The Russian Oligarchs
There is to be sure, nothing pretty about a clique of businessmen
dominating the Russian state. But although they make the juiciest of political
targets, the oligarchs are more a symptom than a disease. Far from being rogues who have hijacked an
otherwise benign market transformation, the oligarchs are merely the species
that has most perfectly adapted to the Darwinian rigours of
Table of Contents
Vladimir Potanin 8
Mikhail Fridman 10
Work Cited 14
The financial power of the oligarchs
is said to have evolved out of the privatization of the national corporations
that were once the mainstay of the Soviet economy. Key areas dominated by the oligarchs are
banking, oil and gas, metals and the media.
This financial power has also helped to gain the oligarchs indispensable
political influence. The majority of
financial wealth and political power possessed by the oligarchs was gained in
1995 and 1996 when the Russian government, short on cash, implemented a
privatization scheme termed loans-for-shares.
This was a bizarre program that transferred control of some of
Credited coining the term oligarch in 1996 and by far the most visible of the oligarchs, Boris Berezovsky is an educated mathematician. His rise to economic prominence began when he became director of LogoVAZ in 1989. LogoVAZ was a shady company that produced Ladas and through a system of dummy corporations allowed Berezovsky to pocket money from the sale of cars that on paper did not exist. Eventually, Berezovsky bought LogoVAZ from the state because it was seen as a money losing operation (McCauley, “Bandits Gangsters and the Mafia,” 2001, p. 78).
In 1991 Berezovsky’s
LogoVAZ, through a connection at the ministry of
foreign trade, was the green light to export oil and other mineral resources to
the West (McCauley, p. 79). His venture
into the export markets made him a millionaire almost over night. He continued the expansion of his empire
during the loans for shares program in 1995 by gaining control of Sibneft (oil) and later Lukoil
(oil). With his large stake in Lukoil and his persuasive abilities he was able to use the
companies pension fund to buy a controlling share in the television station ORT
and the former state owned newspaper, Izvestia
(Russia’s New Oligarchs, 2000, http://news.bbc.co.uk/2/hi/
business/692297.stm). This was added to Berezovsky’s 75% stake in
Some of Berezovsky’s
early political success has been linked to his close relationship with
Yeltsin’s daughter, Tatyana Dychenko;
Yeltsin’s chief of staff, Valentin Yumashev; and former Prime Minister, Viktor Chernomyrdin (Matloff, “Russia oligarchs: poorer but…” p. 5). Now considered to be the wealthiest man in
got his start when he was appointed to organize the cultural activities for the
Goodwill Games in 1986. This had the
benefit of introducing him to then owner of CNN, Ted Turner. The contacts provided by knowing Mr. Turner
allowed Gusinsky to partner with an American law firm
and establish a consulting firm called Most that specialized in helping
American firms establish investments within
Included in Gusinsky’s portfolio is a large media empire composed of Itogi magazine, Sevodnya
newspaper, the NTV television station, and Echo Moscvi
radio network. However, Gusinsky has recently found himself running from the
law. In 2001, like Berezovsky,
he was exiled into
Khodorkovsky is one of the younger oligarchs at the
age of 40. Educated as a chemist at the
Mendeleev institute in
vast holdings also include: a controlling interesting in
Vladimir Potanin was raised amongst the Russian nomenklatura
and unlike so many others in
In 1995, Potanin was credited with the design of the
loans-for-shares program which gave the Russian government badly needed funds
in return for allowing state corporations to be privatized and sold off for a
fraction of their real market worth.
