A new law that allows Russia to seize foreign-owned energy assets should be a final warning to Western firms to cut their losses and leave the market for good, one of the country’s most prominent exiled businessmen has cautioned.
“There are no guarantees for the safety of investments anywhere, but Vladimir Putin’s regime has demonstratively built an illegitimate and lawless state,” former oil and gas magnate Mikhail Khodorkovsky told POLITICO.
“The withdrawal of assets should have started a very long time ago, even before the war. And on February 24, 2022, the decision should certainly have been made,” he said.
Last Tuesday, Putin signed a decree that allows the government to take control of assets owned by foreign firms and individuals from “unfriendly nations” — a long list of apparently hostile governments that includes the U.S., the U.K., the entirety of the EU and all G7 member countries.
Ventures owned by Germany’s Uniper and Finland’s Fortum energy companies were the first to be targeted. While Kremlin spokesperson Dmitry Peskov claimed that Moscow was only assuming “temporary” control of their day-to-day management, he argued that it would help create a pool of assets that Moscow could expropriate in retaliation for Russian property sequestered by European governments.
German oil and gas company Wintershall, meanwhile, has warned that while it intends to divest its shares in Siberian oil and gas production, rules requiring Kremlin approval mean getting its funds out will be “difficult.”
“Everything can happen in Russia these days in terms of direct interference with our rights to our assets,” CEO Mario Mehren explained at a press conference this week.
A number of Western energy firms have already announced their complete departure from Russia in the wake of the invasion of Ukraine, including Norway's Equinor and U.S. oil and gas giant Exxon Mobil. Others, including Shell, BP, TotalEnergies and Wintershall have announced their intent to fully or partially divest, but the terms of their exits are still being worked out.
While Khodorkovsky, who fled the country a decade ago, admitted that European firms might now find it “psychologically difficult” to accept making losses on their investments in major fossil fuel projects, he believes that as time goes on “foreign assets in Russia will continue to fall in price and the risk of their confiscation will increase.”
“Now the risks have become so high that they are no longer covered by profits from any legitimate activity,” he said.
As the founder of Siberian oil and gas conglomerate Yukos, Khodorkovsky was once believed to be Russia’s wealthiest man, having snapped up former state energy assets for a fraction of their worth after the fall of the Soviet Union. However, having emerged as a key political opponent to Putin, Khodorkovsky’s company was hit with a series of fraud charges, its assets were expropriated and he was imprisoned for almost eight years.
“That the Kremlin was not punished for this allowed Putin to conclude that this is an acceptable practice,” Khodorkovsky added, “and that the West is weak and ready to accept any lawlessness if he, Putin, is strong enough.”
Now, he is calling for Russian state assets to be confiscated as compensation for both the damage wrought on Ukraine and to pay back foreign investors.
“This will be fair, but the owners of private assets should be given the right to defend their innocence in court,” the exiled former oligarch said.