Putin consistently punishes his critics, but investors keep expecting different

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Pleased to meet you.
Image: REUTERS/Kommersant
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Russian stock market plunge today suggests that, no matter how many times president Vladimir Putin makes clear that Russia is an arbitrary and capricious place, investors continue to expect something different.

The Micex index plummeted by as much as 2.1% after prominent Putin critic Alexey Navalny was sentenced to five years in prison on charges of lumber theft. Navalny, 37, was running for Moscow mayor against a Putin ally and had said he would seek the Russian presidency in 2018. Here is what happened the moment his sentence was announced:


First, the details: Navalny was convicted of stealing $494,000 from a timber company for which he was a consultant. The charges were absurd on their face. He was accused of both stealing the lumber, and not stealing it but buying it at an excessively low price. Navalny denied both charges.

But consider the context: With an acid-tongued blog and well-received public appearances, Navalny had become Putin’s most visible critic, accusing the president of running a corrupt and criminal state. Then he went after the head of Russia’s investigative committee, accusing him of running (paywall) an undeclared business in the Czech Republic. Put it all together, and in Russia, you can get prison time.

When today’s sell-off began, stock analysts wrung their hands. As explanation, Reuters’ Pierre Briancon wrote that while no one was surprised by Navalny’s conviction, they were shocked by the harshness of the sentence: “The judicial repression of opponents makes it clear that there is no such thing as the rule of law in Russia.”

Yet this month had already been a lesson in Russian caprice.

Only a week ago, a Russian judge convicted lawyer Sergei Magnitsky of tax evasion. Only, Magnitsky had been dead for three years, tortured and denied medical care in prison after leveling corruption charges against a group of Russian authorities.

As for straight businessmen, on July 2 a battery conviction was handed down against government critic Alexander Lebedev, a media magnate with investments in the opposition paper Novaya Gazeta as well as Great Britain’s Independent and Evening Standard. Lebedev avoided prison but was sentenced to 150 hours of community service.

In a big July 16 piece, the Wall Street Journal profiled the five-year-long Russian travails of the US company International Paper. Big oil companies, too, have suffered. In 2006, Russian environmental regulators besieged Shell until it relinquished its majority stake in the gigantic Sakhalin-2 oil and gas field. ExxonMobil was forced to sell its gas from Sakhalin-I at cut-rate internal Russian prices despite an understanding that it could sell anywhere it wished. And for a decade, a group of Russian oligarchs capitalized on the country’s legal ambiguities to squeeze BP.

Most famously, there is Mikhail Khodorkovsky, a billionaire oilman with political ambitions who seriously crossed Putin in the early 2000s. He has been imprisoned on various charges for almost a decade now. During his incarceration, his oil company, Yukos, has been dismantled and most of its choice morsels absorbed by state-controlled Rosneft, which as a result morphed into an international goliath. Ignoring the blood on the floor, ExxonMobil, BP, CNPC have all gone on to sign enormous development deals with Rosneft.

Early next year, Khodorkovsky comes up for release. Are there any bets as to whether he actually gets out?