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Khodorkovsky: Investing in Russia Defies Usual Forecasting Methods

Khodorkovsky: Investing in Russia Defies Usual Forecasting Methods
Mikhail Khodorovksy (Rex Features/AP Images)

By    |   Monday, 05 June 2017 04:20 PM

Mikhail Khodorkovsky, a former oil magnate and current political foe of Russian President Vladimir Putin, said investing in Russia is impossible using standard methods of forecasting because the actions of meddling politicians and bureaucrats are hard to predict.

“You're playing in a game in which the outcome depends on one individual human being. You can play this game with relative confidence if you've got direct access or you're one step away from direct access by having access to someone that's very close,” he said in an interview with Newsmax TV.

If friends can’t help, “you're going to have to play in the corruption game … In either case, it's only a very small circle of people that can play this game. If you're outside that small circle, even just a little bit outside, you're playing a game in which forecasting, predicting is impossible.”

Khodorkovsky remains in exile after serving 10 years in a Russian prison for alleged financial crimes. He had once been the wealthiest person in Russia with an estimated net worth of $15 billion, most of that in his holdings of energy company Yukos.

His wealth was controversial because it came from former state-owned assets that were privatized. Much of the Russian public viewed Khodorkovsky like other tycoons in the 1990s: as robber barons who took advantage of the state’s weakness by gaining control of the country's vast natural resources.

When Putin came to power, he warned Russia’s tycoons to avoid meddling in politics. Khodorkovsky continued to fund civic organizations and was jailed. He later was convicted of fraud and money laundering in two criminal trials. State-owned energy company Rosneft took control of most of Yukos's assets as Putin reasserted government control over Russia's energy industry.

Khodorkovsky said he agrees with a recent claim by Russian Economy Minister Maxim Oreshkin that Russia is “ready to live forever with the oil price at $40 or below.” That means the country isn't likely to feel fiscal pressure to cut production.

“What high oil and gas prices do is they give the Putin regime the sense that they have more freedom of action in all sorts of international things,” Khodorkovsky said. “Oil is maybe 10 percent of that. If we look at what percentage oil takes up in the consolidated budget of the Russian federation, that might be 23 percent. But if we look at just the federal budget, that's the budget from which all the special services and all kind of international operations get funded, oil is 50 percent of that.”

Russia’s economy slid into recession in 2015 as oil prices collapsed and hit a 13-year low by early 2016. The price drop was blamed on several circumstances, including a stronger U.S. dollar as traders prepared for the Federal Reserve’s first rate hike since 2006. China’s economy grew at a slower rate, damping demand, and major oil producers like Saudi Arabia kept pumping oil to maintain market share.

Prices recovered and stabilized in the past 18 months as the Organization of the Petroleum Exporting Countries maintained caps on oil production. Non-OPEC countries like Russia have pledged to reduce output this year, although some countries haven’t cut as much as they had targeted.

Khodorkovsky said the Russian ruble will gain against the U.S. dollar after Russia conducts elections on March 18.

“As of today the Russian currency is being artificially held back vis-�-vis the dollar. It could get noticeably stronger because right now the import-export balance is in favor of export. If investments start coming in, then the ruble will experience even more pressure to strengthen,” he said.

“On the other hand, Putin right now is feeling pressure to use the printing presses to relieve a significant part of the pressure, society's pressure, on the government. So I don't think that we could foresee any significant drop or rise in the value of the ruble before the upcoming elections. “

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Mikhail Khodorkovsky, a former oil magnate and current political foe of Russian President Vladimir Putin, said investing in Russia is impossible using standard methods of forecasting because the intervention of government bureaucrats is difficult to predict.
Mikhail Khodorkovsky, Russia, Vladimir Putin, energy
Monday, 05 June 2017 04:20 PM
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