Earlier this month, both Rich Smith and I covered an extraordinary situation in Russia that threatened to drive one of Russia's largest companies -- and one of the largest oil companies in the world -- to ruin. The Russian government claims that YUKOS (Pink Sheets: YUKOY), controlled by wealthy jailbird Mikhail Khodorkovsky, owes some $3.4 billion in back taxes, and it has frozen company assets seeking to collect. Khodorkovsky sits rotting in jail, and YUKOS has spiraled ever closer to bankruptcy as the government's coils squeeze ever tighter.

YUKOS believes that it is in complete compliance with Russian tax laws and states that it has appeals avenues available to it by statute. The company also notes that it is willing to pay the amounts the government claims it owes. But it is somewhat difficult for YUKOS to pay when its accounts are frozen, no? So the government has the hammer on one hand and the anvil on the other, and YUKOS is essentially helpless. The outcome that has seemed most likely would have been that the government would confiscate some non-core assets from YUKOS, most likely its shares in Sibneft, a company with which it sought to merge. The government could be a partner in Sibneft, merge it in with the state-controlled Lukoil (Pink Sheets: LUKOY.PK), or sell it on the open market. These assets would sufficiently cover any debt, and YUKOS' core revenue-generating assets would remain intact, even if the company had to go through bankruptcy.

I didn't anticipate that this would take such a negative turn. This past week, the Russian government announced its plans to evaluate and sell a core YUKOS asset -- Yuganskneftegas. This would have a material impact on the company's ongoing operations, and even the enunciation of such has made YUKOS' formerly precarious situation downright untenable. Today, it got substantially worse when the government ordered a halt in its Siberian oil production unit as a Justice Ministry order banning sale of any company asset effectively scotched its ability to even sell oil. This helped global oil prices rocket to their highest prices ever, with U.S. light crude closing at $42.90 per barrel.

I've gotten several messages from people asking about other Russian oil companies, most notably Tatneft (NYSE:TNT), as well as those who wanted to go where angels fear to tread and buy stakes in YUKOS itself. From a pure financial analysis standpoint, these actions might make sense. But what ought to be clear is that the Russian government is in no way following the rules that it has set for itself. Though YUKOS is certainly the target (or at least is the blunt instrument the Russian administration is using to cripple Khodorkovsky), should minority shareholders consider any Russian asset safe from what amounts to an uncompensated takeover by the government?

Neither YUKOS nor Khodorkovsky may be clean -- the facts of the case are quite murky. But the actions of the Russian government, their scorched-earth pursuit of these tax revenues are putting a chill in the previously positive environment of capital investment in the country. It took years for the Russians to build up from their last crisis in 1998 -- it might take many more for them to recover from this.

Bill Mann holds no stake in any company mentioned in this article.