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reflections

Dec 20, 2013 | 00:23 GMT

5 mins read

Russia: The President and the Oligarch

(Stratfor)
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.

Jailed Russian oligarch Mikhail Khodorkovsky will soon be pardoned, Russian President Vladimir Putin said Dec. 19 in an unexpected comment to journalists after a news conference. Putin's decision to finally release Khodorkovsky — and how he announced it — is proof that the era of oligarch rule in Russia is over.

Khodorkovsky was one of Russia's wealthiest men in the mid-1990s and early 2000s before going to jail for embezzlement, fraud and money laundering. Khodorkovsky rose to power in the 1990s, when three distinct political factions within Russia emerged from the fall of the Soviet Union: then-President Boris Yeltsin's Family, the security services' siloviki and the oligarchs. These factions were scrambling for wealth, power and assets among the post-Soviet chaos of the early 1990s. The oligarchs, like Khodorkovsky, were a class of enormously wealthy businessmen who used their political or personal connections to build empires out of the ruins of the Soviet system.

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Khodorkovsky began trading products such as computers in the late 1980s, before the fall of the Soviet Union, when consumer goods were still hard (if not impossible) to get. Using his growing wealth from his import-export business, he set up a bank, Menatep — one of Russia's first privately owned banks — in 1989. Khodorkovsky was childhood friends with the son of the head of the Soviet State Bank and thus had access to critical connections and guidance on organization.

Private banking was still not fully regulated — nor did the Russian people, politicians or bureaucrats quite understand the concept. This allowed many oligarchs to acquire assets or political positions amid the confusion. Khodorkovsky acquired both. He became an energy investor for the government and then rose to the rank of deputy energy minister. His government connections and private banking system allowed him to purchase shares of the major Russian oil firm, Yukos, at an incredibly low price in 1995. Essentially, this put Russia's most prized asset — oil, the sales of which accounted for half of the government budget then, as it does now — in the hands of an oligarch.

It also gave Khodorkovsky the strength to politically influence Russia at a time when Yeltsin's Family and the siloviki could not counter him. This lasted until Putin came to power and consolidated the siloviki and many within the liberal reformist camp under his control.

Khodorkovsky funded anti-Putin political movements and went on television with Putin and called his government criminals. What Khodorkovsky missed was that Putin was skillful enough to gain the abilities necessary to take down the one oligarch who was seen as too large to fall. Putin famously said, "I have eaten more dirt than I need from that man," and ordered Khodorkovsky's arrest, leaving the Russian state to take his energy assets. At the time, the majority of Russian people also said that Khodorkovsky was a criminal and supported the state's decision to take over big business in Russia. This was a warning to Russia's oligarch class that the state was back in control after more than a decade of unruliness.

The Russian oligarch class now consists of a few survivors who understand that their empires exist only with Putin's permission. This was seen in 2009, when Putin ordered the remaining oligarchs to dump large parts of their personal fortunes into the Russian economy in order to keep it from falling amid the global recession. The remainder of big business in Russia is now either directly state owned or controlled by a Putin loyalist, likely from the security services.

There are many reasons for Putin's decision to release Khodorkovsky, though he is scheduled for release from prison anyway in eight months. First, the Kremlin is currently working with the remaining oligarchs (who are mostly involved in the metals sector) to shape and bolster the Russian economy, which is stagnating after years of robust growth. These oligarchs have been wary of working closely with the Kremlin, knowing that if they displease Putin they could share Khodorkovsky's fate. Second, many foreign investors — particularly from the West — have been wary of doing business in Russia because of the Kremlin's targeting of Khodorkovsky and other businessmen. The Kremlin is trying to signal to both audiences that the era of such tactics has ended.

Third, in allowing Khodorkovsky to be released early, Putin is undermining Khodorkovsky's ability to rally his political supporters against Putin for sentencing him to 10 years in prison. The Kremlin also does not want Khodorkovsky and others seen as political prisoners in Russia to attract attention when Russia hosts the Winter Olympics in Sochi in February. Thus, a general amnesty to many political prisoners will be granted soon. Khodorkovsky is not being released under the general amnesty, as he does not qualify; this will be a direct pardon from Putin himself.

The way Putin publicized this decision was critical to the Kremlin's message that the oligarch class is essentially of no concern to the government any longer. During Putin's annual question-and-answer conference with journalists, which lasted four hours, Khodorkovsky was not mentioned among the critical topics, which included the Russian economy, the demonstrations in Ukraine and souring relations with the United States. After the press conference, a journalist asked Putin about Khodorkovsky's future, and Putin nonchalantly answered that he recently received a letter from Khodorkovsky, saying, "He is citing humanitarian circumstances, his mother is ill, and I think this is grounds for making a decision, and a decree about his pardon will be signed in the nearest future."

Putin was reshaping public perception, portraying Khodorkovsky as groveling and treating his release as an issue that was not important enough to mention during his press conference. This is Putin's way of showing that the Kremlin is not concerned about the oligarch class that shaped Russia in the 1990s and that the state is charting Russia's course.

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