The slow, painful decline and fall of the Yukos empire entered what seems to be its final act last week, with bailiffs and police combing the firm's offices across Russia, carting away documents, hard drives and anything else they thought could give them a fix on the assets and cash of one of the country's largest and most profitable corporations. "We are not going to destroy the company's operational activities," said Andrei Belyakov, head of the Justice Ministry's bailiff service. "At least, we are not intending to." But many analysts say that Russian authorities are out to do just that. One senior U.S. diplomat in Moscow told TIME that there are "increasing signs that the destruction of the company is the endgame."

When the smoke clears, the Yukos name may survive, but little else of the company's management, structure and independence is likely to remain. One widely held belief is that the Kremlin will take the 60% share package currently owned by the company's former CEO Mikhail Khodorkovsky and a small group of close associates — one of them, Platon Lebedev, like Khodorkovsky, is on trial for fraud and other charges. Yukos might in effect be nationalized, with the government holding a controlling stake and the rest spread out among compliant domestic and foreign investors. Yukos' inexorable demise has made the markets nervous, and capital flight has jumped sharply. Destroying Yukos, warns Christof Ruehl, the World Bank's chief economist in Russia, will "undermine Putin's biggest economic accomplishment, the creation of two to three years of stability."

Until very recently, such pessimism was a minority view. The government hard-line was seen by business executives and analysts as a political power struggle, not a reassertion of the Kremlin's invisible hand in guiding the economy. The clout of the siloviki, President Vladimir Putin's coterie of security and military associates who retain a Soviet-style attachment to state economic control, was downplayed. Yukos, it was thought, would be allowed to pay its tax bills by handing over its 35% share in another oil company, Sibneft.

Putin himself encouraged such optimism, saying in mid-June that the state had no interest in bankrupting Yukos. But in late June, Yukos officials and diplomats say, Putin went silent and the government attitude inexplicably changed. A court decision gave Yukos a mere five days to pay $3.4 billion in back taxes, fines and penalties for 2000. Two days later, bailiffs "arrested" the firm's accounts, froze its assets, and refused payment in Sibneft shares. A similar bill for 2001 quickly followed; two more are on the way.

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nginx/1.14.0 (Ubuntu) The Putin-Khodorkovsky conflict goes way beyond taxes. Yukos did indeed pay tax well below the statutory rate of 24%, notes Paul Collison, an oil analyst with Brunswick UBS brokers, just like many Western oil companies do in other parts of the world. The practice is not necessarily illegal, and many of the tax-reduction schemes used by Russian oil companies were devised by the same specialists who work for major Western corporations. Other Russian oil firms, like Sibneft, paid even lower rates without incurring the Kremlin's wrath.

The root of the crisis lies in personal rivalry. Early in Putin's first presidential term, the oligarchs and the Kremlin made an informal agreement: if the oligarchs stayed out of politics, the Kremlin would not revisit the dubious privatization deals that brought them their billions. Khodorkovsky chafed under this, and by Putin's second term he was funding opposition parties in the Duma. He claimed this was to encourage a vibrant democracy; the Kremlin suspected him of buying his own political bloc. Khodorkovsky may pay a high price for his political ambitions. "He will not walk the streets of Moscow for the next five years," predicts an international financial specialist.

But Russia could end up paying a high price, too. The Yukos affair has sparked questions in the West about Russia's commitment to a market economy, not to mention other basic tenets of capitalism, like property rights. But the crisis is also coming to a head at a time when the Russian miracle is beginning to lose its luster. At home, even some officials are questioning the realism of the Kremlin's plans to double gdp by 2010. Runs on two banks last week — unrelated to the Yukos affair but worrisome nonetheless — have focused attention on the Putin administration's failure to push through structural reform. Still, adds the World Bank's Ruehl, "foreign portfolio managers have a short memory." If things calm down after the Yukos endgame, investors may dismiss Yukos as an unfortunate one-off — unless or until the bailiffs turn up at another corporate headquarters.

• PAUL QUINN-JUDGE | Moscow
• The threat to Russian oil giant Yukos looks terminal