Khodorkovsky was by then the richest man in all Russia; he met with heads of state and other prominent figures like Dick Cheney and Bill Gates; he could say what he thought when he wished. Foreign advisers then and later would be astounded and appalled by his overweening pride. Writing of the pipeline-to-China project, Marshall Goldman, usually one preferring graphs to exclamations, said: “What arrogance. Khodorkovsky and Yukos were acting as if they were sovereign powers.”[236] If that is what an American professor thought, what could the heavyweights in the Russian government and oil industry have been thinking? We know the answer. Sergei Bogdanchikov, the head of the state-owned oil company Rosneft, said of Khodorkovsky and those around him: “Three days in Butyrki Prison and they’ll understand who’s the king of the forest.”[237]
Khodorkovsky himself was not oblivious to the dangers he faced, saying: “There are worse things than going to jail.”[238]
It took a little more than three years for the showdown with Putin to play out—from that initial meeting in the Kremlin to Khodorkovsky’s arrest in October 2003. In that time Khodorkovsky had made two moves which caused his supreme self-confidence to morph into reckless hubris. Without so much as informing Putin, he began negotiating with Chevron to merge and form the world’s largest oil company. If Khodorkovsky’s deal with Chevron went through, it could provide him with a moat of defense and security—the Kremlin might go after a Russian company, but it would think twice before going after the Chevron-Yukos merger. There was one outstanding and time-consuming detail in the negotiations—Yukos’s share in the merger. Chevron’s CEO, Dave O’Reilly, offered 37.6 percent. Khodorkovsky would not budge from his demand of 43.5 percent. That difference of 5.9 percent would cost Khodorkovsky ten years in prison.
In the meantime Khodorkovsky had also been doing precisely what Putin had expressly warned the oligarchs against—meddling in politics. Khodorkovsky backed opposition leaders, bought the votes of members of the parliament, and even hinted to the German magazine Der Spiegel in April 2003 that he himself might have ambitions to be president or prime minister. As his own mother would reportedly say later: “He forgot what country he lived in.”
Typically, the KGB gives warnings, and Putin was old-school KGB. In the best Russian tradition he quoted from the national poet Alexander Pushkin at a Kremlin press conference while discussing Khodorkovsky and the oil companies’ attempts to buy influence in the Duma. “Some are gone and some are far away,”[239] quoted Putin, hinting that arrest, exile, even execution, could await those who defied the Kremlin.
The hints weren’t taken, the allusions went uncaught. On October 25, 2003, Khodorkovsky’s private plane, on which he was the sole passenger, made a refueling stop in Novosibirsk. Masked men armed with automatic weapons, a unit of the elite antiterrorist Alpha Brigade, stormed the plane, handcuffed Khodorkovsky, and placed a hood over his head. Two hours later he was flown to Moscow to begin his odyssey of Russian prisons. Putin had reminded Khodorkovsky what country he was living in and who was the king of the forest.
“Give us the man and we’ll make the case” was an old KGB saying. Khodorkovsky was charged with tax evasion, fraud, embezzlement. Since the verdict was a foregone conclusion, no great care went into finessing the details of the case. Certain of them were simply absurd—in some years the taxes Khodorkovsky was accused of evading exceeded the total revenue earned. Khodorkovsky was sentenced to eight years in Prison Colony YaG-14/10, near the Chinese border, founded in 1967 to mine uranium.
The meaning of the Khodorkovsky affair was clear to all—anyone who challenged Putin’s authority in word or deed was subject to severe penalty. The era of privatization was definitively over. The state would now be the major player in oil as it already was in gas. In an auction worthy of the oligarchs themselves, Yukos ended up the property of the state oil company Rosneft.
There was no general sympathy for Khodorkovsky among his fellow businessmen, some of whom now quickly prepared to leave the country before their turn came. And of course the masses greeted the news with a sardonic grin. A few members of the dissident intelligentsia like Andrei Sakharov’s widow, Elena Bonner, spoke out in defense of Khodorkovsky, considering him a political prisoner because the law had been selectively used as an instrument of repression against him and sharply condemning Amnesty International for not coming to his aid. Others, like Boris Kagarlitsky in his book Back in the USSR, took a more jaundiced view: “It was exactly because the directors of Yukos did not differ from the tenants of the Kremlin that the ruling clique considered them to be really dangerous. And therefore took stringent measures. Khodorkovsky is a political prisoner only in the medieval sense, as when great lords and princes were jailed in the Bastille or the Tower of London after failed plots.”[240]
A rising tide of oil prices had lifted all boats, Khodorkovsky’s, Putin’s, Russia’s. Putin of course deserves no credit for the price rise, though before a battle Napoleon would say, “I know all my generals are good, but tell me which are the lucky ones.” And by arresting Khodorkovsky and incorporating most of Yukos into state-controlled Rosneft, Putin did assure a torrent of revenue for the state, some portion of which was well used and wisely saved, though billions of course were “reprivatized.”
The figures are impressive. Thirty percent of the country lived in poverty in 1999, only 13 percent by 2008, the end of Putin’s second term. Real incomes rose 140 percent and GDP per capita went from $5,951 in 1999 to $20,276 in 2008. The dollar value of the Russian stock market in 2000 was $74 billion and by 2006 it was $1 trillion. For the first time in its history Russia had a middle class.
At this point Putin was still taking the sound advice of his economics minister, Alexei Kudrin, who had pushed hard for a sovereign wealth fund as protection from any future calamity. Even Khodorkovsky writing from prison had said: “Putin is probably not a liberal or a democrat, but he is more liberal and more democratic than seventy percent of the population.”[241]
Showing a surplus, Russia was paying its bills and its debts. In fact, the five years between Khodorkovsky’s arrest in 2003 and 2008 were very good years indeed for Putin, buoyed as they were by the rising price of oil, which on July 11, 2008, peaked at an all-time high of $147.27. Putin had control of gas, oil, and television, which for him meant control of Russia. Pipsqueak dissident intellectuals would be allowed a few newspapers, a radio station, the Internet, none of which was widespread or powerful enough to make much of a difference. Putin had been reelected in 2004 with some 71 percent of the vote, a figure that reflected his control of the airwaves and his genuine popularity, not to mention the self-interest of those prospering under his rule.
At the time of Putin’s reelection, the state depended on the sale of gas and oil for 30 percent of its revenues. By 2013 that percentage would rise to 41 percent. It was clear to all that Russia was too beholden to oil. There had been no choice but to use what you had at hand when the task was to stabilize the country and revitalize the economy. Essentially that had been achieved in Putin’s first term, ending in 2004. With his domestic rivals safely disposed of, that would have been the ideal moment for Putin to take stock and make changes, to begin the only solution for Russia’s long-term viability—a diversification of the economy.