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The Yukos Decision Completes the Rupture with the West


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Anyone in Russia deluded enough to believe the Western narrative as regards the rule of law and benevolent win-win due process has presumably either been disabused of this convenient illusion or is quite simply in denial.


The Yukos judgement is insane - the European Court of Human Rights has already upheld the condemnation of Khodorkovsky for fraud and tax evasion. The new judgement is transparently political. Russia will never pay - enforcement is most hugely difficult. Russian state assets are covered by Sovereign Immunity and - as in the case of Argentina's YPF - companies partially owned by the sovereign are not themselves subject to judgements against their sovereign state. The battle will be fought in numerous courts, but I would wager against NML ever recovering so much as their legal fees.

But this judgement marks a turning point, none-the-less.  


Coupled with the criminal dishonesty of the Washington spin on Ukraine, and the craven diplomacy of Berlin, London and Paris - it marks the end of a 20-year rapprochement between Russia and the West. Make no mistake - this is not a temporary disruption - this is the end of that particular road. Those of us who have worked for the past twenty-five years in building financial relations between Russia and the West must acknowledge that we have failed. That with the best intentions, we were not sufficiently distrustful of the motives of our own countries. 


The fundamental shift can be seen as a challenge - even as a threat - but I would rather see it as an opportunity. An opportunity for Russia to do what should have been done a decade ago in light of the Western response to the Yukos affaire. Do not forget that Khodorkovsky was the man who sought to reprivatise the Russian state for his own benefit, and to sell Russia's premiere oil assets to the Americans. Washington and its tame press never forgave Putin the  sight Khodorkovsky's severed head impalled upon a stake before the Kremlin Wall. They thought they had won the Cold War, and there the prize was being snatched away from them. 


Russia is in no immediate danger. Western financial markets are closing to Russian issuers at a time when oil prices are high and Russian foreign reserves are sufficient to finance debt maturities. More importantly - there is now a real alternative. China has become the world's largest economy, the largest energy consumer, and the source of virtually all world economic growth - it was also the largest foreign investor in Russia last year. Anyone doubting the alignment of the Dragon is welcome to consult China Daily USA for the official party line: strong support of Russia and stark criticism of the Washington spin on Ukraine.


This shift will not be easy - it will not be painless. We will see a shift from the Anglo-Saxon financial markets model towards a mixed state-private system with capital allocation by the major banks. The financial system must refocus upon Russia's deep internal market. De-offshorisation must be continued - the clean up of the banking system  accelerated - the creation of pools of domestic long-term investment capital is  vital. Russian sovereign assets need to be invested not in US treasuries but in the Russian economy. Like in China, massive asset stripping and egregious corruption should be treated as crimes against the state. Meanwhile, Russia should gracefully exit those institutions controlled by her geopolitical adversaries, notably the European institutions; her appropriate fora are the UN, the G20 and the BRICS. 


There is little left to discuss - there is quite no choice - war has been declared, not with tanks or bombers but with financial weapons of mass destruction. For Russia to be able to protect her own vital interests and to allow herself the luxury of an independent foreign policy, it is absolutely essential that she insure herself against Western financial blackmail. This is a country which once dismantled its entire industrial infrastructure bolt-by-bolt, dragging it across the Urals out of reach of the Fascists. Do not underestimate Russian resourcefulness during times of crisis. Now is such a time.

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