Putin

As for the auctions, almost all of them turned out to be rigged. Foreigners and most other viable bidders were excluded from the bidding. With the number of bidders sharply limited, it is no wonder that in virtually every case, the auction winner turned out to be the bank running the auction itself, or its straw or accomplice, and for a price that barely covered the amount of the loan. It was part of the Loans for Shares scheme that allowed Mikhail Khodorkovsky and his Menatep Bank to end up as the owners of Yukos … bidding a mere $309 million. (Not pocket change but cheap for even a poorly operating oil company. It soon had a market value of $15 billion.)

Scammed though it was, the state was not entirely a fool either. Yeltsin and his team had good reason to go along with Loans for Shares aside from the revenue stream it produced. Privatizing the oil industry would break up the “red directorship,” the party bosses who controlled the industry and were not about to go gently into history’s good night. The support of the oligarchs was essential to Yeltsin in the 1996 elections, in which it was feared that an already weary, cynical electorate would veer hard left to the Communist Party.

Khodorkovsky was a man with a tendency to get religion. Beneath his placid, “corporate” exterior, he had a deep need to find something to which he could dedicate himself utterly. He became an apostle of the gospel of wealth. Suddenly it was obvious—the most glorious thing in the world was to be gloriously rich. Khodorkovsky even went so far as to say that there had to be something wrong with a person who did not aspire to be an oligarch. Yet he was not oblivious to the transformations that had occurred within himself, which he could regard with distance and irony: “If the old me met the new me, he’d shoot him.”

But Khodorkovsky was undergoing other changes as well, some exactly those hoped for and predicted by the young team around Yeltsin busily dismantling the old command-and-control Soviet economy. Because of its own internal logic, ownership engenders a desire for law and order to protect property. Pride of ownership can in turn engender a desire to maintain and improve what is owned. This is, of course, far from automatic—many in Russia were content to rip off and resell and the devil take the hindmost. Most were not like the American robber barons whose extravagant wealth was at least based on the building of something—steel mills, banks, railroads. But Chubais and Yeltsin really believed in the market, in its power, over time, to shape mentality and behavior.

Khodorkovsky was someone who reacted in the very way the reformers hoped. He saw his newly acquired oil company, Yukos, as a challenge to his powers to envision and enact. A maximalist in the best Russian tradition, he strove to build the biggest, most efficient, most Western and transparent oil company in the country. He was loyal and generous to those around him, but woe to anyone who got in his way. At Yukos headquarters he had closed-circuit TV secretly installed to monitor the workers and abruptly fired a third who had been found not up to snuff. Later, there would be rumors and innuendos about Yukos-sponsored violence, but no evidence was ever brought forward, nothing ever proved.

Khodorkovsky faced many obstacles, not least of which was himself. The veteran Siberian oilmen could only snort with contempt at a city slicker with aviator glasses and a lounge-lizard mustache. He changed his look to something more modern and corporate, losing the mustache and switching to transparent-framed glasses. He fired some of those old-timers and won some over. He had come into the oil business just as it was hitting bottom. Production in 1996 was just about half what it had been in the peak Soviet year of 1987. Urals crude hit a low of $8.23 a barrel on June 15. This, however, also had its good side—the price for exports was now quite competitive, and since little oil was consumed at home, most of production could be exported in return for hard currency.