level, as Russian mafyias—gangs, scarily tattooed veterans of prison camps, and petty criminals—ran protection rackets, stole crude oil and refined products, and sought to steal assets from local distribution terminals. As the gangs battled for control, a contract, all too often, referred not to a legal agreement but to a hired killing. In the oil towns, the competing gangs tried to take over whole swaths of the local economy—from the outdoor markets to the hotels and even the train stations. The incentives were clear: oil was wealth, and getting control of some part of the business was the way to quickly amass wealth on a scale that could not even have been dreamed about in Soviet days, just a few years earlier.9
But eventually the state reasserted its police powers, and the newly established oil companies built up their own security forces, often with experienced veterans of the KGB, and the bloody tide of violence and gang wars began to recede.
LUKOIL AND SURGUT
Meanwhile, following on Yeltsin’s privatization decree, the Russian oil majors were beginning to take shape.
The most visible was Lukoil. Vagit Alekperov, equipped with a clear vision of an integrated oil company, set about building it as quickly as possible. The first thing was to pull together a host of disparate oil production organizations and refineries that had heretofore had no connection. He barnstormed around the country trying to persuade the managements of each organization to join this unfamiliar new entity called Lukoil. In order for Lukoil to come into existence, every single entity had to sign on. “The hardest thing was to convince the managers to unite their interests,” said Alekperov. “There was chaos in the country, and we all had to survive, we had to pay wages, and keep the entities together. Without uniting, we would not be able to survive.” They heard the message, all signed on, and Lukoil became a real company.
Alekperov recognized the heavy burdens that the new Russian companies carried—what he called their “Soviet legacy” of “aged equipment along with obsolete manpower and production management systems.” Lukoil had to target “the best international practices.” From the beginning, Alekperov put in place international standards and used international law firms, accountants, and bankers. In 1995 the chief financial officer of the American oil company ARCO came across an article about Lukoil in the Economist magazine. He found it intriguing enough that he followed up, and ARCO subsequently bought a share of Lukoil. From the early days, Lukoil also pursued an international strategy, first in the other new nations of the former Soviet Union and then in other parts of the world.
If Lukoil was the most international of the new Russian majors, Surgut was the most decidedly Russian. Its CEO, Vladimir Bogdanov, was called the “hermit oil man” by some. He had been born in a tiny Siberian village, made his name as a driller in Tyumen, and the enterprise he managed there became the basis of what emerged as Surgutneftegaz, better known by its short name, Surgut. He never moved to Moscow, instead keeping Surgut’s headquarters in the city of Surgut. As he once explained, he liked to walk to work.10
Both Lukoil and Surgut were run by people who would have been qualified as “oil generals” under the Soviet system.
YUKOS: THE SALE OF THE CENTURY
Very different was a company called Yukos. It was one of the first oil companies to be run by one of the new oligarchs who had emerged not from the oil industry but out of the chaotic barter economy.
Mikhail Khodorkovsky had started off with orthodox Soviet ambitions: as a child, he announced that his objective was to rise to the highest levels of the Soviet industrial system and achieve the vaunted position of factory director. Later, while a student at the Mendeleev Institute for Chemistry, he jumped into business as a leader of the school’s Komsomol, the communist youth organization, turning it into a commercial organization. He then moved into trading in imported computers and software and then, in the late 1980s, set up a bank called Menatep, which would soon be regarded as serious enough to be entrusted with government accounts. It also provided finance to one of the new oil companies, Yukos.
Khodorkovsky soon concluded that oil was an even better business than banking. The timing was right. By 1995 the Russian government was desperately short of funds, and some of the new businessmen and the Yeltsin government came up with a solution that went by the name of “loans-for-shares.” Businessmen