Russia’s Yukos affair. The beginning of the endgame

Russia's once-richest billionaire and his firm are finished; the question is, how

BUY! No, sell! As Mikhail Khodorkovsky, former head of the Yukos oil company, went on trial this week, after eight months in custody, Moscow analysts were spewing out conflicting recommendations on what to do with Yukos's plunging stock. In the year since the Kremlin's attack on Yukos began, spurred by Mr Khodorkovsky's use of economic and political clout to interfere with government reforms, a debate has raged about where it is all leading.

For Yukos, the answer seems to be: into near-oblivion. Running in parallel with the criminal trial of Mr Khodorkovsky and Platon Lebedev, one of his partners, is a $3.4 billion tax claim against Yukos, which the company says it cannot pay. It could, if it sold assets; but all its assets in Russia, apart from the oil it produces, have been frozen by a court. Worse, the tax claim is only for the year 2000. Further claims could, says Renaissance Capital, take the bill to $8.9 billion.

In short, the guessing is that Yukos will either go bankrupt, leaving a court to redistribute its assets; or be allowed to sell enough assets to pay the bills, leaving its shareholders - Mr Khodorkovsky chief among them - with a far smaller company. Last week Yukos's management offered the government such a deal. Bankrupting it would take time and damage both investor confidence and Vladimir Putin's carefully cultivated image as an economically progressive president. “Bankruptcy makes little sense,” argues the cautiously bullish Renaissance, which thinks that Yukos could survive in a trimmed-down form.

Maybe. But the government has shown no obvious interest in Yukos's offer. And the increasingly naked abuses of judicial power against the company - eg, giving its lawyers a few hours to read 342 volumes of evidence before the tax hearing last month - have unnerved investors. The Aton brokerage, urging its clients to sell their Yukos shares, commented that “the company's imminent bankruptcy makes any analysis largely meaningless”.

The courts' haste suggests that the authorities want it all over quickly. Before Yukos could be bankrupted, it might funnel out a lot of cash: although it takes in an estimated $400m-500m a month, its declared cash level has been inexplicably falling. That will do no good for the value of its assets. And continuing bad publicity will do little for Mr Putin's image. So Mr Khodorkovsky's main form of pressure is to drag things out. No sooner had his trial begun than he won an adjournment because one of his lawyers was ill. A man who stands to lose his company and liberty may not be in a good bargaining position; but he seems determined to go down fighting.

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