reflections

Nov 30, 2007 | 02:58 GMT

5 mins read

Geopolitical Diary: The Kremlin's Latest Power Struggle

It can be difficult to separate the important from unimportant on any given day. Reflections mean to do exactly that — by thinking about what happened today, we can consider what might happen tomorrow.
Russian Deputy Prime Minister and Finance Minster Alexei Kudrin railed against the arrest of one of his key lieutenants Nov. 29, shining a thin ray of light into the murky world of Russian politics. Delving into Kremlin politics is a bit like predicting the future using chicken entrails: you can't see everything at once, and even if you get it right, it's kind of gross. Power struggles are common in the world of politics — doubly so when the system is an authoritarian one like Russia's. At the center of the Kremlin storm are none other than the right and left hand of Russian President Vladimir Putin: Igor Sechin and Vladislav Surkov. The two men have been Putin's confidants and enforcers for years. With Putin, they form the core of true power in Moscow. And the two despise each other. For most of the past five years they have been circling each other via their power bases — state oil firm Rosneft for Sechin, state natural gas firm Gazprom for Surkov — and attempting to strengthen their respective firms, whether at each other's expense or not. Yukos has been the largest casualty of this battle. But in recent weeks the rhetoric and sneaky moves have given way to a relative quietude. Putin has dictated that the elections — Duma in December, presidential in March — are not to be interrupted, and so the two have put their larger battle on hold. Of course, they have not stopped maneuvering. They have just suspended particularly loud battles, and Sechin in particular has decided to shift his sights to high-profile individuals who are standing in his way. Rosneft's rivalry with Gazprom has landed the company in a dangerous financial situation. The company has about $9 billion of debt, nearly all of which is due within the next few months. Rosneft accumulated the debt during the battle to steal away pieces of Yukos before Gazprom bought them, and is now in financial trouble. Government taxes on oil extraction are designed to shuffle the windfall from high prices to the government, so even seeing oil prices north of $90 is not granting Rosneft appreciable financial help. The pressure is so heavy that Rosneft is now considering selling most of the former Yukos assets, but the only firms with the financial wherewithal to bid for them are either Gazprom-friendly, or Gazprom itself. Instead, Sechin wants to tap into Russia's $158 billion oil stabilization fund, the pool into which Russia's excess oil revenues are held for a rainy day, to take care of the debt. To Sechin this makes perfect sense: Rosneft is a state-owned company, and the stabilization fund exists because of surplus oil revenues. But Deputy Prime Minister and Finance Minister Alexei Kudrin, who oversees the fund, does not agree with Sechin's logic. Kudrin is a technocrat who Putin trusts to balance the books. Though he is personally closer to those within the Gazprom clan, he has not allowed this to sway him on important financial decisions. He truly is a dispassionate accountant who believes in strict controls on government spending. That dispassion is directly responsible for the solid financial recovery of the Russian government after the bankruptcy of the 1990s. Now Sechin is striking out at Kudrin by picking off his closest advisers. In an obvious move against Kudrin, Sechin had Vice Minister of Finance Sergei Storchak and his two associates arrested Oct. 16 on charges of trying to divert $43.4 million from public funds. Kudrin attempted to mitigate damage to his team Nov. 29 by saying that "the arrest of Russian Deputy Finance Minister Sergei Storchak is having adverse impacts on the Finance Ministry, since only Storchak has operative information on a whole number of matters." Kudrin went on to note that he "is filing a petition seeking Storchak's release and hoped for an answer within the next few days. The charges will also be appealed." Surkov's faction holds the upper hand in the Russian justice system, most notably in the chief prosecutor's office, but that does not mean that this attack is about to be sewn up. That will simply force Sechin to rely on another of his power bases, the FSB, to press the charges. And Kudrin is not Sechin's only target. The other target, oligarch Oleg Deripaska, heads the world's largest aluminum giant, Rusal. Deripaska has long been close to Surkov — which has been critical to his ability to grow his firm in terms of size and sector reach. A recent branching out led to Rusal buying out Russneft, an oil firm that Sechin targeted after destroying its oligarchic owner and was working to fold into Rosneft's portfolio when Deripaska made his move. Sechin's response to Deripaska's actions was as sudden as it was vitriolic. Though most of this fight remains behind the scenes, Sechin is moving heaven and earth in the Kremlin to declare Rusal's acquisition of Russneft invalid and get the choice asset into Rosneft's hands. None of this sort of action is ultimately sustainable. Past power struggles have led to the emasculation of entire power-center groups, from oligarchic alliances such as the Yeltsin family to nationalist groups like the siloviki. Now Putin's cadre is all that is left within the Kremlin's walls. Putin can only allow this to go so far — particularly now that it is threatening two personalities key to his domestic and international policies — but neither can he blithely cut off his left "hand."

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