How the Russian oligarchs got rich

By John Hyatt

In response to Russia’s invasion of Ukraine, the United States and its allies are trying to “strangle” Russian banks and companies as well as Russian oligarchs, with their brutal yachts and vast fortunes making us wonder: Who are called oligarchs and how? did they get rich?

Eliz Giuliano, a lecturer in political science at Columbia University in post-Soviet Russia, explains: “The oligarchs are extremely wealthy businessmen with political and social influence. , always”.

The classic definition of “oligarch” is politically influential, but the war in Ukraine shows that most Russian tycoons have little – if any – influence over Vladimir Putin.

The first Russian oligarchs created their fortunes in the 1990s, during the chaotic period that followed shortly after the collapse of the Soviet Union, with state assets being distributed to private bidders, often through dubious deals. At the time – when the market was liberalizing – wealthy or risky businessmen, as well as former officials, acquired large stakes in Russian oil and gas, metals and mining companies, railways and transportation, agricultural products and other key industries.

The next “generation” of oligarchs became rich by exploiting its ties to Vladimir Putin, who has ruled Russia – either as president or prime minister – since 2000. Putin both rewarded and “punished” the oligarchs by treating them and their business as pawns in his political chess games. Mikhail Khodorkovsky, Russia’s richest man at the time, was arrested in 2003 for tax offenses in favor of Putin’s political rival. Many of the current oligarchs are current or former Putin officials. Yuri Kovalchuk, a longtime friend and adviser to the Russian president, has gained a large stake in financial institutions and telecommunications companies thanks to his relationship with Putin.

The degree of “close” relationship of each oligarch with Putin may be different, but everyone, without exception, relies on the protection it provides them. “The structure of the Russian economy requires a number of situations to depend directly or indirectly on the state,” said Brian Taylor, a professor of political science at Syracuse University. The oligarchs “are not autonomous, economic agents who can resist the state authority or – at least – oppose it”.

The “sowing” of the Russian oligarchy fell on the territory of the newly formed Federation during the three years 1992-1994, the time of privatizations through coupons. As part of this program, the shares of about 15,000 state-owned companies passed into the hands of private individuals. The goal was – in theory – for the average Russian citizen to buy shares. In practice, entrepreneurs with the right connections acquired voucher packages, which were equivalent to large or majority participation in companies.

According to a study by the International Monetary Fund in 1999, with this program 2/3 of the shares that came into the possession of individuals ended up as associates and executives “from within”.

In 1995, the “share loan” program implemented by Russian President Boris Yeltsin “gave birth” to some of Russia’s richest oligarchs. In exchange for lending to the deficit-laden Russian government and financing Yeltsin’s campaign for a new term, some wealthy businessmen took shares in 12 state-owned energy and mining companies in the form of “leases”. The leases would be converted into property if Yeltsin won the election battle.

“If the communist Gennady Zyuganov had emerged victorious from the 1996 ballot, everyone expected him to take power – he would nationalize these companies and take back the shares they had been given,” said Daniel Traisman, a professor of political science at the University. in Los Angeles, a policy expert in post-Soviet Russia.

Under Yeltsin’s rule, Vladimir Potanin – one of the architects of the deal with the Russian leader – acquired a majority stake in Norilsk Nickel, the world’s largest producer of refined nickel. Other beneficiaries were Khodorkovsky and Roman Abramovich, who also entered the oil and gas market strongly.

Russia’s financial crisis in 1998 was a temporary setback for the oligarchs. Dozens of new tycoons emerged in the 2000s thanks to rising commodity prices and Russia’s economic integration into the West. In 2001, Russia counted 8 billionaires with a total value of $ 12.4 billion. Ten years later, Forbes identified 101 billionaires worth a total of $ 432.7 billion.

The oligarchs soon realized that their wealth depended on obedience to Putin. The example of Khodorkovsky, who spent ten years in prison, was typical. Another oligarch, Boris Berezovsky, who prospered under Yeltsin but criticized Putin, sold his shares in the Russian media and exiled himself.

The oligarchs got the message. Their own economic interests had to be equated with Putin’s political interests.

“If you were a Russian oligarch at the time and you opened CNN and saw a guy much richer, much smarter and much more powerful than you sitting in a cage, how would you react?” wonders Bill Browder, an American investor who lived in post-Soviet Russia. “So, one by one, they went to Putin and said, ‘What do we have to do to not get into that cage?'”

Some oligarchs had to sell their companies to the government. Roman Abramovich sold his stake in state-owned oil and gas company Sibneft to state-owned Gazprom in 2005. Michael Friedman and Victor Wexelberg, who became rich mainly through the acquisition of state-owned Tyumen Oil in 1997, sold their company to Ros Kremlin-owned group – in 2013.

As Putin consolidated his power and took control of other private enterprises, a new generation of oligarchs emerged: the “silovars”. [silovarchs]. The term was coined by Trisman, and is a compound word from “siloviki” and “oligarch”: the Russian word for the military elite and the elite of the country’s security forces in general. Many “silovars” have known Putin personally since he was in the KGB, or since he was their boss in St. Petersburg during his early post-Soviet political career.

“Silovars are business elites who have used their networks in the FSB (Russian Federal Security Service) or the military to amass enormous personal wealth,” wrote Stanislav Markus, a professor of international business at the University of South Carolina. “Since 2003, Putin’s friends and sympathizers have steadily risen to the level of the customer economy and held important positions in the executive branch.” “Silovars are” disproportionately represented on the boards of so-called state-owned companies and often hold large percentages in companies operating in industries where profitability is directly related to government favor, “he added.

The oligarchs see a bleak future ahead as the West retaliates against Putin’s Russia. As of March 14, the United States and its allies have imposed personal sanctions on 20 of them. It no longer seems to matter which camp they are on: Russia or Ukraine. The oligarchs who sold their Russian assets and transferred their holdings to the West are rushing to distance themselves from Putin and his regime. Many of them have already been sanctioned. The silversmiths – and those who own Russian assets – have not been protected by Putin. Instead, they see their fortunes shrinking, following the path of collapsing Russian markets.

Read also:

* “Civil” oligarchs in Russia – Who disagrees with Putin’s invasion

* The “manual” of Russian oligarchs to avoid sanctions

* Putin should leave – but how?