Russia Could Retaliate Over Litvinenko Row

Fears were growing last night that Moscow's refusal to extradite the man wanted in connection with the murder of Alexander Litvinenko would seriously fray diplomatic ties with Moscow and damage British businesses working in Russia.

Analysts said the standoff would accelerate the Kremlin's attempts to muscle in on a huge Siberian gas field run by a joint venture involving BP. But Downing Street said Russia would improve "confidence" in trade by fulfilling its international obligations to hand over former KGB officer Andrei Lugovoi to stand trial for murdering Mr Litvinenko, who died in London last year after apparently being poisoned with the radioactive isotope polonium-210.

On Tuesday the director of public prosecutions, Sir Ken Macdonald, said there was enough evidence to charge Mr Lugovoi. Tony Blair and the foreign secretary, Margaret Beckett, said they expected cooperation from the Kremlin. However, Moscow is citing its constitution, which rules out extradition of Russian citizens.

Britain was the biggest single foreign investor in Russia's economy last year, but Moscow's sentiments toward western companies are hardening in line with a downturn in relations with the EU and the US. BP's Russian vehicle, TNK-BP, has been under investigation by regulatory bodies which allege it is under-producing gas at its Kovykta field, in what is widely seen as a mechanism to force the company to cede control of the field to the state energy giant, Gazprom.

One senior analyst at a major investment bank in Moscow said yesterday: "TNK-BP has fallen on the markets today and that's a direct result of investors being afraid that the state will step up its attack on the company as a result of the Litvinenko case."