Streetwise Professor

The news from Russia of late seems to be all Luzhkov, all the time.  To me, it seems to be a perfect illustration of the feudal nature of Russian politics.  A baron gets too full of himself, and gets smacked down by the king.

As to the larger implications, so much of the commentary just illustrates that the old is new again.  Kremlinology is back in vogue, which means that the signal to noise ratio is small indeed.

Some things to watch going forward.  The redistribution of the massive wealth and power inherent in such a transition bears in it the seeds for conflict.  And the potential here is high given the amounts at stake.  We’re not talking about getting rid of the governor of some obscure Siberian oblast, or even a Rossel.  This is the biggest and richest city in Russia, and its political heart.  Hence, the economic and political consequences of a shift there are potentially seismic.  This is particularly true inasmuch as Russia is entering a period of heightened uncertainty relating to the next presidential election.

But it is difficult to know what to conclude from that.  You could argue that Medvedev and Putin are sufficiently confident in the stability of the country that it could withstand the messiness inherent in a transition to a new equilibrium.  You could argue the reverse, that the political condition in the country is so fraught that Medvedev, or Medvedev and Putin, determined that extraordinary measures were required, even knowing that the immediate consequences bear their own risks for the system.  You could argue that this is a unilateral political strike by Medvedev.  Or you could argue the reverse yet again, that it is the result of an agreement between Putin and Medvedev.

In fact, I’ve seen people argue all of the above.  Given the information at hand, the best we can do is advance hypotheses, and be sure to keep in mind that they are just that.  It is very difficult to know exactly what is going on under the rug: what the dogs are fighting over, how the fight started, who is winning.

What’s more, I consider this story far more intriguing because of its potential implications:

The deputy prime minister who chairs Russian oil company Rosneft (ROSN.MM) on Thursday backed its ambitions to sell gas to China — a challenge to Gazprom’s monopoly on exports from the world’s biggest gas producer.

“This is a unified position and right now it exists in the form of an idea, a request,” a spokesman for Rosneft’s chairman, Deputy Prime Minister Igor Sechin, told Reuters.

Rosneft and Gazprom are the economic bulwarks of the two major clans in Russia.  They are intense rivals who have, in recent years, co-existed in a live-and-let-live peace, adjudicated by Putin.  Rosneft is the Sechin-siloviki entity.  Gazprom is more closely identified with Medvedev.

With mafias, drug gangs, and cartels, a simulacrum of peace is maintained primarily by explicit or tacit agreements not to invade rivals’ turf.  Slight shifts in the balance of power, or crucially, an anticipation that conditions might soon change in a way that makes maintenance of the deal impractical or unattractive, can lead to a breakdown in such arrangements.

Sechin’s threat to invade Gazprom’s turf represents a major challenge to the status quo.  Given the centrality of these two companies to the entire Russian political structure, the ramifications of this could be quite substantial.  This is the Russian equivalent of Bugs Moran’s North Side gang hijacking Capone’s South Side gang’s bootlegging trucks.  And we know how that turned out. (Chicagoans still hear about it on trips abroad:)

These two remarks by Sechin are enigmatic, and interesting: “Coordination with Gazprom will be worked out with Gazprom itself” and

“Initiatives like that are discussed with the chairman. That is an agreed position, so far in the form of an idea, a wish. Cooperation with Gazprom will be worked out,” Sechin’s spokesman said.

Worked out with Gazprom itself?  Just between Gazprom and Rosneft?  That’s not usually how these things work.  In Russia, adjustments of relations between major clans are usually intermediated at a political level, usually by Putin.  Assuming the translation is accurate, Sechin’s explicit use of the reflexive pronoun suggests something different: “this is between him and me.  Butt out.”

“An idea”?  “A wish”?  “A request”?  Sounds like an offer you can’t refuse.

Although the Luzhkov follies are garnering all the attention, this one deserves close watching, as it would represent a major transfer of turf between the two most important politico-economic interests in Russia.  And if Sechin prevails here, do you think that will sate his appetite?  If so, think again.  Success of this gambit would reflect a tectonic shift in Russia, and this would unleash yet further changes.

So watch this issue.  It could be far more important than whatever transpires with Luzhkov and the corpse of his empire.  This is the really interesting tussle beneath the rug.