Khodorkovsky Pardon Underscores Russia’s Special Ties with Germany

With two-way trade flourishing, both Berlin and Moscow had good reasons to want to see the Yukos founder released.

Exclusive Interview With Former Oil Tycoon Mikhail Khodorkovsky

Mikhail Khodorkovsky, former oil tycoon, poses for a photograph following a Bloomberg interview at the Hotel Adlon in Berlin, Germany, on Monday, Dec. 23, 2013. Released after 10 years in Russian prisons, Khodorkovsky ruled out mounting a political challenge to President Vladimir Putin on his third day of freedom. Photographer: Bartek Sadowski/Bloomberg *** Local Caption *** Mikhail Khodorkovsky

Bartek Sadowski/Bloomberg

Mikhail Khodorkovsky showed an affinity for things American during his glory days as CEO of Yukos Oil Co. in the early 2000s. He discussed selling Yukos to Exxon Mobil Corp., acted as an adviser to an energy investment arm of the superconnected Washington-based private equity firm Carlyle Group and donated $1 million to the Library of Congress at the request of then–First Lady Laura Bush. But he has German politicians to thank for his freedom after ten years in Russian prisons on dubious charges of fraud and embezzlement.

Hans-Dietrich Genscher, the 86-year-old former foreign minister who oversaw German reunification in 1990, reportedly laid the groundwork for Vladimir Putin’s presidential pardon of Khodorkovsky with two-and-a-half years of quiet negotiation. He flew personally to pick up Russia’s most famous prisoner from his camp near the Arctic Circle and whisk him away to Berlin; on German television, Genscher described the mission as “a humanitarian action.” Chancellor Angela Merkel did not hide her own participation in the release. Genscher “worked successfully on possibilities for a solution with a great level of commitment and the support of the chancellor,” she told a news conference shortly after Khodorkovsky’s arrival on German soil.

Genscher, who was Germany’s top diplomat from 1974 to 1992, crafted an elegant compromise between two stubborn antagonists, Khodorkovsky and Putin. The deposed magnate evidently agreed to leave Russia, stay away from politics and not fight to reclaim Yukos assets, most of which were scooped up by Russian state oil company Rosneft. Putin commuted Khodorkovsky’s sentence without a customary admission of guilt, a step that the former billionaire said would have put ex-Yukos colleagues at risk.

Merkel had reasons of her own to press Putin for a human rights concession. She has long been caught between a German business community pressing for warmer ties with Russia and civic groups that abhor the country’s autocratic ways. In 2012 a Bundestag dominated by her Christian Democratic Party passed a motion “expressing concern” about Russia’s law forbidding “homosexual propaganda.”

The timing was also ripe for Putin to toss a bone to Western neighbors enraged over Russia’s torpedoing of a free-trade agreement between the European Union and Ukraine, which provoked huge popular protests in Kiev. Khodorkovsky’s abrupt late-night release came just four days after Putin announced that Russia would buy $15 billion in new Ukrainian bonds, staving off for a few years the threat of bankruptcy for the government of President Viktor Yanukovych. The release also came seven weeks before the opening of the Winter Olympic Games in Sochi, Russia. Putin personally lobbied for Russia to host this spectacle, which official media have trumpeted as an event of national prestige. Two terrorist attacks that killed 30 people in the southern Russian city of Volgograd on December 29 and 30 underscored the vulnerability of the Games, and Russia generally, to terrorism, and hence Putin’s need for international moral support.


But the Russian leader’s concession to the German establishment has much deeper economic roots. Americans like to assume that Washington speaks with the loudest voice on any foreign affair, but the U.S. is something of an afterthought for Russia, being only its eighth-largest trading partner. The EU remains Russia’s economic lifeline, and Germany its gateway to the EU.

Germany on its own holds sway as both the top market and supplier for Russia. It bought €39.8 billion ($54.5 billion) in Russian goods and services in 2012 and sent €37.9 billion in exports to the country, according to Eurostat. “Russia believes its historic reconciliation with Germany is creating a partnership that will bring immense benefits to both sides,” Foreign Minister Sergei Lavrov said in a speech in April.

The EU bought €213 billion of Russian exports and sent €123 billion worth of goods and services to the country. Those amounts dwarfed Russia’s two-way trade with China, which amounted to $88 billion in 2012, according to the Chinese General Customs Administration. The rebound in cross-border commerce has been a conspicuous bright spot for both the EU and Russia as they struggle to recover from the aftershocks of the 2008-’09 financial crisis. The two-way trade hit a record high in 2012 and was up 83 percent from the dark days of 2009. EU countries — including Cyprus, which largely recycles Russian oligarchs’ own capital — account for 75 percent of foreign direct investment in Russia, according to Eurostat figures.

The mutual dependence between Russia and Western Europe persists despite a decade of efforts on both sides to reduce it. Putin has sought to foster closer economic relations with China as a counterweight to the West, but efforts to strike a 30-year agreement to supply natural gas to China have stalled after nine years of negotiation, reportedly because Beijing is demanding much lower prices than Russia’s Gazprom charges European customers.

The EU has tried to cut its dependency on Russian gas with alternative pipelines stretching out to Azerbaijan, Turkmenistan and even Iraq, but none have yet borne fruit. The most persistent project, Nabucco-West, which was meant to bring fuel from Azerbaijan’s giant Shah Deniz field through Turkey to Central Europe, was abandoned in July 2013 after 11 years of planning. Russia accounted for 34 percent of EU natural gas imports in 2012, according to the BP Statistical Review of World Energy.

Russia has also had limited success disentangling its all-important natural gas trade from Ukraine, which became an unreliable partner from Moscow’s point of view after the Orange Revolution of 2005. A new undersea pipeline direct to Germany, known as North Stream, started operating in 2011 (with Merkel’s predecessor as chancellor, Gerhard Schröder, as its chairman), and the Blue Stream pipeline underneath the Black Sea has enabled modest Gazprom exports to Turkey. But a more ambitious end-run around Kiev, known as South Stream, has bogged down. Some 80 percent of supplies to Europe still flow through the pipelines Soviet planners laid out beneath Ukrainian soil.

Against this backdrop of Russia’s economic imperatives, Putin’s zigzag behavior during an eventful December looks less puzzling. The Kremlin feels it cannot afford to “lose” Ukraine. It scuttled Kiev’s pact with the EU not just from knee-jerk imperialism but also as a potential threat to its gas-fueled cash flows. Yet cordial relations with Western Europe, particularly Germany, remain essential. The release of Khodorkovsky, a man for whom Putin has never hidden his personal disgust, can be seen as an easy way to buy some goodwill.

Kremlin watchers hold out little hope that the Khodorkovsky release, and a broader year-end amnesty that also included the jailed rockers from punk group Pussy Riot, herald a Russian tack toward a liberal reform course. Earlier in December Putin disbanded the most respected state-owned news operation, RIA Novosti, and transferred its staff to Russia Today, which will be headed by a conspicuous Kremlin propagandist.

“Putin’s pardon of Mikhail Khodorkovsky is a confirmation of the omnipotence of one man who rules Russia and the fluctuation of his moods and whims,” Lilia Shevtsova, a senior associate at the Carnegie Moscow Center, wrote on the think tank’s web site. “It is definitely not a confirmation of a political thaw.”

But the move does at least show that Putin remains in touch with reality after 13 years in autocratic power, and committed to a pragmatic course by his own lights.