With the Theft of Yukos, What Goes Around, Comes Around

Today we are seeing a lot of interesting discussions on yesterday’s court decision which found that Russia is still bound by the Energy Charter Treaty, making them potentially liable in a suit being brought by Yukos shareholders for the expropriation of the company which could touch $100 billion – by far the largest in international arbitration history.

As Jason Bush notes in a Reuters opinion piece, although lawsuits against sovereign states are rarely won, the jurisdiction win is embarassing for Russia as “the legal justifications for its actions against Yukos have long met with widespread scepticism abroad.”  If Russia were to lose the arbitration, there is the (likely) chance they will refuse to observe the decision … meaning that shareholders could try to seize the state’s foreign assets.

There are some other angles at play as well for Europe in dealing with Gazprom.

We recently received in our inbox a press release from the European Centre for International Political Economy (ECIPE) containing some interesting analysis on how the legal and political ramifications:  “No one has so far significantly tested theECT against Russia. Russia has expropriated foreign assets, and shut off thegas taps in disputes that smack of the political. Russia as well as other CIScountries can be considered abusing their position as transit countries fromCentral Asia or Siberia to the EU. This behaviour is prohibited in the EnergyCharter Treaty and can be challenged. No one in East and West really wished tomake systematic use the Treaty. This will change“, says Fredrik Erixon and Iana Dreyer.

Thepress release from ECIPE goes on to argue that under Article 45 of theECT, both signatories are agreed to enact and observe the treaty beforeand independent of ratification.  Further, if one party wishes to optout they must explicitly register their withdrawl in writing.  Russiahas not exercised their opt-out in writing, meaning that the rulingfrom the arbitration court is “unambiguous.”

Although ECIPEappears to argue that it is positive and necessary that the energytrade with Russia be conducted under rule of law, they also notehandling relations through the ECT could have an upside of legitimacythat can favor Russia’s interests:  “Energy markets, and inparticular the gas market, will for long remain far from perfectly openand competitive. Yet at least they should contain basic rules of fairplay. Russia is also likely to win from letting itself be challenged inthe ECT. It will gain the right and legitimacy to have its own transitrights upheld against Ukraine or Belarus, which it has claimed it wantsto do. And everyone will gain from insulating Russia’s and otherplayer’s legitimate commercial claims from political abuse.“

Very well put.