of merging with Yukos — also is under way. The Role of Putin and the Oligarchs Because all of these investigations concern businesses controlled by Khodorkovsky, there is little doubt that they represent a well-coordinated attack against him. Russian media claim that several men from Putin's inner circle initiated the campaign: Igor Sechin, head of Putin's personal secretariat; Victor Ivanov, deputy chief of staff; and Nikolai Patrushev, director of the Federal Security Service (FSB). Given Khodorkovsky's vast influence in Russia, which includes control of many government officials — for example, Defense Ministry sources have confirmed reports that link General Staff Chief Anatoly Kvashnin to Khodorkovsky — it is doubtful that a coordinated campaign against him could be launched without Putin's approval. The president's behavior also suggests this: As in past cases involving two other oligarchs, Boris Berezovsky and Vladimir Gusinsky, Putin made no comment on the arrests or investigations for several days, though a single hint from him easily could have stopped the campaign. It was only on July 11 that he spoke out, with his customary shrewdness, saying that although excessively repressive measures designed to solve economic problems would be wrong, defending fundamental constitutional norms should be done through harsh methods. Though the true meaning of these remarks was likely intentionally vague, it is noteworthy that Putin used roughly the same words when other oligarchs were attacked. And his statements at those times appeared only to encourage law enforcement officials. Sources within the presidential administration and the FSB have confirmed to STRATFOR that Putin has authorized the investigations involving Khodorkovsky, while sources in some oligarchic clans said their bosses encouraged the actions. Khodorkovsky: Seeking Power Sooner, Not Later In April, STRATFOR addressed Khodorkovsky's political ambitions, saying he appears to be laying the groundwork for a presidential campaign. This forecast appears to be on track, but with a power play emerging sooner than expected: Rather than waiting for presidential elections in 2008 or even 2004, Khodorkovsky appears to be making a play for the Duma elections in December 2003 — making sure the parties he supports and partly controls will have a majority, sources at Yukos say. Khodorkovsky openly has committed to financially supporting the two major liberal parties in Russia, the Union of Rightist Forces and Yabloko. Liberal market and pro-U.S. forces have never been popular among a vast majority of Russians, who still suffer from hardships incurred during the transition from socialism to capitalism. Therefore, the oligarch has approached the Communist Party, offering to finance its Duma campaigns as well, according to several Russian media reports and STRATFOR sources within the Communist Party. This could set the stage for a Duma majority involving both Communists and liberals. However curious this combination might sound, Khodorkovsky apparently believes that Communist MPs who depend on him for backing would be willing to support bills and other actions advanced by his true cohorts, the liberals. Khodorkovsky's strategy goes even further: He decided in June to donate to the campaigns of some pro-Putin parties as well, including the president's own United Russia party. The likely calculus here is to co-opt some United Russia MPs, who eventually might follow Khodorkovsky's lead rather than vote along party lines and in favor of Putin's initiatives. Khodorkovsky's supporters actively work with regional governors who appoint members of the Federation Council, the upper chamber of the Russian parliament. Success in the Duma might help Khodorkovsky mount a successful challenge to Putin in the 2004 presidential elections. Moreover, having gained legislative and regional power, his chances of forming a Cabinet in the way he would like would be significantly boosted. Putin's Agenda and the Anti-Khodorkovsky Campaign Khodorkovsky has grown so powerful that it is difficult to say who wields more influence in Russia: the oligarch or the president. Unchecked, Khodorkovsky eventually will eclipse Putin, a source within the Russian Security Council told STRATFOR. Putin obviously views the oligarch as a threat — and in taking measures against him, he also might be trying to effect a change in Washington's apparently pro-Khodorkovsky stance (for instance, informed sources in Washington and Moscow told STRATFOR that U.S. Vice President Dick Cheney was scheduled to meet with Khodorkovsky at an undisclosed U.S. location on July 14, though White House officials said they had no information about such a meeting). Putin fears that Washington, which has opposed some of the investigations into Yukos and Khodorkovsky's associates, may be trying to force Moscow into an openly pro-U.S. orientation — and he could be right. Launching a campaign against Khodorkovsky also could help a pro-Putin bloc to gain more popularity and win the Duma elections, since many people see the attack against the Yukos chief as an attack on the hated oligarchs. Although Putin does seek to limit the power of Russia's oligarchs, the campaign against Khodorkovsky is not really an attack against them all. Instead, it is a warning: "Rule Russia's economy and influence Russian politics if you will, but cooperate with me, do not aspire to the top political position." Where Khodorkovsky is concerned, however, Putin sees the growth of his business empire as a threat to Russia's national security. By acquiring Sibneft, Yukos is becoming a dominant player in the oil business in Russia's European region; it already has attained dominance in western Siberia and holds a de facto monopoly in eastern Siberia. Yukos also controls a chain of refineries stretching throughout Russia. Meanwhile, Khodorkovsky and Menatep chief Lebedev are in the process of creating probably the most powerful bank in Russia by merging Bank Menatep, Menatep St. Petersburg, Trust and other banks they control. This enormous concentration of power, coupled with the growing number of Khodorkovsky acolytes within the government, could turn the oligarch's empire into "a state within a state" — something Russian government authorities view as a direct threat. Also, given Khodorkovsky's cordial relations with the Bush administration, Moscow fears his assets, power and influence will be used to erode national sovereignty and completely subjugate Russia to Washington. The Oligarchs' Role The "Family" — a powerful alliance of oligarchs and politicians who once rallied behind President Boris Yeltsin and continue to hold top positions under Putin — likely is involved in the anti-Khodorkovsky campaign. The top bosses of this clan are presidential chief of staff Alexander Voloshin, (nicknamed Russia's "Gray Cardinal") and Roman Abramovich, the country's second-richest man. Russian media, particularly mainstream daily Vedomosti, have written about the role Voloshin and fellow Family member Sergei Bogdanchikov — who is head of state-owned oil company Rosneft — have played in the attack against Khodorkovsky. Sechin, the head of Putin's personal secretariat, is often mentioned as well in this regard, and he is known to be close to both Putin and the Family clan. Sources within the Putin administration have confirmed that the Family is participating in the campaign against Khodorkovsky. We find this information credible. The Family has reasons to seek Khodorkovsky's comeuppance: For the past several months, he has been challenging the clan's businesses and political influence across the board. In particular, Yukos has mounted successful challenges to Family businesses in the oil sector, beginning with its de facto acquisition of Abramovich's Sibneft. The conflicts between Rosneft and Yukos now form the front lines of the war between the Family and Khodorkovsky's empire — and the Family so far has lost on almost all accounts. In particular, Yukos successfully lobbied for a change in energy sector production-sharing agreements that ran counter to the wishes of Rosneft and the Family, according to Financial Izvestia. At least until the recent investigations began, Yukos apparently has been winning the contest over building a pipeline to the Far East: Its proposed route, to the Chinese city of Daqing, has gained momentum over the Rosneft-favored route involving Japan. A new feud between the two over shares in a new oil field in the Kranoyarks region erupted in May. Another grouping of oligarchs — the St. Petersburg clan, which was raised to prominence by Anatoly Chubais and enjoys Putin's patronage — might have a role in the actions against Khodorkovsky as well. The Duma deputies who initiated some Procurator General's Office inquiries are known to be associated with this clan, as are some presidential administration officials and FSB Director Patrushev, who reportedly are behind the government's efforts. The same also is true for some bankers and other clan businessmen whose interests have crossed with those of Khodorkovsky. Editor's Note: Part Two of this piece, which will appear July 15, will examine the likely outcome of the Putin-Khodorkovsky power struggle and its implications for U.S.-Russia relations.