"Oligarchgate": The Twilight of the Powerbrokers

One could apply John Dean's comment on how the Watergate scandal was affecting the Nixon presidency to Putin's Russia

The Yukos scandal will grow like a cancer eating away at Russian politics and the economy if it not dealt with quickly and decisively.

A few comments from caught my attention this week: Prime Minister Mikhail Kasyanov again forcefully spoke out on how the Kremlin-Yukos rift was damaging the economy. His words were passed over, impressing no one. Also, at the start of the week, Head of the Presidential Administration Alexander Voloshin made a public statement that the problem would soon be resolved. For a man who is notorious for being in the know, he was quite wrong - the rift only became more contentious, with Yukos’ Platon Lebedev "failing to make bail." (At the same time, Argumenty i Fakty ran a story claiming that the Prosecutor General’s Office may start investigating other oligarchs.)

That the Kasyanov and Voloshin comments were ignored or completely wrong, respectively, should tell us something about what the Kremlin-Yukos fracas entails. This story has, for the most part, focused agents on in the Kremlin - members of the security forces who presumably desire to either take Yukos for themselves and/or teach Khodorkovsky a lesson he will never forget - and Yukos, Russia's largest privately held company whose CEO has great political and economic ambitions.

This is high political drama that has a populist appeal for those who lost out in the privatizations of the 1990s - the vast majority of the population. However, there has been little analysis of how the correlation of forces within the Kremlin has changed and why the political fortunes of two of the Kremlin’s most prominent powerbrokers appear to be on the wane. Over the past few years, we have come across numerous (and quite silly and misguided) accounts proclaiming the "twilight of the oligarchs." Instead, maybe, we are witnessing the "twilight of the Yeltsin power-brokers."

The presence of Kasyanov and Voloshin in this high-stakes power play merits greater attention. After all, there are the two figures who are (or were) the linchpins maintaining the political order that President Vladimir Putin inherited in 2000. Both were charged with protecting the Yeltsin legacy during what was supposed to be a Kremlin-friendly Putin presidency. This does not seem to be the case any longer, though. I do not pretend to know what has happened behind the Kremlin walls, but it does look like Kasyanov and Voloshin no longer carry the clout with the oligarchs that once made them significant power centers.

The Kremlin-directed attack against Yukos and Khodorkovsky (and the oligarchy in general) has put Kasyanov and Voloshin in a very precarious position. The primary mission of Kasyanov and Voloshin was to maintain the deal Putin and the oligarchs settled upon concerning property rights, tax payments and the level of political involvement the latter would pursue. The last three weeks show us that the deal, which I have called the "social contract" between the state and the oligarchs, has collapsed. The consequences for Kasyanov and Voloshin are obvious.

Putin, never really at ease with either person, is in a position now to claim that they have failed in their official mandates of running an efficient and law-based government. He can also claim that both have tarnished his presidency and Russia in the eyes of the world. In effect, Putin can easily say that they are not living up to their positions. Both could face dismissal before this is all over.

The oligarchs have many reasons to be dissatisfied with the performance of the Kasyanov-Voloshin duo. With the security forces committing illegal searches and break-ins against Yukos and other companies (this was not supposed to happen anymore), people like Khodorkovsky have to be wondering why taking care of Kasyanov and Voloshin has any point. It may be too early to say with any certainty, but this may be the reason that Khodorkovsky has been on the offensive (and Abramovich intends to move to the United Kingdom); their "roof" has been falling and will eventually collapse completely.

Without knowing the inside story, there seem to be many reasons why Kasyanov and Voloshin have been sidelined. Are they becoming politically homeless? To all appearances, they are not making any of the people they serve very happy.

Now, I will go out on a limb. As things stand, it seems to me that Putin has been convinced by his trusted security-forces cadre to attempt to carry out a total solution for of the political challenges facing him.

First, jettisoning Kasyanov and Voloshin would not bother him in the slightest. It probably wouldn't bother the oligarchs either at this point.

Second, standing up to the oligarchs is great public relations for the Kremlin if handled right, especially considering that elections are on the horizon. It is difficult to discern if the recent poll results demonstrating public support of a "class war" against the oligarchs are just Kremlin-driven media hype. Polls aside, I have noticed a subterranean hope among many Russians that the oligarchs would one day get hit - and get hit hard. No one in the Kremlin can claim that Kasyanov or Voloshin have been proactive in helping Putin and his people be triumphant in the Duma elections in December. When it comes to elections, have Putin and his people come to the conclusion that neither Kasyanov nor Voloshin can be considered a booster of value?

Third, if Khodorkovsky does not back down fast, actually taking over Yukos (nationalization) may hurt the Kremlin during the short-term in the eyes of foreign investors. But, in the end, the Kremlin understands well that greed is more powerful than fear. If Western oil companies have no fear of investing in Nigeria, Russia’s level of political risk is really not of importance. Anyway, the Kremlin has never really tried to attract foreign investment into Russia. The Kremlin prefers Russian wealth - Russia money is easier to control.

Fourth, the social contract of 2000 no longer pays the increasingly exorbitant bills that support the Kremlin bureaucracy. Most of the oligarchs have accepted that going straight makes them even more money - i.e., by adopting international accounting standards, outside board members, normal dividend policies, etc. The social contract of 2000 didn’t anticipate this transformation. The richer the oligarchs become, the hungrier, more envious and more control-focused the bureaucracy gets. Russia’s recent macroeconomic successes are probably the origins of the Kremlin-Yukos conflict: The Kremlin now wants a radical renegotiation of the 2000 social contract in its favor.

The custodians of the 2000 social contract have been lost in the shuffle. What was good for them then is pushing them into political oblivion in the present. Kasyanov and Voloshin are probably good ol' boys when it comes to working out a deal that can make everyone happy. But modern states don’t function well using deals made in smoked-filled rooms: Eventually, some kind of catch can always be found that undermines a private meeting of the minds. The modern state always relies on laws to legitimize its power, however flawed they may be. This is something Kasyanov and Voloshin have never really understood. Both the Kremlin and Yukos are appealing to the rule of law, but that is not what Kasyanov and Voloshin were supposed to be concerned about. Their lack of understanding of the state and modernity may bring about their demise.

Has too much money made too many believe that Russia has really changed? Has too much money been the greatest liability for the emergence of a truly new Russia?

Peter Lavelle's "Untimely Thoughts" (www.untimely-thoughts.com).