Special Report: Russia's Tectonic Shift
stratfor.biz
Part I: Putin To Follow Footsteps of Peter the Great?
Oct 31, 2003
Summary
Russia is at a crossroads, with President Vladimir Putin moving to strengthen his control and take the country in a new, pro-Western direction. In this two-part special report, Stratfor will examine the shift in Russia's geopolitical course and whether Putin will accomplish his goals. Part I analyzes Putin's battle with the country's oligarchs and how this fits into his larger revival strategy.
Analysis
Several important developments have come out of Moscow in recent days: YukosSibneft executives Mikhail Khodorkovsky and Platon Lebedev are both in jail in Moscow pending further investigation for alleged crimes. The Russian General Prosecutor's Office on Oct. 30 seized 44 percent of Yukos shares belonging to Khodorkovsky and Lebedev via their offshore firms. Alexander Voloshin, head of the presidential administration, has lost his post. And Defense Minister Sergei Ivanov has said that Russia and the United States are neither friends nor enemies, criticizing Washington for its stance on Chechen rebels.
These incidents shed light on the major behind-the-scenes preparations Russian President Vladimir Putin and his associates are carrying out in order to once again dramatically change Russia and its position in the world.
Out With the Old Guard
Putin inherited a weak Russia from President Boris Yeltsin in 2000, and the country has continued on a downward spiral. Putin did not want to preside over a slowly disintegrating, dying nation; he wanted to become the strong president of a strong country. He knew that he could not work with the old gang of politicians and oligarchs with whom Yeltsin associated and threw drinking parties, but he could not purge them quickly for fear of being isolated and crushed. On the surface, Putin appeared to be working with Yeltsin's cronies, while in reality he was gradually replacing them with loyalists who he believed shared his dreams of reviving Russia.
Many of Putin's associates, like the president himself, began their careers in the KGB, but his circle also includes a number of St. Petersburg liberals from intellectual and entrepreneurial circles. A majority of Yeltsin's associates, now known as oligarchs, came from the Soviet era and state elite; others were part of the shadow economy. However, it is not their KGB past that makes Putin's people so different from other members of the post-Soviet elite. Several high-ranking KGB generals served Yeltsin, and some of them still serve the oligarchs; former Soviet Georgia KGB head Eduard Shevardnadze is now the president of Georgia, and former USSR KGB head Heidar Aliyev just handed over his presidency in Azerbaijan to his son.
The real difference between Putin's circle and those who remain from Yeltsin's days in office is that the former are nation-minded, or state-minded, whereas the latter for the most part are not. One who is nation-minded puts his or her nation and its well being first and foremost. In the United States, many take for granted that President George W. Bush and other officials care for the country; this has not been the case in Russia, where a majority of officials have shown a regard for their own pocketbooks and the interests of oligarchs they serve -- who also are a source of money -- above all else.
Putin decided to change this, but he wisely opted for a gradual shift, which will help to protect his presidency from his powerful enemies. Until now, he has had to agree to continue with the diarchy system introduced under Yeltsin. The Russian diarchy comprised a joint rule between the formal top power (the president) and the oligarchs, whose real power over Russia rivals and sometimes exceeds that of the president.
Putin has moved in the past to revive Russia, but powerful oligarchs and government officials aligned with them did not care about the country, often plundering its riches. A conflict was inevitable. To win, Putin has chosen to temporarily ally with the Yeltsin Family -- the group of oligarchs and politicians that is collectively the most powerful force in Russia -- in order to attack other oligarchs. The first in Putin's sights are the ones he feels have plundered Russia the most seriously and betrayed its national interests.
This tactic worked fine until only recently. Putin forced Vladimir Gusinsky and several other oligarchs into exile, thus depriving them of much of their political and economic power. He even attacked and exiled Boris Berezovsky, the former kingmaker and head of the Family, the most powerful oligarchic clan. Putin used a power struggle within the Family to his advantage, and the clan's new leaders -- Roman Abramovich and Alexander Voloshin -- helped him push Berezovsky away.
