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June 02, 2005

Russia: After Khodorkovskii, What Next For Oligarchs?

by Claire Bigg

Mikhail Khodorkovskii

The stiff jail sentence handed to Russian oil magnate Mikhail Khodorkovskii on 31 May has once again focused the world’s attention on the group of super-rich and powerful Russians known as the "oligarchs.” President Vladimir Putin this week seems to have scored a crucial victory in his campaign to wrest the fortunes back from those who grabbed Russia’s choice assets in the 1990s. With Khodorkovskii fallen from grace, what fate awaits the remaining oligarchs in Putin’s Russia?
Moscow, 2 June 2005 (RFE/RL) -- Just a few years ago, Mikhail Khodorkovskii was Russia’s richest man, ruling over a huge oil empire hailed by foreign investors as one of the country’s best-run companies.

Today, the founder of Yukos sits in jail, his company dismantled, his ambitions crushed, and his future uncertain. On 30 June his drawn-out trial for fraud and tax evasion ended with a guilty verdict that is likely to keep him behind bars for another 7 and 1/2 years.

Meanwhile other oligarchs -- a dozen shrewd businessmen who took control of Russia’s riches in the 1990s through shady privatizations deals -- quietly sit on their billions of dollars.

So what has Khodorkovskii done so wrong?

To most observers, the answer is simple: The oil magnate meddled in politics, financing opposition parties and aggressively lobbying the State Duma to pass bills he favored.


For Sergei Markov, the director of the Institute for Political Studies, Khodorkovskii simply crossed the line drawn by Putin.

“When Vladimir Putin came to power, he immediately explained to the oligarchs the rules of the game: 'You do business, make money, develop the country’s economy, but don’t get involved in politics.' The government struck all those who continued their political activities,” Markov said.

Khodorkovskii is not the only one to have aroused the Kremlin’s wrath by interfering in political matters.

Media baron Vladimir Gusinskii was the first oligarch to fall out with Putin over the distinctly negative coverage of the president by his string of media outlets.

In June 2000, Gusinskii was arrested on charges of embezzlement and his media conglomerate was taken over by Gazprom, Russia’s state-run gas monopoly. Today, Gusinskii lives in Tel Aviv.

The second oligarch to come under the Kremlin’s fire was Boris Berezovskii, who openly slammed Putin for his slow response to the 2000 Kursk submarine disaster.

Berezovskii won a seat in the Duma in 1999, but ruthless pressure from the authorities led him to resign and flee Russia six months later. He has since been charged with fraud and money laundering, and lives in Britain and France.

Ilya Ponomarev is an analyst at the Institute of Globalization Studies. He says the beginning of the end for the oligarchs can also be linked to what he calls their "midlife crisis."

“They [oligarchs] all belong to the same generation. And they all have reached a stage called ‘midlife crisis’ at roughly the same time, which coincided with the beginning of Putin’s rule. They all faced a personal choice about what to do next. Some of them wanted to go in another direction, like Khodorkovskii, Berezovskii, and Gusinskii, who decided they had achieved everything they desired in business and now wanted to influence Russia’s fate,” Ponomarev said.

Like a majority of observers, Ponomarev says those three oligarchs have paid for their attempts to play a greater role in determining Russia’s future.

In the aftermath of Khodorkovskii’s sentence, Russia’s remaining oligarchs have kept a low profile, refraining from public comments.

Oleg Deripaska -- Russia’s youngest oligarch, who made his fortune in aluminum -- is seen to be in the safest position.

He is married to the daughter of the man who served as chief of staff under former President Boris Yeltsin, and his father-in-law is married to Yeltsin's daughter. He therefore enjoys the powerful protection of Yeltsin and his close relatives, who Russians refer to as the "Family."

Roman Abramovich, another prominent oil and media tycoon, also has relatively friendly ties with the Family and the Putin administration.

He was among those who financed Putin’s election and is cautious in his investments. He has invested millions of dollars into the remote Siberian region of Chukotka -- where he is governor -- and in 2003 bought one of Britain's leading football club, Chelsea, in a deal exceeding $300 million.

Analysts do not expect another trial such as the one against Khodorkovskii, which has badly tarnished Putin’s image abroad.

But Ponomarev does not exclude that the authorities will eventually wring key assets back from oligarchs even if they steer clear of politics.

“I think property will simply be taken away quietly. Gradually they [Russian authorities] will take Norilsk Nickel away from [Vladimir] Potanin, just as they are now stripping [Bashkir President Murtaza] Rakhimov of his oil refinery complex. Then other oligarchs will follow. I think the last to survive will be Abramovich and Deripaska, because they are integrated in the Family,” Ponomarev said.

Potanin is famous for devising the infamous loans-for-shares scheme, in which oligarchs funded Yeltsin’s reelection in exchange for ownership in state industries at bargain prices. Potanin has a controlling share in Norilsk Nickel, the world's biggest nickel producer.
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