Russian Oligarchs Part 1: Putin's Endgame Against His Rivals

3 MINS READMay 26, 2009 | 12:02 GMT

Editor's Note: Stratfor is re-examining the role of the oligarch class in Russia, which dominated the country's business and politics following the fall of the Soviet Union. The most prominent member of that class was Mikhail Khodorkovsky, who has been in prison for nearly a decade following a standoff with Russian President Vladimir Putin. The president announced Dec. 19 that he will soon pardon Khodorkovsky, showing that the oligarch class is no longer a threat to Putin's power. First published in 2009, Part 1 of this series examines the oligarchs' rise to power, Part 2 discusses their confrontation with Putin, and Part 3 looks at Putin's successful efforts to co-opt or defeat the oligarchs.

The fall of the Soviet Union left chaos in its wake, and emerging from the turmoil were three principal factions — the siloviki, "The Family" and the oligarchs — all scrambling for the spoils. When Vladimir Putin became president in 1999, the St. Petersburg native consolidated the siloviki and Family inside the Kremlin and set his sights on the oligarchs, a new elite class of post-Soviet business rulers. Ten years on, in the midst of the global financial crisis, Putin's consolidation of Russian power is almost complete.

Following the collapse of the Soviet Union in 1991, Russia looked more like the American Wild West than a once-global Eurasian power. There were few clear rules and ample opportunities for financial and political gain — legal and otherwise — as well as a number of shrewd, larger-than-life personalities who could take advantage of those opportunities. Before Vladimir Putin took control of the government in 1999, an array of factions fought for control of the country's wealth, industries and politics, principal among them the siloviki, "The Family" and the oligarchs.

Siloviki is a term used in Russia for men of power. The faction consists of former KGB and security service personnel, most of whom are Russian nationalists who want to see the country return to its former glory. In the 1990s, the siloviki typically controlled the Foreign and Interior ministries and the KGB's successor, the Federal Security Service (FSB). Then-President Boris Yeltsin feared the group would overthrow him and, in a preemptive move, restructured the siloviki's engines — the FSB, military and other security institutions — thus keeping them out of real power until 1999.

Originally, members of The Family were Yeltsin's relatives and their close associates who infiltrated business and government in Russia, keeping Yeltsin in power. In the late 1990s, however, The Family was infiltrated by a new group called the "St. Petersburg Brigade," which consisted mainly of Western-leaning technocrats who kept foreign investment flowing into the country on Russia's terms. Typically, this faction controlled the Finance and Economic ministries. Among them were siloviki members who also were part of The Family and who brought Putin, who is from St. Petersburg, into power. This infiltration was the beginning of the end for The Family and marked the return of the siloviki.

While the siloviki and The Family fought it out in the 1990s, the oligarchs ruled most of Russia's vital business sectors, both private and state-controlled. Most of these individuals rose to power during the Yeltsin economic reforms, dubbed the "shock therapy," which led to confusion over who owned what following the Soviet collapse and to a mad scramble for the pieces. The oligarchs (named after the form of government in which only a few persons hold the reins of power) were a class unto themselves, a new elite group of post-Soviet business rulers, and the other two principal factions had to unite before they could counter them. This took place under Putin, who was president from 1999 to 2008 and is now prime minister. As part of his plan to consolidate Russia politically, economically and socially, Putin dismantled The Family, placing those he considered the most trusted and useful members directly under him in the Kremlin.

In 2004, Putin set his sights on the oligarchs, starting with strategic sectors that he proceeded to pick off one by one. By 2009, the Kremlin had begun its final push to destroy the once-powerful class of business rulers. With the help of the global financial crisis, the Kremlin is now putting an end to the two decades in which the oligarchs rose and created their empires. Upon completion, Putin's consolidation of Russian power, now in its last phase, will leave the prime minister and his factions unrivaled.

Next: The Evolution of a New Business Elite.

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