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Political Risk or Legal Risk?

These two types of risks seemed to be confused at times in Russia, as shown in this new FT article:

“I got tired of saying a year ago or more that what you think of as political risk in Russia doesn’t exist,” says Stephen Cohen, managing director of asset management at Troika Dialog. “We knew what the outcome of the election was. That was blindingly obvious 12-18 months ago.”

Both Mr Cohen and Ms Abu Leil-Cooper believe that earlier reform agendas are unlikely to be compromised. But the state’s role in developing the economy, as well as providing some obvious opportunities in infrastructure, also adds a kind of risk to investing in sectors that the government has defined as strategic.“There’s a risk around the legal manoeuvrings that the state has gone into to re- assume control of assets that it regards as strategic, of which Yukos was the most extreme example,” Mr Cohen says. Oil company Yukos was returned to state control in 2006. The recent police raids on the offices of TNK-BP, the joint venture, seem to echo the earlier case.“What’s going on at BP at the moment is not clear, but it looks as though it could be more of the same, who knows?” Mr Cohen says. “It could be some people privately trying to stir things up. There’s quite a complex shareholding at TNK-BP, so it’s really too early to jump to conclusions.”

Really? I think you could quite comfortably conclude that what has happened to Yukos, Royal Dutch Shell, Russneft, and TNK-BP are all problems of political risk – cases in which the authorities have broken the law and used regulatory agencies (tax, environmental, etc.) in order to force a seizure of property. Mr Cohen and Troika do no one any favors by pretending that this is a normal process or a simple “legal manoeuvring.”