Russian PM concerned as Yukos crisis spreads

Russia's prime minister said yesterday he was deeply concerned by the freezing of shares in oil giant Yukos - the closest any top official has come to publicly criticising the Kremlin's handling of the crisis.

"I will refrain from any assessment but my concern is great," Prime Minister Mikhail Kasyanov was shown saying on Russia's NTV channel, a day after prosecutors blocked a large stake in Yukos and a top presidential aide quit in protest.

The escalating confrontation between the Kremlin and Yukos has presented President Vladimir Putin with his biggest political and economic crisis in three years in power and raised fears over the future of economic reforms.

Political commentators see it as a drive by Kremlin hawks to quash Yukos boss Mikhail Khodorkovsky's political ambitions and reassert the state's authority over business.

Russian markets regained some ground after Mr Putin restated his commitment to a market economy. But shares were still far below levels before the arrest at gunpoint of Khodorkovsky - Russia's richest man - on charges of fraud and tax evasion.

Just hours after prosecutors froze a major stake in Yukos held by Khodorkovsky and his allies, Putin met a group of high-ranking foreign bankers at a lavish Kremlin hall. They said yesterday he had pledged to press ahead with reform, including of state-owned Gazprom, the world's biggest gas company.

The prosecutor's office said yesterday it had lifted the freeze on two percent of Yukos shares which it said belonged to individuals not related to criminal investigations.

Mr Kasyanov, appointed by Mr Putin but siding with the pro-business elite that is pitted against Kremlin hardliners, said the freezing of the shares of a publicly listed firm was "a new phenomenon, whose consequences are difficult to define".

Mr Putin faces calls from business leaders, the media and political commentators to rein in prosecutors and send a clear signal the Yukos campaign would not spread to other businesses.

An analyst at Fitch Ratings agency said the action against Yukos showed Russia was not ready for investment grade - a status Moscow seeks in order to attract vital foreign capital.

"The events of the past week have tarnished President Vladimir Putin's market and reformist credentials," said Edward Parker, Fitch analyst in charge of Russia in London.

Kremlin hawks are more worried by the political ambitions of Mr Khodorkovsky who openly backed Mr Putin's liberal opponents in parliamentary elections due in December and was thought to have his eyes on the presidency, analysts said.

A European minister who recently met Putin told Reuters: "Putin said Khodorkovsky crossed the red line by using money to buy votes. His will is to demonstrate that the oligarchs can enjoy their unique situation if they stay out of politics."

On Thursday, Mr Putin replaced his chief of staff Alexander Voloshin - a figure seen as the main counterbalance to the hawks and sympathetic to "oligarchs" like Khodorkovsky who made huge fortunes under former president Boris Yeltsin.

Mr Voloshin is the most senior official to quit under Mr Putin. "This is by far and away the biggest test of Mr Putin's leadership and in political and economic terms the biggest crisis since the 1998 financial crisis," said Andrew Kuchins, director of the Carnegie Moscow Centre think-tank.