The war in Ukraine has made us accustomed to hearing news about
sanctions and blockades of financial assets, yachts, airplanes, real estate,
and endless wealth of all kinds in the hands of Russian oligarchs.
Now, what exactly do we mean by an oligarch? Are they the real masters
of Russia? The shadow rulers? How far does their power extend? Who are they?
I am sure that when many of you hear the term "Russian oligarchs", you think of millionaires
with a lot of power. And yes, simplifying things we could say that they are something like that.
However, that same definition could apply,
for example, to many American billionaires. Without digging too deep, there is the case
of Donald Trump. A multi-millionaire who came to occupy the most important
position of power in the United States of America and perhaps in the world.
But clearly Trump is not an oligarch and it would be a mistake to label him as such.
And so VisualPolitik fans, in this video we are going to tell you how the Russian shadow political
system works, who the real masters of Russia are and how the relationship between the Kremlin
and the oligarchs works. Listen up.
Ever since Vladimir Putin unleashed his storm of fire, destruction and annihilation on Ukraine,
we've been talking a lot about oligarchs. But what exactly is an oligarch? I think
this is the first question we need to answer. Well, Russian oligarchs are extremely wealthy
businessmen whose fortunes and businesses depend essentially on how close they are to the Kremlin.
In this way, the Russian oligarchs have become something like the praetorian guard of political
power. An extension of the political arms of the Kremlin in the economic field.
Because the Russian economy is something like a closed and centralized economy where civil
servants and bureaucrats have been replaced by rentier businessmen who make their way
through influence, coercion and bribes. In today's Russia, neither a capitalist nor
a socialist model operates. Putin's Russia is something like the living representation
of a modern clique mercantilism, or crony capitalism. A model where large companies
receive all kinds of privileges from the political power in exchange for supporting
that power and following its guidelines. Therefore, in this country, the relationship
between private wealth and public power is very close. The oligarchs direct and control
strategic sectors for Moscow's interests, such as, for example, energy or defense.
Now, how does all this come about in practice – is this something new, from Vladimir Putin's Russia?
Well, the truth is that it is not.
In fact, we could say that we are already in at least the second generation of Russian oligarchs.
Because the first generation emerged from the chaotic privatization process
that the country underwent during the 1990s, when the Russian State sold off
many of the large public enterprises of the Soviet era at bargain prices.
It was a process riddled with corruption that was based on stock loan schemes.
A system that used the shares of large public natural resource companies as a kind of
collateral for loans to the federal government. And since the federal government did not repay
those loans – in a suspiciously intentional manner – then the creditors, who were tycoons
and characters close to power, auctioned those shares to recover their loans. Auctions that,
of course, were opaque and rigged, where they presented themselves as the only buyers.
And this is how the oligarchs were born and how they took control of the country's large
companies. In this way the civil servants and public bureaucrats were replaced by these new
"businessmen". From socialism we went to clique mercantilism.
This whole process took place during the Yeltsin era, but in reality the Putin era
has not been so different. If anything, it’s been an evolution of this system.
Boris Yeltsin and Vladimir Putin were antagonistic characters who, despite their political ties,
did not get along well with each other. And, of course, each of them had their own groups of
influence, which in practice were adversaries. So with Putin came the second generation of
oligarchs. His entourage made its way through generous government contracts,
concessions and permits to exploit the country's riches or supposedly develop national industry. In
this way they gradually occupied the highest rungs of the Russian economic structure.
It may surprise you, but Russia's clique mercantilism doesn't work
much differently from organized crime groups. In fact, the Russian president is a specialist
in getting rid of anyone who makes him uncomfortable. For example,
by leading "anti-corruption" campaigns.
Take the case of Mikhail Khodorkovsky, an oligarch very close to Yeltsin and one of
Russia's greatest fortunes who was imprisoned in 2003 on corruption charges. Khodorkovsky was the
owner of the Russian oil company, Yukos, which was expropriated by the Russian government.
(26 October 2003. Police in Russia seize oil tycoon – The New York Times
Russia's richest man, the oil baron Mikhail B. Khodorkovsky, was seized at gunpoint on Saturday
by government security agents and jailed on charges of fraud and tax evasion.)
Yes, all these accusations may have been true, but they were certainly not
exceptional. Corruption is a necessary part of the prevailing political model in the country.
This 2003 operation against Russia's largest fortune was
Putin's first warning shot to the oligarchs: The message went something like, "Watch out, watch
out, watch out. If you want to go out on your own, you will suffer the consequences. You are where
you are thanks to the political power, so if you are not completely loyal, you will pay dearly.
In other words, we are not talking here about businessmen competing with each other and taking
risks. Not at all, the Russian mercantilist model replaces competition with favored deals, influence
peddling, bribery and corruption of all kinds. In exchange for their fortunes, the oligarchs
undertake to maintain stability, loyalty to political power and try to run their companies
as well as possible, at least better than the results achieved when the companies were public.
But, now that we know what exactly an oligarch is and why they are so much talked about,
the question is: Who exactly are the owners of Russia? What changes did
Vladimir Putin bring about? How far does the Russian president's influence over the
country's big business extend? Well, let's take a look.
(RUSSIAN SHAREHOLDERS)
The Russian oligarchic model, as we have told you, has basically gone through two stages:
that of Yelstin and that of Putin. The first was characterized by the
enormous political power that some of the oligarchs garnered. On some occasions,
they even dictated to the government the direction of its policies or became members
of the cabinet or the government. However, in the second stage, this
situation changed radically. Putin established a very different relationship with an iron fist:
the oligarchs would no longer interfere or put conditions on the government.
