Khodorkovsky Meets Churchill

In a whirlwind sequence of events, Putin announced that Mikhail Khodorkovsky would be pardoned; he was pardoned; he left his Russian prison camp; and finally, he boarded a plane for Germany, where he landed a few hours ago.

This is obviously a welcome development, but one that raises many questions.

It is yet another embodiment of the Churchillian cliche. For the “whys” of the release itself, and its timing, are mysterious, etc.

There is a clear official narrative.  Khodorkovsky requested pardon based on humanitarian considerations (in November) and it was granted on humanitarian grounds a little more than a month later.

But what lay behind Khodorkovsky’s decision to request a pardon?: he had said in the past he would never do so. His lawyers were unaware that he had made any such request, and were completely nonplussed by Putin’s almost off-hand announcement of the pardon.

Had he finally been broken?  Did the prospect of yet another sham trial and inevitable conviction convince him that he had to concede to Putin, and allow his torturer to appear magnanimous and achieve a political benefit? Or did Putin approach Khodorkovsky and offer the pardon, backed by a threat of horrible future consequences if he did not?  If so, why?  What benefit does Putin expect to gain?

Most of the conjecture behind Putin’s motives in granting the pardon focus on the upcoming Sochi games.  Yes, I know Sochi is a big deal to Putin, and perhaps (as rumor has it) part of the deal is that Merkel will attend the games: but her presence will make all the more conspicuous the absence of Obama, Hollande, and numerous other first-tier national leaders. In some respects, if it appears that Putin had to make such a big concession in order to get one world figure to attend the Olympics, it will make him look weak, almost pitiful.

As I have written before, Putin has always had a visceral, Pavlovian reaction to the mere mention of Khodorkovsky’s name.  He hated the man.  Moreover, Putin and Russia had been the subject of years of criticism for imprisoning him.  But Putin was evidently willing to live with that criticism and the associated political and economic costs for 10 years.  Is the benefit of a somewhat reduced negativity of coverage of Sochi (and there will be many other things that can and will be criticized) enough to overcome the personal hatred and the other benefits that Putin (by revealed preference) clearly obtained by keeping him behind bars?  The Sochi effect seems so transitory, I find it hard to believe that is the main driver.  Again: this pardon will have only a modest impact on the tenor of the coverage of Sochi, and the coverage of Russia during Sochi.  And much of that coverage will be: “Yes, he freed Khodorkovsky, but why was he imprisoned in the first place? Yes he freed Khodorkovsky, but look at how little has really changed in Russia.”

My sense is that for some reason, Putin no longer considers Khodorkovsky the threat he once was.  Perhaps Khodorkovsky’s physical or mental condition.  Or perhaps some deal between the two men.  This would make the cost of releasing him low, and the benefit of the release is likely bigger now than it would have been earlier, or after the Olympics are over.  So Sochi may explain the timing of the pardon, but not the pardon itself.  There are other hidden facts and conditions and understandings that have overcome Putin’s previous implacable determination to keep Khodorkovsky in jail.  Those facts, conditions, and understandings neutralized Khodorkovsky as a threat.

The Russian stock market jumped on the news, but not remarkably so.  A one percent move, an order of magnitude smaller than the price decline that occurred when Khodorkovsky was arrested.  And in my opinion, that one percent move is overdone.  For this announcement reinforces, rather than negates, the singular fact that makes Russia toxic for investors, and for foreign investors in particular: that Russia is a country of the rule of a man not laws.  The sudden and almost cavalier and improvised approach to the pardon makes it clear that Putin can make major decisions on a whim.  Yes, the Tsar can giveth.  But this just reminds that the Tsar can taketh away too.  It is the highly personalized, arbitrary, and a-institutional nature of the Russian system of law and governance that makes it a dangerous place to invest and do business.  The pardon decision only emphasizes that nature.

So Godspeed to Mikhail Khodorkovsky on his release from a decade of torment.  But be cautious about drawing larger conclusions from his pardon.  We don’t know the real story as to why it occurred.  Moreover, it is an illustration of the defects of Putinism rather than a sign that Putinism is actually changing for the better. Life for Khodorkovsky has changed dramatically in the last few hours: life in Russia, hardly at all.

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About Craig Pirrong 238 Articles

Affiliation: University of Houston

Dr Pirrong is Professor of Finance, and Energy Markets Director for the Global Energy Management Institute at the Bauer College of Business of the University of Houston. He was previously Watson Family Professor of Commodity and Financial Risk Management at Oklahoma State University, and a faculty member at the University of Michigan, the University of Chicago, and Washington University.

Professor Pirrong's research focuses on the organization of financial exchanges, derivatives clearing, competition between exchanges, commodity markets, derivatives market manipulation, the relation between market fundamentals and commodity price dynamics, and the implications of this relation for the pricing of commodity derivatives. He has published 30 articles in professional publications, is the author of three books, and has consulted widely, primarily on commodity and market manipulation-related issues.

He holds a Ph.D. in business economics from the University of Chicago.

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