Mikhail Khodorkovsky remains in jail

Yukos chief executive Mikhail Khodorkovsky is in jail facing fraud and tax evasion charges, and almost half the company's shares were frozen by Russian authorities on Thursday.

Many Russians believe the case against Mr Khodorkovsky, thought to be Russia's richest man, is politically motivated.

He has funded opposition groups, breaking what analysts say was a tacit agreement to stay out of politics in return for avoiding investigation of his financial affairs.

Analysts say the move against Mr Khodorkovsky and Yukos has created the biggest political and economic crisis of President Putin's three years in office.

(The action against Yukos) runs the risk of harming the Russian economy Stuart Eizenstat

Investors are reassessing Mr Putin's credentials as manager of one of the world's largest emerging economies while political commentators are interpreting the action as a drive by Kremlin hardliners to suppress political dissent.

"He's gone pretty far in tarnishing his reputation," said Andrew Kuchins, director of the Carnegie Moscow Centre think-tank.

"It's not beyond the realm of possibility that he turns this around, but it will take a huge stroke of leadership to repair the damage."

PM under threat?

According to Stuart Eizenstat, ex-US Deputy Treasury Secretary and member of the International Advisory Board (IAB) to the company that controls Yukos, the board members are preparing to use their influence in Washington, London and Berlin to push for support for Yukos.

"We do not see any justifiable legal basis" for the Kremlin's actions, he told BBC News Online.

"We are each trying to activate our respective governments."

Among his fellow board members are a former German economics minister and a British ex-MP.

The battle over Yukos took another political turn on Friday when Prime Minister Mikhail Kasyanov said he was "deeply concerned".

Mr Kasyanov is a veteran of the oligarch-funded phase of Russian politics, rising to power under former president Boris Yeltsin.

The prime minister's comments come amid speculation that his own position may ultimately be under threat. President Putin's chief of staff Alexander Voloshin, a fellow Yeltsin-era appointee, left his post in recent days.

Volatile

There was another day of volatile trading in Yukos shares on Friday, while the wider stock market and the rouble steadied.

"The Russian authorities have gone past the point after which anything is possible. No one will be surprised if tomorrow the [impounded] Yukos shares are confiscated," said Steven Dashevsky, head of research at Aton brokerage.

"Yukos is quickly becoming a toxic waste stock that many portfolio managers would not want to own not only for portfolio performance, but also for career reasons," said Aton.

"The only good place to be right now is on the sidelines."

Some analysts were more sanguine. "For those who can stomach it, it does look like a buying opportunity," Eric Kraus of Sovlink brokerage told the BBC's World Business Report.

In afternoon trading, Yukos shares were 12% higher, clawing back almost all of Thursday's losses.

The main RTS index was modestly higher, having dropped 8% on Thursday. The rouble was slightly lower against the dollar.

Illegal

Yukos, Russia's biggest oil company, has been in trouble with the Russian Government for some time.

A Gibraltar-based firm, Group Menatep, controls 44% of the firm's shares on behalf of a group led by Mr Khodorkovsky.

Menatep selected its International Advisory Board (IAB) earlier this year as part of a structure designed to make Yukos a poster-child for good corporate governance in Russia.

MENATEP ADVISERS Stuart Eizenstat: Clinton-era cabinet member and US ambassador to the EU Dr. Otto Graf Lambsdorff: former leader, German Free Democratic Party, economics minister 1977-1984 J Dudley Fishburn: ex-executive editor, The Economist; former British Conservative MP Margery Kraus: founder and CEO of US PR firm APCO Worldwide

Last week, Mr Khodorkovsky was arrested on suspicion of tax evasion and defrauding the state, joining fellow Menatep shareholder Platon Lebedev in jail.

And now prosecutors have frozen the block of Yukos shares controlled by Mr Khodorkovsky.

The shares were in fact owned by two Menatep-owned companies in Cyprus and the Isle of Man, a fact which Yukos says makes the seizure illegal.

'Crackdown'

According to Mr Eizenstat, the IAB discussed the situation on the phone on Wednesday and members expressed "grave concern" about what was happening both to Yukos and to Russia.

"This is part and parcel of a broader crackdown" threatening Russian business and democracy and attacking the rule of law, he told BBC News Online.

"It runs the risk of harming the Russian economy, dampening enthusiasm for foreign investment and raising questions about whether it is safe to do business in Russia."

There are also human rights questions, he said, which the board was hoping to raise with United Nations and European bodies.

Russia's leading business newspaper, Vedemosti, said in an editorial: "The president should open his eyes and finally discover that prosecutors are destroying in one day what took years to create.