Russia's power is in the Kremlin, not in the headquarters of these companies.
In this way, Putin pushed for rules and laws so that the big oligarchs
of strategic industries such as energy, mining or the media would
sell part of their shares to the State or to entities controlled by it. The idea was
to further tighten the ties between the Kremlin and large Russian corporations.
And this is how the so-called State corporations were born,
which Putin legally shielded with preferential treatment and privileges of all kinds.
It is estimated that these corporations now control 55% of the Russian economy.
It is a variant of State capitalism that has given Putin unprecedented control
over the most important productive sectors of the country and also over their owners.
That is to say, unlike in the Yeltsin era, Russian oligarchs in practice
are no longer limited to being the owners of large industrial conglomerates, but are above
all responsible for managing these groups on behalf of the Kremlin. In this way, the bribes
and rents extracted from these large companies reach all the levers of power in the country.
That is the great change that has taken place and it is what has given Vladimir
Putin unprecedented power. And this is also what explains that despite all the international
sanctions Russia is suffering after the invasion of Ukraine, the oligarchs have
barely spoken out. Because now they depend on Putin more than Putin depends on them.
Of course, this system leads to very poor levels of productivity, innovation and competitiveness,
but...it does guarantee enormous stability for all parties, except,
of course, for the vast majority of Russians. But having said that there is an obvious
question that arises, who exactly are the country's main oligarchs?
(THE "FRIENDS" OF THE KREMLIN)
Currently in Russia we can find three types of oligarchs.
Firstly there are Putin's friends, those who are connected on a personal level with the president,
his inner circle. We are talking, for example, about former friends from St. Petersburg,
where the Russian president grew up, or former colleagues from the KGB.
Then there are the leaders of the security services, FSB,
police and military, who are known as 'Siloviki'. And finally we have the outsiders.
Well, with regard to this last group, these are people who literally owe Putin everything. People
who have managed to multiply their wealth to unimaginable levels since Putin came to power.
They are the faithful among the faithful. Take the case of Yuri Kovalchuk, known as
Putin's personal banker and who amassed a fortune of $1.7 billion dollars. He
is currently the main shareholder of Rossiya Bank, one of the largest banks in the country.
But if this sounds like a lot of money, check out Leonid Mikhelson, another personal friend
of the Russian president. Mikhelson has a fortune estimated at $18.1 billion,
and is currently listed at number 66 among the richest people in the world according to Forbes.
Mikhelson is founder and director of Novatek, a natural gas company,
which is currently sanctioned by the West precisely because of its ties to the Kremlin.
Then, another personal friend of the president, Gennady Timchenko,
has managed to amass a fortune of $15.7 billion through the Volga Group, his investment company
through which he invests in corporations controlled by other oligarchs.Then,
in the Siloviki camp, of the oligarchs who come from the security services and so on,
we have the example of Igor Sechin, who is now president of the Russian oil company
Rosneft but who in the 1980s was a Soviet spy in Mozambique, although officially his
activity was listed as a mere "translator". Putin understood early on that having full
control of the security services and gaining the absolute loyalty of their
leaders was a key step in consolidating his power. So he enriched them beyond measure.
And then finally in the outsider group we have a number of men who managed to
save themselves from Putin's purge of oligarchs following the Yeltsin era.
One of them is Vladimir Potanin, who benefited from Yeltsin's loan-for-share scheme to amass a
fortune that totals $16.5 billion today. Potanin owns 30% of Norilsk Nickel, a major
mining company, as well as stakes in insurance, media, oil, and a long list of other companies.
As you can see, in Russia fortunes are not built by entrepreneurial ingenuity but above
all by contact with the Kremlin. And take note because we are not talking about small change.
The great Russian billionaires accumulate wealth valued between $400 and $800
billion [Host: emphasize BILLION] dollars. The problem is that this model makes it
possible to operate basic companies but not to develop overly complex businesses.
And that is exactly one of Russia's biggest problems:
the country has been unable to be anything more than a mere exporter of natural resources. And
then corruption stifles any possible evolution. This is what explains why Russia is one of the
most unequal and least prosperous countries. Of course, the incentive for the great
Russian oligarchs is to show unwavering support to the Kremlin,
to live the high life and become ambassadors of Moscow in the richest places in the world.
Of course, right now the sanctions are hitting them hard.
You see, hitting the big oligarchs is tantamount to hitting the Russian State.
That is why the allies have targeted them. They are also hoping that sufficient pressure
might even provoke a shuffling of chairs in Moscow. After all, it is expected that
no one will want to lose their status. All this explains why many countries are
sanctioning the oligarchs even more vigorously than other Russian institutions. Check it out:
At the moment, and as we told you in a past Patreon bulletin,
Russian oligarchs are seeking refuge in places like Dubai. When it comes down to it,
they are perhaps the ones who trust Putin the least.
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We’ll leave you the link in the description. But now, it's your turn: do you think sanctions
will lead the oligarchs to betray Putin? What do you think of this sort of clique
mercantilism that rules Russia? Should Western governments relentlessly pursue Russian oligarchs?
Leave us your impressions below. And now if you found this video interesting don't forget to
like and subscribe to VisualPolitik. All the best and see you next time.