Visions of a New Russia
Putin wanted a strong Russia, but the question was which path it would follow: its own, that of the West or that of the East? Putin chose to follow the West. The Russian leader admires the West; he is impressed by its undisputed leadership in the modern world. Encircled by like-minded people, Putin wants Russia to model the Western patterns of market economy, capitalism and the integration of technology, though with some adjustments to reflect Russian specifics. Changing and reviving Russia first means that the Russian economy must be strengthened.
Ideally, Putin wishes he could rely on national capital from powerful business leaders who care not only for their own enrichment but that of the nation as well. Putin believes, however, that those with enough money to make a difference in Russia are all oligarchs and ultimately do not care for their country.
This belief led to his decision to rely on Western big business to help revive Russia by making major investments and introducing new technology into the country. Western big capital, attracted to Russia as the last potentially lucrative market that is still largely untapped, sees a potential profit. Western business wants two things in Russia: major, dominating access to natural wealth, such as oil and gas; and a dominant say in the Russian economy. Seeing no alternative, Putin has decided to agree to both.
However, to balance Western influence, Putin wants the state to play a major role in the Russian economy. In his mind, many Russians who live in poverty cannot physically survive the demands of a liberal market. For Putin, the Russian revival will be secured by forming joint Russian-Western control over resources and the economy. In the meantime, Putin hopes the number of nation-minded Russian businessmen will grow.
Putin knows that letting Western businesses play a dominant role in the Russian economy, including in its strategic oil and gas fields, will multiply the country's risks of becoming too dependent upon the West. He also knows that economic dependence often involves political and security dependencies as well -- he has watched it happen to scores of other nations, including former communist and Third World states that have become very dependent upon the United States. Still, he is willing to take this risk: Putin believes that, while cooperating with foreign corporations, the Russian state will be able to regulate relations in a way that will preclude foreigners from making Russia too dependent.
Putin the Great?
Putin has a successful example to follow: the 18th century reforms of Peter the Great, whose portrait hangs in his office. Peter gave Westerners command positions in the new Russian regular armed forces and economy. Those with a hand in the economy enjoyed major concessions in several important economic fields, yet Peter managed to tread a careful path and did not subject Russia to foreign power. Also, he crushed the boyars, the oligarchs of his day. As a result, Peter revived and expanded Russia enormously, introducing it into the geopolitical dynamic of the time. Putin hopes to repeat the performance.
In order to do that, however, he must transform Russia not only internally but also in the area of foreign relations. Although he has chosen to follow a Western path, Putin still wants Russia to be a truly independent power. He sees a chance for the country to balance carefully between the United States and its geopolitical rivals, Europe and China. By welcoming U.S. investment and some degree of influence into the state's economy, Putin is trying to form closer relations with Washington, but on more equal footing than the Bush administration seems to favor. Putin wants to make sure Russia is able to act separately from Washington if it does not treat Russia as a respected ally.
Putin's vision for Russia, especially in foreign relations, has evolved somewhat since 2000. The plan outlined above is where he stands now. His agenda is not cut in stone, and some changes are possible, but a strategic course is clear: reaching toward a strong, Westernized Russia with an independent policy.
A Major Shift: Attacking the Oligarchs as a Class
Having placed like-minded people in strategic positions, Putin had decided by July 2003 that the time had come to change the whole model on which Russia operates: He has decided to put an end to sharing power with oligarchs and make himself the supreme leader of the country.
Consistent with his usual tactics of taking out enemies one by one, Putin chose a single oligarch to target: the richest and single most powerful man in Russia, Mikhail Khodorkovsky. Stratfor's sources in the presidential administration say that Putin's targeting of Khodorkovsky did not alarm the Family clan at first; some members were even glad to see the Yukos head pursued, likely because of individual business conflicts with him. Such considerations likely prompted initial support from presidential administration head Alexander Voloshin, who also a top member of the Family, for the move -- at least provided that Putin would not go so far as to sanction Khodorkovsky's arrest but rather would seek a compromise.
Roman Abramovich apparently was the only Family member who realized that the attack on Khodorkovsky was a prelude to an attack on oligarchs in general as a ruling class. The tycoon quickly sold all his major assets in Russia and launched an attempt, thus far successful, to insert himself into the Western business elite by paying hundreds of millions of dollars to acquire lucrative Western sports clubs.
