The Russian Oil Giant Yukos - When Business and Politics Collide

            
 
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Case Details:

Case Code : ECON007
Case Length : 18 Pages
Period : 1993 - 2004
Pub Date : 2004
Teaching Note :Not Available
Organization : Oil
Industry : -
Countries : Russia

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.



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Meanwhile, the crisis began to take a serious toll on Yukos. As Yukos investors began selling its shares with concerns over future growth, Yukos' stock price dropped by 12% by early November 2003 and analysts expected the share price to fall by a further 10% to 15%. The government froze over 40% of Yukos stock (which was controlled by Khodorkovsky). A very major setback followed when the news of the proposed merger between Yukos and Sibneft (Russia's sixth-largest oil company) being cancelled began to appear. It looked as if Yukos' dream of becoming one of the world's leading oil companies (through this merger) was going to be shattered (See Exhibit I for a fact-sheet of Yukos and Exhibits II and III for its financials).

Economics | Case Study in Management, Operations, Strategies, Business Strategy, Case Studies

Interestingly, through all this, Yukos stood by Khodorkovsky. Its directors issued a statement to this effect, and it read, "The board declares its full support and belief in the management of the company and states its certainty that a fair and open court hearing will find the arrest of Mr Khodorkovsky illegal and all accusations against him groundless."6

According to analysts, the troubles at Yukos and the arrest of Khodorkovsky were politically motivated. Media reports stated that the Russian government wanted to curb the rapidly growing financial and political power of Yukos as well as that of Khodorkovsky.

The fact that Khodorkovsky openly supported the opposition parties was believed to have played an important role in this alleged campaign against him and Yukos. All these developments brought the uncertain, complex business environment in Russia and the extent of political meddling in the country's businesses onto the global stage.

Russia, ITS Oil Industry & The Oligarchs

To understand the story of Yukos, it is extremely important to study the evolution of Russia's political and economical climate over the decades.7 Also, the role played by the country's oil industry in the above evolution needs to be clearly understood.8 Under the socialist regime that began under Vladimir I. Lenin (Lenin) in the 1920s and flourished under Joseph V. Stalin (Stalin), the Russian government had acquired control of all the industries. The oil industry too was nationalized by the communists and functioned as a state-run entity.

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6] "Russia freezes Yukos shares," http://news.bbc.co.uk, October 30, 2003.

7] Detailed information on the social, political and economic growth of Russia over the decades is provided in the ICMR country report 'Russia: Background Note.'

8] Detailed information on the Global, European and Russian oil industries is provided in the ICMR industry report, 'A Brief Profile of the Global Oil Industry and a Study of the European and Russian Markets.'

 

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