The award, which was granted to GML Ltd.—formerly Group Menatep—the owner of 60 percent of Yukos, was larger than any prior international arbitration award, and the arbitrators did not mince their words in condemning the action as an illegal confiscation of one of the country’s most valuable assets.

The importance and implications of this case can hardly be overstated. First, the size of the award is enormous, no less than 2.5 percent of Russia’s GDP. Second, Russia is not likely to pay. Should Russia reject the ruling, operations of Russian state companies will suffer from major disruptions, with their bank accounts, commercial ships, and cargo seized around the world. Third, Putin is likely to continue to withdraw from international cooperation and cancel Russia’s ratification of various international treaties and conventions. The ultimate message to Putin is that he cannot go around confiscating companies without fearing consequences.

With his conspiratorial frame of mind, Putin will likely presume that this verdict is part of the Western sanctions that have been ratcheted up over the Russian annexation of Crimea and interference in Ukraine. In fact, the economic impact of the tribunal’s judgment is likely to be greater than the cost to Russia of the sanctions. The Russian RTS index fell by 3 percent today (July 28). But the interpretation that it is related to Ukraine would not be warranted. One of the three arbitrators was nominated by Russia. The tribunal was supposed to render its verdict in the first quarter of this year, but it was delayed to June, then to the middle of July. The ruling was dated July 18, though it was made public today. The reason for the delay is unclear, but this has been a big case with a large volume of evidence.

The saga of Yukos’s demise started in 2003. Russia was then still quite a free country, and Yukos was its biggest oil company, producing one million barrels a day. Khodorkovsky, the main Yukos owner, was Russia’s richest man, with a fortune of $15 billion, derived from the fact that the market value of Yukos had soared to $43 billion under his stewardship.

On October 16, 2003, I had invited Khodorkovsky, who was emerging as a major leader of the political opposition to Putin, to speak at the Carnegie Endowment in Washington. He gave an outstanding presentation of how wonderful Russia could become, carefully avoiding criticism of Putin himself. Yet we all wondered whether he would really dare to return to Russia, where Putin’s rising authoritarianism was in full view. I asked Khodorkovsky. His answer was, “I do not understand how they can win, given how many mistakes they make.” I quietly told myself that many people thought so under Stalin in the 1930s. Nine days later, back in Russia, he was arrested at gunpoint in Irkutsk. (Last December, Putin finally pardoned him after ten years in prison. He now lives in Switzerland.)

A disorganized process of political repression and confiscation followed. The main movers were Putin and his right-hand man, Igor Sechin, currently CEO of Rosneft. (Both Sechin and Rosneft have been sanctioned by the United States over the issue of Ukraine.) It took the authorities a long time to decide the crime that they would accuse Khodorkovsky of, though they were never in doubt about imprisoning him for years. Eventually, they opted for a charge of tax fraud of $27 billion. In its new ruling, the tribunal in The Hague found no substance in the tax case in Russian law and declared that “the Russian authorities were conducting a ruthless campaign to destroy Yukos, appropriate its assets and eliminate Mr. Khodorkovsky as a political opponent.”

One of the most egregious incidents in the Yukos case was the sale of Yukos’s main production unit, Yuganskneftegaz, which probably accounted for two-thirds of Yukos’s total value. At Christmas 2004, this core asset was sold for $9.35 billion at a rigged auction to a front company called Baikal Finance Group with a capital of only $359. But the group was funded by Russian state banks. Soon afterward, state-owned Rosneft bought Yuganskneftegaz, which is now its core asset. The proceedings were so legally dubious that Gazprom withdrew its intended bid. The Hague Tribunal concluded that “the Russian Federation was not engaged in a true, good faith tax collection exercise but rather was intent on confiscation of the most valuable asset of Yukos and effectively transferring it to the Russian state.”

Even so, Yukos had sufficient assets to pay the outrageous tax penalty, but it had its accounts frozen by the tax authorities and was driven into bankruptcy. Its many assets were “auctioned” off to Rosneft—and to a minor extent to Gazprom—in rigged auctions with minimal prices. Others were not allowed to bid. The tribunal condemned all these acts and concluded that this was the “final act of the destruction of the Company by the Russian Federation and the expropriation of its assets for the sole benefit of the Russian State and State-owned companies Rosneft and Gazprom.” The tribunal cites many other illegalities in siding with the claimants, but the crucial ones were the bogus tax case, the illicit sale of Yuganskneftegaz, and the illegitimate bankruptcy.

The basis of this arbitration case was the Energy Charter Treaty, which was concluded by about 50 European countries in 1994 and came into force in 1998. It contains strong guarantees against confiscation. Russia signed but never ratified it, but its signature provided sufficient justification for this case. In 2009, Russia withdrew from the Energy Charter Treaty just after its jurisdiction for the GML case was accepted by The Hague court. Thus, no new case can be raised against Russia on the basis of the treaty. The defendant was not Rosneft but the Russian Federation, which would in theory make it easier for the claimants to collect their award.

The main claimant was GML Ltd., which was formed by Mikhail Khodorkovsky and partners in 1997. In 2005, Khodorkovsky gave up his dominant share to his lead partner, Leonid Nevzlin, who now owns slightly more than 70 percent of GML. The other four significant owners are the former partners Platon Lebedev, who sat in prison for a decade like Khodorkovsky, Mikhail Brudno, Vladimir Dubov, and Vasily Shakhnovsky. Each of these four own almost 7.5 percent. GML owned 60 percent of Yukos. Its original claim was $103.5 billion, so it received half of what it asked for.

Immediately after the verdict became public, Russian Foreign Minister Sergei Lavrov stated that Russia will appeal the judgment, perhaps by going to the Supreme Court of the Netherlands. But GML claims that such appeals are limited to technical issues. GML is preparing to claim its due, if necessary by seeking to seize Russian state property that does not enjoy any diplomatic immunity. It can do so on the basis of the so-called New York Convention, i.e., the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Award, which was adopted in 1958. At present, it has 149 contracting parties, essentially the whole world, including the Russian Federation since 1960.

The Russian Federation has participated fully in the legal proceedings. Two big New York law firms fought it out in The Hague. Cleary Gottlieb Steen and Hamilton led the Russian defense, while Shearman and Sterling represented GML. Officially, the Russian Ministry of Justice represented Russia, but Sechin appears to have been the senior Russian calling the shots.

A number of other Yukos cases are proceeding through various courts because plenty of Yukos shareholders lost money. The total amount of losses was probably $20 billion apart from Menatep, of which US investors probably lost $12 billion. Many countries have bilateral investment treaties that would cover the Yukos case, and the GML Energy Charter case appears solid precedence. In parallel with the GML case, former Yukos managers are pursuing a claim of $38 billion on behalf of all former shareholders against the Russian Federation in the European Court of Human Rights in Strasbourg. The human rights court is attached to the Council of Europe, of which Russia remains a member. Still, that is a much weaker court both in power and constitution, which was the reason for GML preferring the Energy Charter.

The many former US shareholders in Yukos, however, have nowhere to turn. The United States has not signed the Energy Charter Treaty and it has no bilateral investment treaty with Russia.