Yukos Background

By 1996, Yukos Oil Company’s future looked bleak.

After the collapse of the Soviet Union in 1991, Russia found itself with a weak and inexperienced central government in charge of a huge country. The national economy was in the hands of a cabal of managers running powerful state-owned enterprises. These managers were unwilling to undertake any desperately needed reforms.

This difficult situation was made worse by the Russian financial crisis of the mid-90s. A national disaster loomed, and the Russian authorities agreed that the urgent privatization of certain assets, including the government-run oil industry, was essential.


Yukos was the result of that privatization. Cobbled together in 1995 and 1996, it had crumbling infrastructure and soaring costs. This was the result of ineffectual management and little, if any, strategic planning. Investment in production development had been essentially zero, and huge wage arrears had created simmering social tension in many areas that threatened to explode.

Making matters worse, the new company’s largest and most important extraction complex, Yuganskneftegaz (YNG), was producing only 0.5 million barrels a day, down from 1.4 million barrels a day in 1987. Siberia-based YNG constituted around 80 percent of Yukos’ value and was responsible for pumping most of Russia’s oil.



Despite this, once privatized, Yukos staged a remarkable comeback.

It wanted to compete at an international level and in order to do so recognized that it needed to bring more corporate governance and transparency to its operations. It duly did this, working with recognized experts to drive efficiencies and restructure the business so that it could capitalize on new opportunities as well as mitigate risks. The company put a particular focus on its financial reporting, bringing it into line with US GAAP regulations, which was above and beyond what Russian Law required. It also retained renowned consultancy PricewaterhouseCoopers to advise on its financial and tax arrangements.

Alongside these measures, Yukos also recruited international executives in order for the business to thrive from their expertise and industry knowledge.

  • In 2001 American oil expert Bruce Misamore joined as CFO.
  • He was followed by Steven Theede, who moved from ConocoPhilips to Yukos in 2003 and became its CEO in 2004.
  • These international appointments helped reinforce the ethos of professionalism and fiduciary duty that underscored senior management decisions regarding Yukos’ strategy, shareholders, and staff.


The company epitomized modernization and was seen as a pioneer, not just for the oil industry but for Russian business as a whole. Combined, this renewed energy and focus saw YNG start producing over a million barrels a day (up from 0.5 million barrels a day), whilst at the same time slashing production costs.

Yukos’ transformation didn’t go unnoticed. The Financial Times put Yukos on its list of ‘Top Ten Companies for Shareholder Confidence’ in 2003, and the company quickly found itself courted by Western banks and investors as a result.

So it was that, against remarkable odds, Yukos had become an internationally respected and highly successful company. Its market capitalization grew from US$320 million in 1999 to US$21 billion in 2003.

Witnessing the amazing turnaround of the company and its rapid growth, and Yukos’ merger talks with ExxonMobil, as well as Mikhail Khodorkovsky’s outspoken criticism of President Vladimir Putin’s regime, the Russian authorities decided to reassert control over what was now thought to be a strategic asset. They began a campaign not of nationalization (which would imply compensation from the State), but of simple expropriation. From 2003 and onwards, the Kremlin targeted Yukos and its management, including Mikhail Khodorkovsky.


Political and Legal Impact

For Yukos, the expropriation process began with tax. In essence, the Russian authorities attributed Yukos subsidiaries and associated companies’ incomes to Yukos for tax purposes, while those other entities were tax payers in their own right (based in different regions throughout Russia). Some of those associated companies were based in low tax regions and Yukos’ use of these areas was approved by the Federal and Regional Governments. Furthermore, many other oil companies used the same kind of tax arrangements as Yukos. Yet, despite yearly audits being carried out by the authorities and on-going government approval of its tax threshold, in December 2003 the State undertook a surprise tax audit and cited ‘irregularities’ amounting to the sum of $3Bn. No other company using the low tax regions was subject to an audit or penalized for its low tax region arrangements in such a way. In total, the Russian authorities claimed a staggering $24.2Bn from Yukos, more than half of which (namely $13.6B or 56%) concerned VAT for oil that had undisputedly been exported and which was thus exempt from VAT.

Yukos appealed against the tax assessments. When the Russian courts sided with the Russian authorities, Yukos publicly stated its intent to pay its liabilities, however unlawfully they were imposed. But the Russian authorities also froze all of Yukos’ assets, thereby seeking to paralyze the company and hoping it would be impossible for the company to pay any debts. Thus the Russian authorities were aiming for the company’s paralysis, managed to force the sale of YNG and ultimately drove Yukos into a sham bankruptcy.

As it became increasingly clear that the battle over Yukos was politically motivated, the management of the company took steps to ensure Yukos would survive to fight for justice outside of Russia. Against that background, the Foundation was established in 2005.

Since then, legal cases have been fought in e.g. the USA, the United Kingdom, the Netherlands, Armenia and the European Court of Human Rights.

On May 9, 2017, the Amsterdam Court of Appeal upheld a District Court decision, ruling that the Russian Federation unlawfully bankrupted Yukos Oil Company. The appeal court concluded that the Russian authorities “not only violated the Russian (tax) rules but also that this was done with the apparent intent to make Yukos insolvent and ultimately bankrupt Yukos.” The Russian bankruptcy cannot be recognized in The Netherlands, the court ruled, as that would “violate public order.”

On 18 January 2019, the Dutch Supreme Court upheld the judgment of the Amsterdam Court of Appeal. Following that decision, the Yukos Foundations have paid hundreds of millions of dollars in additional funds to former shareholders of Yukos Oil. Combined with the previous payments made to shareholders as a result of the settlement of all legal proceedings between the Yukos Foundations and state-controlled Rosneft, the total payment to shareholders is close to $1 billion thus far.

In December 2020 the Yukos Foundations merged, with one Foundation remaining. The Foundation and the Yukos group companies it controls continue to pursue proceedings against the Russian Federation, in which they seek compensation which, if recovered, could lead to further payments to former shareholders of Yukos Oil.