In Putin's Pocket: The Sanctioned Russian Oligarchs & the Ukraine War

Putin has ensured that the oligarchs owe a debt to him and that they understand their place in Russian politics.

Roman Abramovich, Vladimir Putin, and Alexei Mordashov. 

(Image: Namita Chauhan/The Quint)

Ukrainian President Volodymyr Zelenskyy urged the government of Switzerland on Saturday, 19 March, to clamp down on the Russian oligarchs who he said were funding the Russian invasion of Ukraine.

The president said that Ukraine was "being destroyed on the orders of people who live in European, in beautiful Swiss towns, who enjoy property in your cities" and "it would really be good to strip them of this privilege," reported Reuters.

The oligarchs have already been sanctioned by the United States, the United Kingdom, the European Union, and Japan among other nations.

Their assets have been frozen, their yachts have been seized (like of Alexei Mordashov's), and travel bans have been imposed (like on Chelsea FC owner Roman Abramovich with respect to the UK).

Last week, mansions and luxury villas in the UK and France were broken into by anti-war activists in protest against Russia's actions in Ukraine.

Videos from London showed the Ukrainian flag hanging from a window of the luxury mansion of Oleg Deripaska, a billionaire who is reportedly quite close to Russian President Vladimir Putin. A banner that read, "This property has been liberated", was also hung from the mansion.

But who exactly are the oligarchs? Where does all their wealth comes from? And why do they seem to be under Putin's control?

The Rise of the Oligarchs

The word 'oligarchy' is Greek in origin. It comes from the world 'oligarchía', and is a synthesis of ligo- ("few") and -archy ("rule").

An oligarchy, therefore, refers to a small group of people exerting control or influence over a country or organisation.

So, an oligarch is one of the select few in that small group of people.

In recent years, however, the word "oligarch" has been mostly associated with Russia, referring to that group of businesspersons and ex-Soviet officials who accumulated wealth and power in the 1990s after the collapse of the Soviet Union.

After the collapse, there were a number of state-owned assets, corporations, and financial institutions that were up for grabs due to the privatisation of the post-Soviet economy.

For example, Boris Yeltsin, the first post-Soviet Russian president, allowed the transfer of shares from 12 large state-owned natural resource companies to businesspersons in return for loans to help the crumbling economy.

The Yeltsin government then intentionally defaulted on its loans, thereby allowing them to buy the companies (especially oil, gas, steel, and aluminium ones) from the government at extremely cheap prices.

These businesspersons went on to become the oligarchs of Russia, and with their mountains of wealth, they exercised significant influence over the Kremlin as long as Boris Yeltsin remained president.

They backed his elections, and even financed his re-election campaign in 1996. Yeltsin's debt to the oligarchs kept growing till the end of his presidency.

Then came Vladimir Putin, who reversed the power dynamics.

Under Putin's Thumb 

As soon as Putin came to power in 2000, he started to eliminate the oligarchs' sway in the Kremlin.

He initiated a new model for politics and business in Russia, which was to keep them away from each other. In return, Putin would inflate the wealth of the oligarchs via state contracts.

Therefore, the oligarchs in sectors such as oil and gas, infrastructure, defence, and even health care, would sell their commodities to the state at prices way above those set by the market.

Consequently, Putin ensured that the oligarchs owed a debt to the Kremlin, and not the other way around.

Those who tried to bypass this deal and enter politics were punished.

One such oligarch is Mikhail Khodorkovsky, who in 2003, was considered to be the wealthiest man in Russia. He spent 10 years in prison after he stood up to the Kremlin, reportedly criticising corruption within Putin's inner circle.

His arrest was also meant to set an example for the other oligarchs, sending them a message regarding what would happen if they try to mingle with politics.

Khodorkovsky's arrest also escalated the trend of oligarchs hiding their wealth abroad.

Oliver Bullough, a journalist, told Vox's Recode that "the oligarchs essentially realised that they owned their wealth only as long as [Putin] wanted them to own it. That changed their entire approach to politics. It also increased their motivation to get more wealth outside of Russia, to get as much as possible offshore, where it would be safe".

Oligarchs and the Ukraine War

Coming back to the war on Ukraine, the West is hoping that the heavy sanctions that are being slapped on the oligarchs would force them, out of fear of losing their wealth, to persuade Putin to withdraw his troops.

Experts, however, believe that this is unlikely. The oligarchs have pledged total loyalty to Putin because he has allowed them to become ultra rich, and remain ultra rich.

They hold no political power whatsoever, and those who do – like senior security officers at the Federal Security Service (FSB) – are not only loyal to the state, but are also directly responsible for the destruction in Ukraine.

As the Ukrainian-born Russian oligarch Mikhail Fridman told Bloomberg, "If the people who are in charge in the EU believe that because of sanctions, I could approach Mr. Putin and tell him to stop the war, and it will work, then I’m afraid we’re all in big trouble."

"That means those who are making this decision understand nothing about how Russia works. And that’s dangerous for the future," he added.

(With inputs from Reuters, Vox, and Bloomberg.)