'Putin Reveals His Weakness'

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TIME.com: Why has President Vladimir Putin authorized the arrest of Russia's leading tycoon, Mikhail Khodorkovsky? Are his motivations political, or economic?

Andrew Meier: Politics and economics are insperable in Russia, because they combine to create power. Khodorkovsky, shortly before his arrest, had moved to merge his company Yukos with another energy company, Sibneft, which would have made it the fourth-largest privately-held oil producer in the world, with one-fifth of the reserves of Kuwait. And Khodorkovsky had for months been courting Exxon Mobil and Chevron-Texaco to buy up to 40 percent of the shares in the new company for billions of dollars. For the now ascendant siloviki faction around Putin — men from the "power ministries" such as the armed forces, police and intelligence services, both the power of the new corporation and the proposed sell-off of a major portion of Russia's oil industries to Western countries was too much to stomach.

It has been portrayed as a battle for power over Russia's riches and its futures. In the West, Khodorkovsky and others like him are perceived as the guys in the white hats, modernizing liberals committed to free-market ideals. No matter how questionable the circumstances were in which they acquired their wealth, they have now signed on to the virtues of shareholder rights, transparency and corporate governance. The idea is that oligarchs such as Khodorkovsky had cleaned up their act, and were ready to cut deals with the best in the West. Ranged against them, in the "black hats," are the reactionary forces who are against the West, Russian nationalists who favor the preservation and primacy of Russia's national interest over the rights of an individual businessman.

What the arrest of Khodorkovsky ultimately points to, however, is the weakness of Putin's rule: Until now, he's been brilliant at negotating between different factions, playing them off against one another. But this marks a watershed, where he's taken the most dramatic action possible against the leading oligarch.

TIME.com: What explains the timing of the action? Is it at all related to Russia's parliamentary elections in December?

Meier: From an economic point of view, this came at the worst possible time. The economy was flush, Russia's credit rating was rising, the stock market was the hottest in the world. The White House had forgiven Russia over its opposition to the war in Iraq, and the outlook appeared rosier than it had been for years. The trouble is, in a system where there's no clear definition of private property, a pliable legal infrastructure and weak political institutions, elections are catalysts for crises — they have been since the fall of the Soviet Union.

Khodorkovsky was not only threatening the siloviki by expanding his share of the oil economy and looking at a major selloff in the West, he was also flexing political muscle and even daring to air his own political ambitions. For anyone who's followed him since the late 1980s, it was an unexpected turn. He's a very soft-spoken man who prefers to work behind the scenes, and has consistently kept a low profile. Unlike some of the other oligarchs, he largely remained quiet. Also, Khodorkovsky's father is Jewish, and it's accepted political wisdom in the circles around him that in light of the the prevailing social attitudes, no Jew could win the presidency in Russia. Still, it now emerges that Khodorkovsky was devising a campaign to transform Russia into a parliamentary system, and we're told that may have even imagined himself as premier at some point in the future.

The combination of his business deals and his political ambitions prompted the siloviki to press for action against Khodorkovsky. The Russian state is too weak to accept what those in power see as a challenge of this type. And then, despite open calls for his arrest, Khodorkovsky played chicken, refusing to follow the example of other oligarchs such as Boris Berezovsky and Vladimir Gusinsky and leave the country.

TIME.com: So, for those around Putin, this action is broadly designed as a corrective to what Boris Yeltsin did in the 1990s, when he sold off many strategic industries at bargain-basement prices to the oligarchs in exchange for financing his election?

Meier: Yes, no matter how indelicate its prosecution or how crude it appears abroad, they see the move against Khodorkovsky as a necessary corrective. The Putin line is, "We have no choice." As I explain in my book, Putin believes in the state above all. The state must survive. But the fact that he felt so threatened by Khodorkovsky that he felt forced to act in this way reveals his political weakness. Still, he knows that the West will remain engaged with Russia, because he understands the premium on non-Arab sources of oil.

TIME.com: So, where Yeltsin approached the West and the oligarchs as a supplicant, Putin is more assertive?

Meier: It's a complex dynamic. In foreign policy, Putin zigzags between acceptance of the West and affirmation of Russian national interests. He has rolled over on NATO expansion, the ABM treaty, and the U.S. presence in Central Asia. Now you have NATO going into the Baltics, which had previously been a red line for Moscow. On Iraq, he joined France and Germany, but they were the bad guys and he knew he'd be forgiven. Still, at the same time he has his taboos. One is Chechnya, and another is the oligarchs. His message is, "I'll do what I want on my own turf." He has defined himself primarily by those against whom he is fighting. He has yet to define himself in positive terms.

TIME.com: It's interesting that both of his taboo issues also have an electoral function for Putin...

Meier: Yes, he went into his first election as a virtual unknown, but he won it on the basis of his tough military campaign in Chechnya. And an attack on the oligarchs will play out even better in the hinterland than going to war in Chechnya. Ordinary Russians shed no tears for the oligarchs, although in some quarters Khodorkovsky's arrest could turn him into a martyr. But unlike in the West, in Russia he's not seen as an icon of the new breed of businessman. For common Russians he's an icon of all the sins of the last ten years. That's to the extent that anyone in the hinterland is paying much attention to this. It's not foremost on their minds, even if it will almost certainly effect their future.

TIME.com: How do you see the Putin-Khodorkovsky showdown playing out?

"Processes are underway," as Mikhail Gorbachev used to say. Either Khodorkovsky fights by running for president, or else he cuts some form of deal and retreats quietly either into exile, or into a role less threatening to the Kremlin. I don't think the latter is likely, but I also don't see any good endgame here. Western investors, no matter what they're saying publicly, are scared out of their wits. For the Russian economy, this is the scariest moment since crash of 1998.

Former TIME Moscow correspondent Andrew Meier is the author of 'Black Earth: A Journey Through Russia After the Fall'