Dollars and Jens
Monday, September 20, 2004
Russian Barbarians
Preface: this is a bit ranty, and not well-edited; I'm writing this at an hour which I consider uncomfortable, and I'm a more than a little bit angry. Please forgive.

The term "civilized" is a bit ambiguous, but I think one measure of how civilized a government is is the extent to which it serves its citizens rather than serving the personal ambitions of those in power. Now, I have no doubt that power-brokers in the American government skim a little off the top. I don't think this takes the form of outright graft very often, but I assume that Congressional perks go beyond what a disinterested arbitrator would consider appropriate; certainly if the mother of a House Appropriations subcommittee chairman contracts a particular disease, funding for research to cure that disease is more likely to increase than if my mother contracts the disease. I could actually write for a while about milk price supports or cement tariffs. But I think most people in our government are at least well-intentioned, and our government takes many actions which do more good than harm.

On the other hand, there's Russia.

In case you aren't familiar with the Yukos saga, a brief overview (subject to a lot of my own ignorance): Yukos used to be a big state-owned oil company. A few years after the USSR died, when Russia was selling off state assets (good thing) to a small collection of businessmen with connections (bad thing), Yukos became a big privately-owned oil company. I don't know all of the details between then and now, but the head of Yukos -- one of the wealthiest men in Russia -- was arrested shortly after making comments critical of Putin, and Yukos has been handed a large (multi-billion dollar) bill for back-taxes. As I've admitted, I don't know the situation, but I take it for granted that the oil executive is corrupt and that he's less corrupt than Putin (or whichever of his underlings signed the arrest warrant). I don't know whether or not he committed whatever crimes he's charged with, but I doubt the question was particularly relevant to his arrest. I also don't know whether Yukos actually evaded taxes for years, or whether the government just decided to invent it a tax bill; again, I can't see that it makes a difference.

What is clear is that Yukos has a large tax bill to pay off. And in many news stories about the high price of oil, speculation over the fate of Yukos has been mentioned. Yukos produces around 2% of the world's output; this might not sound like much, but short-term demand for oil is very inelastic, so the effect of a small supply disruption on prices can be substantial. Further, in an economically-sane, civilized system, there would be little danger of a government-induced supply-disruption. After all, even if they do owe the government money and have liquidity constraints, a civilized government would work out some terms by which the oil company can keep producing while paying its taxes (assuming the company is worth more alive than dead). The Russians did invent the "scorched-earth policy", but this was a tactic of warfare against foreign invaders, not a means of transfering private wealth to the government.

But suppose collecting taxes is of less importance than shafting the political enemies of the administration...

Sept. 20 (Bloomberg) -- OAO Yukos Oil Co. will halt crude supplies to China's biggest oil company as of tomorrow, the first time the Russian government's demands for billions of dollars in back taxes has disrupted Yukos shipments to world markets.

Yukos will end exports to China National Petroleum Corp. that average 400,000 metric tons a month (95,000 barrels a day), said Sergei Prisyazhniuk, Yukos's China representative. A freeze on Yukos bank accounts is preventing the company from paying railway bills, and European buyers may face similar cuts, Prisyazhniuk said, declining to give details.

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