On Friday, the US Treasury Department sanctioned several Russian billionaires, commonly but misleadingly referred to as oligarchs. Topping the list was Rusal’s/EN+’s Oleg Deripaska. Also included were Suleiman Kerimov , Alexey Miller of Gazprom, and Viktor Vekselberg of Renova (which holds a substantial stake in Rusal).
Presumably the intent behind choosing these specific targets, and the sanctions law which led to their selection, is to somehow punish Putin, and to cause him to change his behavior. The sanctions will probably fail in achieving these objectives, and could actually be a net benefit for Putin.
When it comes to Russian billionaires, there are distinct classes.
There are Putin’s favored billionaires–his buddies like Timchenko and the Rotenbergs (who share St. Petersburg roots with Putin). To a large extent these figures are billionaires because of Putin–they are beneficiaries of his largesse. As further evidence of their privileged position, he compensated them through favoritism to offset their losses when they were targeted for sanctions early on.
There are the billionaires Putin hates (or hated). These are the 90s oligarchs proper, men like Khodorkovsky, Berezovsky, and Gusinsky, who are in exile or dead.
Then there are those billionaires he tolerates, because they steer clear of politics and pony up to pay for Putin pet projects (e.g., the Sochi Olympics). Deripaska, Vekselberg, and Kerimov are in this category.
Deripaska in particular is hardly a Putin favorite, and at times Oleg has tested Putin’s tolerance–as evidenced by the pen throwing incident at Pikalevo in 2009, where Putin chastised Deripaska publicly, likening him to a cockroach who ran at Putin’s approach.
Punishing this group is unlikely to cause Putin any loss of sleep. And indeed, he may reap some benefits. The sanctions make these men and their firms more dependent on him and Russian state support–and he can extract a price for this support. Furthermore, it pays into his narrative of Russia being unfairly targeted by a hostile West (and the US in particular). Indeed, the peripheral political role of those sanctioned allows Putin to make the colorable claim that the US harbors an animus against Russia and Russians generally: he will therefore be able to claim that this is just another example of American Russophobia.
Perhaps most importantly, Putin has been attempting rather pathetically to get wealthy Russians to repatriate their fortunes: truth be told, the US government is making a more persuasive case for that than anything Putin has done or even could do. Putin is therefore somewhat in the position of B’rer Rabbit, and the US in the position of B’rer Fox.
All of these factors strongly suggest that the US action is at best symbolic, and perhaps counterproductive. They certainly are insufficient to induce Putin to ratchet down his confrontation with the US, and may indeed play into his justification for such a confrontation.
Putting motivations and incentives aside, the sanctions will not have much impact–if any–on Russian capabilities to implement Putin’s confrontational strategy.
So again, a flamboyantly symbolic act, with little practical benefit accruing to the US.
This is not to say that the individual targets will not suffer–they will. It’s just that Putin won’t feel their pain, or will use it to advance his own purposes.
Deripaska’s case is particularly striking. The sanctions were clearly a surprise: Rusal stock fell 20 percent on the news, which would not have happened had it been anticipated. [Update: as of Monday morning Central Time, Rusal is down 50 percent, and the company has asked customers to stop payment while it tries to right the business.] Moreover, Rusal/EN+/Deripaska were subjected to the most harsh form of sanctions–Special Designated Nationals (SDN) sanctions. These are more punishing than those imposed on Rosneft, for instance. Under SDN, any US person (including corporations) is forbidden to transact with the sanctioned individual or entity. Moreover, secondary sanctions can be imposed on non-US entities that deal with an SDN target. US firms can be precluded from dealing with foreign firms subject to secondary sanctions. This makes it far more risky for non-US firms to cushion the blow against (say) Rusal: such firms may have to make the choice between transacting with US firms (especially banks and other financial institutions) and transacting with Rusal. Many will likely say: “Lots of luck, Oleg! Been nice doin’ business with ya!”
Topping the list of firms facing this grim choice is Glencore, which has a marketing deal with Rusal through 2018. This deal was expected to be renewed, except on a smaller scale for 2019 forward. (On a smaller scale because Rusal has been moving away from selling primary aluminum which Glencore markets to selling value added wire rods, billets, and slabs directly to industrial customers.) Glencore also owns 8.75 percent of Rusal, which it had announced it will convert into EN+ shares.
Of course one of Glencore’s strategies has always been to go where other companies daren’t. Its appetite for political risk is clearly much larger than its peers in mining, and even its Swiss commodity trading peers. But tempting fate with Uncle Sam on sanctions is a different matter, and thus I would consider a renewal of the marketing deal to be unlikely, and Glencore may also be looking to unload its Rusal/EN+ shares, although to whom and at what price are rather difficult questions to answer. Probably to Russian entities (or a buyback financed by Russian state banks), and perhaps the Chinese, and for a song.
Glencore shares fell modestly on Friday, so the blow is not perceived as being too heavy. But the company is likely the biggest loser other than Oleg himself.
The grievous blow directed at Deripaska also raises an issue that has not attracted much attention in the US or Europe–the fate of Norilsk Nickel. Nornickel has been subject of a long running battle for control between Deripaska and Vladamir Potanin. Roman Abramovich had indicated his intent to sell a block of shares that he had purchased as part of a peace deal between Deripaska and Potanin, and this raised the possibility of a “shootout” auction for the block between the two.
Well, methinks Oleg is plumb out of bullets right now, and so Potanin will prevail. Which means that even a Russian billionaire can benefit from US sanctions on Russian billionaires.
(Curiously, although Potanin was on the “Forbes List of Potential Sanction Targets” announced earlier this year–as was Deripaska–he was not hammered the way Oleg was. I have no idea why.)
All in all, there are loser and winners from Friday’s sanctions. The losers are clearly Deripaska and to a lesser degree a non-Russian (despite the first name!), Ivan Glasenberg. One like winner is a Russian billionaire, and other winners are likely Chinese.
One person who is clearly not a loser, and may even be a winner, is the ostensible target–Vladimir Putin.
So other than throwing a few Russians to the US hounds baying for Russian blood, it’s really hard to see the point of this exercise. It doesn’t advance American interests in any meaningful way. Anyone looking for any change in Russian behavior–in Putin’s behavior–in the coming months will almost certainly be disappointed. This is more another act in the ongoing American political melodrama than a serious policy move.
To alter a saying which Putin is fond of quoting: the hounds will bay but the caravan–Putin’s caravan–will move on.