In Putin’s Russia, Oligarchs Don’t Matter as Much as They Used To

In Putin’s Russia, Oligarchs Don’t Matter as Much as They Used to

More than two decades ago in Moscow, I interviewed an oligarch who said that guys like him were passé. His name was Vladimir Potanin, and he had amassed a fortune from a failed banking business and industrial and mining operations acquired through Kremlin connections. Russia’s economy was then in disarray, and oligarchs were widely seen as looters.

“Everything is going to change,” he told me. “And the role of the oligarchs will be less.”

Well, no — and, of course, yes.

By which I mean: Some things didn’t change; many oligarchs continued harvesting riches in the decades following my 1998 meeting with Potanin. On the other hand, today’s oligarchs are far less important to the inner workings of Vladimir Putin’s Russia. And that truth is key to understanding the impact of sanctions against them, because most oligarchs — with, perhaps, one notable exception — just don’t matter as much as the grab-their-yachts crowd thinks.

Undermining Russia’s banking system, freezing its central bank reserves, cutting off its trade routes, (possibly) boycotting its energy exports and other such measures will inflict real financial pain on the country for its invasion of Ukraine. Denying oligarchs their yachts? Window dressing.

There’s symbolic value in grabbing oligarchs by their baubles. It has also focused important attention on tightening money laundering rules. But expropriating the possessions of rich expatriates or jet-setting titans is still a weak financial weapon against a country in which one man — Putin — shuffles oligarchs like cards in a deck.

Potanin’s billions piled up over the years as he continued mining nickel and became a high-profile trustee of the Solomon R. Guggenheim Foundation. His partners, Mikhail Prokhorov and Oleg Deripaska, kept getting rich, too. Prokhorov went on to buy the Brooklyn Nets. Deripaska steered past legal probes while becoming a middleman between the Russian government and Western dealmakers such as Paul Manafort.

But Putin’s ascent at the turn of the century gave all oligarchs a new taskmaster — one with a strong distaste for their independence and grifting. Some were exiled or imprisoned, while those willing to play by Putin’s rules (such as Potanin) were kept on his leash. All ceased being the power brokers they were in the 1990s.

There has been lots of unreliable speculation about Putin’s wealth, and conjecture that his personal finances might be torpedoed by freezing accounts of loyalists holding funds for him outside of Russia. Putin doesn’t need to stash funds offshore, though. Any time he needs money, he can just dip into state and private coffers in Russia.

There is at least one oligarch whose influence and activities matter more than others, however: Igor Sechin.

Sechin is the chairman and chief executive officer of Rosneft PJSC, Russia’s biggest oil producer. It’s safe to say that he didn’t originally get the job because of his expertise managing energy companies. Like Putin, Sechin is a former intelligence operative, and the president simply gave Rosneft to Sechin in 2004. Putin bulked up Rosneft by dethroning one-time oligarch Mikhail Khodorkovsky and folding the assets of his company, Yukos Oil, into Rosneft. He then imprisoned Khodorkovsky.

Sechin had earned Putin’s devotion, in part, by serving as a senior political aide to Putin in St. Petersburg and Moscow early in their careers. He’s the most senior member of the “siloviki,” a group of former security agents deeply loyal to Putin who wield substantial political and business power in Russia. Many Kremlinologists describe Sechin as the most powerful person in Russia after Putin.

So if you wanted to target an oligarch close to Putin, Sechin would be the one. The French government impounded Sechin’s mega-yacht, the Amore Vero, last week while it was anchored along the Riviera. But it’s unlikely that Putin cares about Sechin’s yacht or his bank accounts, even if Sechin does. They can find ways to make Sechin whole later on. There are other yachts.

The truly damaging sanctions against Putin, Sechin and Russia would be ones that go directly after their piggy bank — Rosneft itself. Energy companies are more central to a country’s economic well-being than a collection of yachts and private jets.

It’s all well and good that that the U.S. Justice Department has formed Task Force KleptoCapture to target Russian oligarchs and their enablers. Perhaps it was inevitable that, once Putin invaded Ukraine, Potanin would have to forfeit his relationship with the Guggenheim Foundation and its prestigious Manhattan museum. It all seems like pretty small stakes, however, in the context of war.

We may well be witnessing another end of yet another rich run for Russia’s oligarchs. But the public shouldn’t be distracted by any of that — and the government shouldn’t waste too many resources hunting them down. Real financial warfare requires focusing on much bigger targets.

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Timothy L. O'Brien is a senior columnist for Bloomberg Opinion.

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