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Sep 23, 2008 | 20:55 GMT

5 mins read

Russia: Putin Pulls the Oligarchs' Strings

Dima Korotayev/Epsilon/Getty Images
Summary
More details have emerged about the role of Russian oligarchs in alleviating the country's financial crisis. The oligarchs' cooperation with Russian Prime Minister Vladimir Putin's order to dump money into Russia's financial system showed how much influence Putin wields over the country's wealthiest business owners. The extent of the oligarchs' participation and their treatment by the Kremlin reveal even more of the picture, and the oligarchs' use of overseas resources adds an international facet.
Western media have continued to say that the Russian economy is still spiraling downward, but this is untrue; the markets have rallied and are relatively stable, despite the global financial rollercoaster. But STRATFOR has been following the oligarchs' evolving role in ameliorating the Russian financial crisis, and as more details emerge, it becomes clearer how much control the Kremlin has over the billionaires' club and exactly how the government wants the oligarchs to use their wealth. As was apparent Sept. 19 when the Russian stock markets reopened, an unidentified mass of cash flowed into the markets after Russian Prime Minister Vladimir Putin held three days of meetings with Russia and Ukraine's richest and most powerful businessmen. These 50-plus billionaires poured their own cash into the system so the government would not have to, according to STRATFOR sources. This was kept out of the public eye but showed just how much control Putin has over the oligarchs. Moreover, it showed how different Russia's current oligarchs are from the oligarchs of 10 years ago, who would have balked at the Kremlin's authority. However, STRATFOR has learned more about the oligarchs' financial transactions. Sources involved in the situation have said the oligarchs are not just pouring spare cash into the Russian system; they are sending billions upon billions of dollars. Many oligarchs are putting between 10 and 30 percent of their wealth into the markets to prop up their own companies, along with other firms — which props up the system. Furthermore, the oligarchs are not being treated equally; some are being pressured into giving much larger portions of their wealth than others. Their treatment seems to depend on their relationships with Putin, their firm’s ability to handle the current crisis, and their personal goals of impressing the Kremlin for favors in the future. Most of this is taking place behind the scenes, though some relatively small transactions have appeared in the media. Metals giant Severstal's oligarch, Alexei Mordoshov, for instance, sunk $400 million into his own stocks publicly, but he is said to have discreetly spent four to five times that amount. Other oligarchs are picking up the pieces of companies or financial institutions that need to be bailed out, but not necessarily by the government. For example, Mikhail Prokhorov is finalizing the purchase of 50 percent of Russia's largest investment bank, Renaissance Capital. Prokhorov is an interesting case; he was recently burned after the conclusion of a years-long battle among oligarchs over nickel giant Norilsk which left him without a super-company but with a ton of extra cash — approximately $6 billion. Prokhorov had sworn after the Norilsk debacle to step back from any politically entrenched business moves in Russia, but not a month later he is suddenly sinking large amounts of cash into one of the most politically and financially unstable firms in the country — Renaissance Capital — most likely because of a nudge from the Kremlin, which is eyeing his idle cash. There have been reports that some oligarchs attempted to resist Putin's call for donations. In those cases, the oligarchs either quickly changed their minds once Putin spoke with them personally about the consequences of such defiance or their assets are already under attack in Russia and the Kremlin is simply seizing what it needs as if the oligarchs were donating it anyway. But there are two other things to note about Russia's wealthiest class pouring funds into the shaken firms and financial sector. The first is that not all the oligarchs opening their bank accounts to the Russian markets have companies listed on the stock exchanges. This means that either the Kremlin is ordering the money for specific purposes or the oligarchs are starting a whole new turf war by propping up their allies against each other. If the latter is true, then another round of oligarch wars is very possible. The second point is that much of the cash pouring in is from accounts and assets the oligarchs hold abroad. Most Russian oligarchs hold their billions in banks or institutions outside of Russia — mainly to keep the funds out of the Kremlin's control and independent of Putin's consolidation efforts. This has given the oligarchs an amount of personal autonomy in the past two decades. However, with a snap of Putin's fingers the oligarchs have now been convinced to use those foreign funds, bringing the cash back to the motherland. This proves just how much control Putin has over this class of billionaires and reveals an end to the oligarchic tradition that ruled Russia for most of the 1990s and well into the following decade. The oligarchs are no longer independent power brokers but simply another tool — and a very wealthy one at that — for Putin and the Kremlin. There is a larger issue on the horizon, though. The Kremlin and Putin have relied on the oligarchs as one of their secret weapons — a means to surge economically into other countries. And if these oligarchs just dumped a quarter of their net wealth back into Russia, this will cripple the oligarchs' abilities abroad for the time being. On the other hand, the Kremlin just saved itself from bailing out its own country's economy as many governments around the world are doing, meaning that the Kremlin will continue to have the freedom to meddle wherever it wants — just not as discreetly as the oligarchs could.

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