When Vladimir V. Putin returned to the Russian presidency in 2012,
one of the first messages he sent to his political elite, many of them
heads of banks and large corporations, was that the times had changed:
Owning assets outside Russia makes you too vulnerable to moves by
foreign governments, he told them. It is time to bring your wealth home.
Nearly
two years later, those words seem almost prophetic. After a week of
escalating tensions between Russia and the United States, it has become
clear that the conflict over Ukraine will move to the battlefield of
finance. Those same business titans are now contemplating the damage
that the crisis could inflict on Russia’s economy.
Twenty
years into the project of integrating Russia into Western institutions,
they now face the prospect that the process could slow, or even
reverse.
Financial
sanctions, which the United States and the European Union have
suggested they will impose if the conflict escalates, are intended to
test the cohesion of the political system. Mr. Putin demands complete
loyalty from those who are allowed to lead Russia’s business empires,
and he has made it clear that he will punish those who undermine him.
His tough stance in Crimea, meanwhile, has been enthusiastically
welcomed by the general public, including, insiders say, many of those
in business. No one is breaking ranks.
Still,
the prospect of losing access to Western finance is a frightening
thought for Russian business leaders, whose voice in foreign policy
decision-making is muted compared with the tight circle of Mr. Putin’s
former K.G.B. colleagues, for whom economic factors may be secondary.
Anxiety
over possible economic fallout has begun to radiate from business
circles, and some wondered whether Mr. Putin had been warned clearly
about the magnitude of the possible damage to the economy. One analyst
described their mind-set as one of “cognitive dissonance.”
“I’ve
seen 10 people from the Forbes list in the recent few days. They’re
pale; they don’t understand,” said Aleksandr Y. Lebedev, a prominent
banker who sold most of his Russian assets after public disputes with
Mr. Putin. But the oligarchs realize, he said, that their interests
carry no weight in this situation, especially if they, like Mr. Lebedev
himself, own property outside Russia.
“It’s those who are here who will take the burden,” said Mr. Lebedev, speaking from Moscow. “They all keep their mouths shut.”
Last
week, days after Russia took control of Crimea, the United States
announced a modest first round of sanctions, and the European Union
indicated it would follow suit, with both making it clear that there may
be further rounds. Officials have suggested that a range of measures is
being considered, leaving open, by implication, the most extreme one:
barring Russian companies and banks from access to the Western financial
system, similar to sanctions adopted against Iran.
President
Obama has broad executive powers to declare sanctions without approval
from Congress, and he would most likely consider the next steps after
Crimea votes in a referendum on separating from Ukraine, scheduled for
Sunday, said Michael A. McFaul, until recently the American ambassador
to Moscow. “It needs to be spelled out as explicitly as possible, either
directly to Putin or to the two or three people who could talk to him
about this,” he said.
Russia
may be betting, as many analysts do, that the United States and its
allies will not follow through with draconian sanctions, and has made it
clear that it would respond harshly and asymmetrically. On Friday,
Gazprom hinted that it might cut off gas exports to Ukraine over unpaid
bills, as it did in 2009, and an unnamed Defense Ministry official told
Russian news agencies that it would consider stopping international
inspections of its nuclear weapons.
Russia’s
tycoons have been silent since the crisis began, apart from approving
messages on social media. Many inside Russia’s large corporations are no
doubt supportive of Mr. Putin’s moves in Crimea, which are widely seen
here as correcting a historical error made by the Soviet leader Nikita
S. Khrushchev, when he transferred Crimea to the Ukrainian Soviet
Socialist Republic. Mr. Putin’s approval ratings are at their highest
point since he returned to the presidency in 2012. If corporate leaders
are complaining, they are doing it quietly.
“Of
course they’re upset, but it doesn’t mean they are prepared to
challenge Russia’s foreign policy,” said Mikhail E. Dmitriyev, an
economist whose research group, the Center for Strategic Research, was
originally founded to shape Mr. Putin’s economic platform. “This is a
new reality. Even if somebody has reservations with regard to the
policy’s effectiveness, I strongly doubt they would express it. This is a
policy which, for the moment, is backed by the vast majority of the
public. It’s not an exaggeration.”
In
private conversations, though, several people described high anxiety
within corporations, especially about the prospect of any sanctions’
affecting banks. Large Russian corporations have significantly increased
foreign borrowing in recent years, and 10 were negotiating loans when
the crisis boiled over, said Ben Aris, the editor and publisher of
Business New Europe. Financial sanctions could set off a chain reaction
of blocked transactions, frozen accounts and bank closings. “Those
oligarchs who are already having trouble would be completely cut off,”
he said.
Sberbank,
the state retail bank, and the state investment bank VTB have actively
expanded into Eastern Europe, including Ukraine, and own assets in
Western Europe and the United States. Rosneft, the state oil company,
has a deal with Exxon Mobil to drill in the Russian Arctic, the flagship
project of Igor I. Sechin, a deputy prime minister and one of Mr.
Putin’s closest aides.
Some
pointed to a more long-term danger that the conflict over Ukraine, if
it escalated, could culminate in a turn toward isolation for the Russian
economy.
“It
may be that we look back on the events of last weekend and remember it
as an inflection point when Russia’s growing integration with the
planet, which has been remorseless — Russia has integrated into the
global architecture, and people feel they are part of the world — maybe
we look back on this weekend as a time when there were a big set of
steps back,” said Bernard Sucher, the former head of Merrill Lynch in
Russia.
It
is unclear how heavily Mr. Putin weighed the economic consequences when
he decided to take control of Crimea. During his first years as
president, Mr. Putin was known as an economic liberalizer, and one of
his most trusted advisers was Aleksei L. Kudrin, the liberal-leaning
former finance minister who gave him his first job in the Kremlin
administration.
But
Mr. Putin, whose return to the presidency was opposed by many urban
liberals, now makes his most important decisions in an inner circle of
men who emerged from Soviet security services. Among the first new
projects in his new presidency was a push to “nationalize the elite,”
requiring officials to sell off investments and properties outside
Russia that could, in his view, undermine their loyalty in the event of a onfrontation with West.
Indeed,
among the small group of people present when Mr. Putin made the final
decision on Crimea, according to officials and analysts, were five or
six former K.G.B. colleagues believed to have minimal assets outside
Russia, and who were therefore not vulnerable to sanctions. Some of
those now closest to Mr. Putin, like the head of the Russian Railways,
Vladimir I. Yakunin, have long argued for Russia to turn away from
Western economic models and toward Chinese-style state capitalism.
In a column in the Russian newspaper Vedomosti
on Friday, the economist Yevgeny S. Gontmakher described a number of
painful steps that might allow Mr. Putin to manage an economic
contraction: increasing taxes on the rich and the middle class; reducing
spending on education, health and social services; decreasing
unemployment payments and subsidies to struggling factories; and
reallocating the budget to support constituencies crucial to social
stability, like pensioners and state employees. All of them, he pointed
out, would require tightening social controls.
Mr.
Dmitriyev, who has remained in touch with the economic officials who
advise the Kremlin, said he believed Mr. Putin had a clear understanding
of the potential for damage to the economy when he made the decision on
Crimea.
“Economic
risks are an important factor in the whole policy agenda, but of course
this is not the only factor, and the Ukrainian events cannot be wound
back,” Mr. Dmitriyev said. “This is a ratchet mechanism which unwinds in
only one direction. This is one reason there is a lot of wishful
thinking in the West.”