Putin initially hoped that Khodorkovsky would surrender and abandon his own presidential ambitions or other attempts to compete for political power. Emboldened by powerful support at home and abroad, however, Khodorkovsky overestimated his abilities and intensified his campaign against Putin, financing opposition candidates for forthcoming Duma elections and promoting anti-Putin publications in major U.S. newspapers -- including The Wall Street Journal and New York Times -- in which Putin was called the "bandit from the Kremlin," as various Stratfor sources in the Russian elite have confirmed.
When it became obvious that Khodorkovsky was not going to back down easily, it became equally obvious that the balance of power in Russia was hanging on the ropes: Putin either would respond strongly or he would have to tacitly admit that power in Russia still belonged to the oligarchs.
Putin opted for attack. He must have known that making a decisive move like sanctioning and detaining Khodorkovsky would anger the Family, whose members initially thought that the president would not dare go so far. They, first and foremost Voloshin, made a mistake: Putin pressed forward with Khodorkovsky's arrest and publicly stated he would not allow Russian big business or foreign friends to interfere with the prosecution of Khodorkovsky's case. In fact, sources close to Putin in the Russian Security Council say that the president knew his move would anger the Family and was pleased to be proven right.
Taking on the Yeltsin Family
Putin now sees the balance of power between himself and the Yeltsin Family as tilted in his favor. The reason for his confidence is that -- thanks to his behind-the-scenes efforts and his public attack against Khodorkovsky -- the oligarchic community is politically split and no longer represents a united front against the president. Another factor that will prevent many oligarchs from standing up to Putin is his policy of dividing oligarchs into "good" and "bad" camps, according to his agenda. The good ones are those who will not mess with Putin's supremacy in politics and will agree to merge with Western corporations as junior partners, in keeping with Putin's plan for the Russian economy.
These oligarchs will be allowed to stay in Russia and to profit from their businesses, but they no longer will be dominant players in the country or its economy. Alfa Group chief Mikhail Friedman, who recently merged his TNK oil company with BP at Putin's advice, is the most prominent among them.
Even more significantly for Putin, the Family clan is also split internally. Abramovich realized Putin's intentions early on and is now enjoying a luxurious life abroad -- not as an exile but as a "good oligarch." The new leader of the clan, Oleg Deripaska, an aluminum kingpin, has agreed to play by Putin's rules and not dispute his political authority, so the clan can no longer count on him to put up a fight against Putin's anti-oligarch campaign.
That leaves the Family with only one champion: Voloshin, who until recently was the head of Putin's administration. Stratfor sources in the administration have confirmed the rumor within the Russian media that, seeking to halt Putin's war against the oligarchs, Voloshin rushed to the president on Oct. 26 - a day after Khodorkovsky's arrest -- threatening to resign if Putin did not back down. Putin said that he would respect the resignation request but pressured Voloshin, making him wait several days before his resignation would be announced, sources say.
Voloshin chose a prime moment to threaten resignation: If he resigned immediately, it would be linked in the public's mind to Khodorkovsky's arrest and thus would increase the chances that Putin's foes in and outside of Russia would accuse him of destabilizing the country.
Putin outmaneuvered Voloshin, however, by delaying the public announcement until Oct. 30. The event is still tied directly to the Khodorkovsky case in the public mind; that is why Putin urgently summoned top foreign investors to the Kremlin and personally assured them that they will only benefit from the current developments, since he is clearing the way for them to work freely in the Russian market without interference from the oligarchs, according to Kremlin sources who attended the meeting.
For Putin, an even bigger success than the defeat of Khodorkovsky was his replacement of Voloshin with Dmitry Medvedev, one of his associates from liberal St. Petersburg circles. The next likely target is Prime Minister Mikhail Kasyanov, another leader of the Family clan.
Taking Voloshin out of politics means not only that Putin has openly taken on the most powerful oligarchic clan, but also that the clan most likely will be defeated. Again, Putin will not deprive clan members of their property, but rather will push them into a subordinate role in Russia both politically and economically.
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