This in conjunction with the support given to Boris Yeltsin’s election
campaign in 1996 gave Potanin and fellow oligarchs
control over the Russian economy and considerable influence within the government. His early acquisitions included the Russian
telephone system Svyazinvest, the oil company Sidanko, and the mining company Norilsk Nickel. Later he was able to acquire media outlets
such as Izyvestiya and Komsomolskaya Pravda and
Russian Television (RTR). His media
outlets allowed him to return fire at other oligarchs who accused him of being
to close to the government as a result of sweet deals he received. He also owns Sidanko
oil, Perm Motors, Northwest shipping,
Like other oligarchs, Potanin has fallen on hard times. His Uneximbank had its state banking licence pulled in mid-1999. The reason for pulling the licence was that the international community including the International Monetary Fund (IMF) where putting great pressure on the government to intervene in what was becoming a monetary nightmare following the 1998 economic crisis. In the eyes of the international community Russian banks (owned by the oligarchs) were too slow at restructuring and too busy trying to protect their own fortunes (Stratfor, http://www.stratfor.info/Story.neo? storyId=102171). Then in 2000 Potanin’s Norilsk Nickel was put under investigation after a shady share-swap plan was implemented reducing the power held by foreign investors. In an attempt to “halt or ease up on the Nickel investigations” it was believed he offered to dissolve Mustcom (the consortium of shareholders in Svyaninvest communications) (Stratfor, http://www.stratfor.info/Story.neo?storyId=102536). This appeared to not be enough of a consession because in 2001 the case went to court where he own the first round, but he is now fighting an appeal (Hesseldahl, “Russian Gushers,”
http://www.forbes.com/2001/06/21/0621russianintro_print.html). The final outcome is not known at this time
however; Potanin is still the majority owner of
Born in the Ukraine Mikhail Fridman was an entrepreneur from an early age. He bought and sold just about anything that he knew would make him money. Soon enough he established the Alfa Group. The Alfa Group oversees a range of operations from oil to manufacturing to importing and exporting and banking (Alfa-Bank). His biggest achievement was when he received a licence to export oil in the late 1980s. This was very profitable because Soviet domestic oil prices were a fraction of world oil prices so making big profits was very easy (McCauley, p. 79). His income from the export of oil was also all in foreign currencies such as the US dollar, which he held in Western bank accounts for future aspirations. Like most oligarchs he was a close associate of Yeltsin’s and helped finance his 1996 election campaign.
In the late 1990s Fridman’s Tyumen Oil Company mostly located in the Samotlor oil fields of
Most recently the young billionaire has diversified his portfolio. In addition to his oil and banking interests he also owns a chain of grocery stores, construction companies, corporate farms, vast amounts of real estate and within the last year he has ventured into the communications and internet market by buying Golden Telecom and a stake in Vimpelcom. Currently he is racked as the 68th richest man in the world with a net worth of $4.3 billion.
Since taking power in
1999 Vladimir Putin has set out to reverse the
“gangster free-for-all of the Yeltsin era” and implement a more transparent
economy (Forbes.com, http://www.forbes.com/ global/2003/0317/074_2.html). The
hope is to attract more foreign investment.
This plan of action has created a great deal of hostility mostly coming
from the oligarchs, some of which run businesses that are less than
admirable. Some of those that have felt
the heat the most are Berezovsky and Gusinsky who both now live in exile in
Although Putin has good intentions he finds his powers limited. With the market system barely 10 years old in
Putin’s main strategy has been to establish central control over the state and individual provinces to bring stability to the nation. This has the effect of slowing down privatization attempts but it may also bring the needed stability that foreign investors require before taking steps to invest. Only recently has this plan begun to bare fruit as in the case of BP investing $6.75 billion US into Tyumen Oil. This represents the largest single foreign direct investment in Russian history. Clearly he has an up hill struggle ahead of him. On one hand Putin must rid the county’s economy of corruption without alienating the West and on the other he must he must not alienate the oligarchs only to see them pull money out of Russian bank accounts and into offshore bank accounts.
The transition from
communist economy to that of a market driven one have proved sketchy in the
early going in Russia. The oligarchs who
have only emerged in the last dozen or so years no doubt control a great deal
of the economy but measures by Putin have seen their
direct political influence decline.
However, the oligarchs are more crafty then ever in their ability to get
the public masses behind them to meet their political motives via their vast
Clearly the oligarchs have learned fast to play the new game of
In most literature the oligarchs are viewed as the bad guys in the new Russian economy. However, it would appear that the real culprits are not the oligarchs themselves, but the circumstances that have produced them and allowed them to prosper. The Russian State “by choosing to surrender corporate assets to the oligarchs through the shares-for-loans, the cabinet created their economic might. By choosing to surrender the electoral process to the oligarchs in the 1996, the Kremlin created their political power” (Freeland, p. 18).
BBC News. “
Caryl, Christian. “Strange Bedfellows.” Newsweek. Volume 136, issue 14, pp. 35-38. October 2, 2000.
Economist. “Putin verses the oligarchs?” Volume 335, issue 8175, pp. 49-50. June 17, 2000.
Forbes Magazine. Forbes.com. From the internet site: forbes.com. Site last visited April 4, 2003.
Freeland, Chrystia. “The men who really rule
McCauley, Martin. “Bandits, Gangsters and Mafia.” Pearson Press, 2001: Great Britian.
Stratfor. Stratfor.com. From the internet site: www.stratfor.com. Site last updated April, 4, 2003. (various articles).