News Analysis: Putin Uses Power, and Loses Favor

By STEVEN LEE MYERS

New York Times

December 19, 2004

MOSCOW, Dec. 18 - President Vladimir V. Putin's steady accretion of power over Russian business, as over politics and society, hit another obstacle, this time in a courthouse in faraway Houston. This is fast becoming a trend.

The United States Bankruptcy Court acted to restrain Russia's gas monopoly and its potential lenders from taking part in the auctioning of Yukos Oil's main subsidiary. That ruling, on Thursday, will probably not save the oil company from its state-orchestrated annihilation.

But by calling the auction's legality into question, the court delivered an unambiguous blow to Mr. Putin. It undercut his efforts to cast himself as a reform-minded democrat and laid bare, in a legal forum, widely held worries about the course Russia is taking under his presidency.

For Mr. Putin - who for years projected an image as a steady, reliable partner to the world, authoritarian in aspects perhaps, but not reckless or openly hostile to the West's interests - this is the latest in a series of unusual missteps. Ever a pragmatic, careful tactician, he has stumbled repeatedly in recent months, finding his policies, even his instincts, out of step on an international stage that he not long ago navigated deftly.

In Ukraine's recent election, Mr. Putin violated diplomatic norms by openly supporting the presidential candidate favoring closer ties to Russia and even campaigning on his behalf.

When the election results were marred by allegations of fraud, Mr. Putin rushed, twice, to declare his support for the candidate, Prime Minister Viktor F. Yanukovich - only to watch angrily as Mr. Yanukovich's "victory" was challenged by his European counterparts and ultimately overturned by another legal institution, in this case, Ukraine's Supreme Court.

Ukraine's election, the Yukos affair, even recent legal decisions in the United States and Britain to grant political asylum to leaders of Chechnya's separatist movement - all have in effect displayed the world's lack of confidence in Mr. Putin's policies, as well as Russia's judicial and law enforcement organs.

And they have soured more than diplomatic relations. They have also raised questions about Russia's reliability as an ally, as a country in which to invest, as a member in good standing of the increasingly intertwined global market, one bound by certain minimal standards.

Here in Russia, Mr. Putin's political popularity may not be at risk, because the Kremlin strictly controls not only state television, but also the legislature and most every institution that could conceivably amount to a base of opposition. But his recent stumblings filter through nevertheless, and from unusual public criticism to pointed derision in newspapers, the cracks in Mr. Putin's once rock-hard reputation appear to have widened.

Stanislav A. Belkovsky, the president of the National Security Institute who not long ago was viewed as closely aligned with the Kremlin, has turned into an ardent critic, saying Mr. Putin's miscalculations in Ukraine and with Yukos are harming his standing as Russia's paramount leader.

"Putin has no idea of legitimacy," Mr. Belkovsky said, speaking of his miscalculations in supporting Mr. Yanukovich, despite the questions about the legitimacy of the election results. "He does not consider legitimacy a social and political phenomenon."

Mr. Putin's pointed public statements following the Ukraine debacle - in India, he denounced the foreign policy of President Bush, a man whose own re-election he championed - appeared to be, Mr. Belkovsky said, "the feelings of a weak person offended by someone."

In the extreme, Russia could find itself more and more isolated in world business and diplomacy, despite Mr. Putin's effort to restore the country as an important player, if not the superpower the Soviet Union once was. In some ways, it is already happening.

Olga V. Kryshtanovskaya, a scholar at the Institute of Sociology of the Russian Academy of Sciences, who has closely studied Mr. Putin and his aides, suggested that many of those around Mr. Putin "do not understand what the global world is," that Russia's role in international affairs also meant accepting the accepted rules of international affairs.

The ruling in Houston - out of left field - exposed that.

Foreign diplomats, investors and some politicians in Russia have repeatedly voiced concerns about the government's prolonged prosecutorial assault on Yukos and its founder, Mikhail B. Khodorkovsky. The court's injunction, however, amounted to the first legal declaration supporting what the company's executives have been saying all along: that the government's handling of what is ostensibly a tax investigation has been fundamentally unfair, lacking any semblance of due process.

In Russia, in the end, that may not matter.

Senior Russian officials - including Prime Minister Mikhail Y. Fradkov and Foreign Minister Sergey V. Lavrov - dismissed the ruling, saying the matter was Russia's affair to decide. And by Saturday preparations for the auction of Yukos's largest subsidiary, Yuganskneftegas, ostensibly to pay off unpaid taxes, proceeded as scheduled.

But the potential legal ramifications of that ruling were swiftly understood - at least outside Russia.

A consortium of international banks, led by Deutsche Bank, made clear on Friday that they would honor the injunction, withholding a reported $13 billion worth of loans that Gazprom, the state-controlled energy giant, intended to use to buy the subsidiary.

[On Saturday, Gazprom filed an appeal in the Federal District Court for southern Texas, seeking to overturn the bankruptcy judge's order, Reuters reported.]

Whatever legitimacy those banks might have provided to what Yukos's American chief executive, Steven M. Theede, this week called "expropriation 21st-century style" disappeared in the wake of the court's ruling.

That alone has cost Russia and Mr. Putin, who has until now seemed impervious to the concerns raised by the assault on Yukos.

"So far they haven't had to withstand too much pain," Ronald P. Smith, an analyst with Renaissance Capital in Moscow who has closely followed the case, said referring to the criticism that Mr. Putin and his opaque circle of advisers have endured since the Yukos case began 18 months ago.

Even if the ruling fails to halt the demise of Yukos, he added, "They're going to lose some face."

Ms. Kryshtanovskaya said the consequences of the Yukos case could be "quite serious," driving hard-liners in the Kremlin to dismiss the idea of warm relations with the West altogether.

"It seems to me they are a little annoyed in the Kremlin," she said in a telephone interview. "They would like to be with the West, but the West does not support them. Not only Mr. Putin, but also his team, have a kind of feeling that since they do not understand us, and do not want to help us, what can we do?"

"There are too many people among Putin's team members," she said, "who think Russia should not be afraid of isolation."

Indeed, Mr. Lavrov, the foreign minister, cast the court's injunction as a new effort to discredit Russia, suggesting a plot concocted in the West. "Someone wanted tensions to escalate and the investment climate in Russia to be brought into question," he said.

Of course, that was certainly the motive of Yukos's executives, who sought bankruptcy in an American court, arguing that given the state of Russia's judiciary today, they stood little chance of receiving a fair hearing of their arguments against the tax claims, which now total $27 billion, more than the revenue the company earned in some years. And to that extent, they succeeded.

"Even if it proves short-lived, the case could serve a greater political purpose than a legal one, since it leads to inevitable comparisons between Russian and Western legal systems," PFC Energy, a consulting firm in Washington, wrote in a letter to clients after the ruling. "The Houston filing puts other oil companies on notice that they can expect no fair treatment in Russian courts, where a Yukos bankruptcy petition has been ruled out by President Vladimir Putin's opposition and where detentions of Yukos officials have been extended indefinitely with little resemblance to due process of law."