The pro-Russia government in Crimea pressed ahead with a referendum to join Russia on Tuesday, ignoring warnings from the West that the vote would not be recognized.
The referendum, scheduled for Sunday, would all but seal victory for Russian President Vladimir Putin. His bold power play to annex the peninsula, which is part of Ukraine, caught the entire international community off guard and sent a clear signal of Russia’s willingness to claim territory in the former Soviet Union’s sphere of influence.
While the move emboldens Putin on the international stage, his standing with some Russians is in question. The general public seems to love Putin and his audacious move. But Russia’s oligarchs – the muscle behind Putin’s power – are likely less enthusiastic.
That’s because they’ve lost a fortune. The Monday after Russian troops entered Crimea, the Russian stock market fell 13 percent, erasing hundreds of billions of dollars in wealth. The next day, Putin held a press conference in which he appeared unfazed by the financial loss.
Now, with the referendum going forward, new economic sanctions are in the works. Even Germany, one of Russia’s closest European allies, is pressing forward with penalties for the Crimean invasion.
“We don’t want a confrontation, but the actions of the Russian side make the preparations necessary,” German Foreign Minister Frank-Walter Steinmeier said Tuesday. “We continue to urge Russia to use the last possibilities that are still there for a diplomatic solution against such an escalation. Otherwise, relations between Europe and Russia won’t improve.”
These new sanctions, combined with the Russian economy’s reliance on energy, could be Putin’s Achilles heel. If the oligarchs aren’t happy, Putin could be pressured to relent.
Russia “has rejected globalization and relies on one product that passes through many corrupt hands to fuel its economy,” said Edward Goldberg, a professor at Baruch College and the New York University Center for Global Affairs. “Any businessperson will tell you that you can’t be in the marketplace with one product unless you have a monopoly. And for Russia, which possibly had a slight monopoly in energy, that monopoly is dissipating by the minute.”
The Power Behind Putin
Russian wealth is the most concentrated in the world: In a country of more than 140 million people, just 110 people control 35 percent of it. The majority of these men (there are very few women considered oligarchs) made their money in the energy business.
The best-known oligarch is Roman Abramovich, who made his $9 billion fortune in the Russian oil and mineral industries before moving to London and buying the football club Chelsea FC. But most of the oligarchs are unknown outside Russia and the international business community. Among them is Mikhail Fridman, whose fortune is valued at $17.6 billion dollars, which he made through TNK-BP, a Russian gas company that has since been swallowed by Rosneft. Alexei Miller, Putin's personal appointee at the state-run Gazprom, is also among the Russian elite.
The existing oligarchs are close to Putin; those who weren’t were systematically jailed after he took power – or they fled Russia. Putin put the oligarchs in a position to get rich, but their money also helps Putin by undergirding his power. The oligarchs, for instance, largely financed the $50 billion Olympic Games in Sochi.
Now, as the Ukraine situation shifts from a military crisis to an economic one, many of these men are in a panic.
“I’ve seen 10 people from the Forbes list in the recent few days. They’re pale; they don’t understand,” Aleksandr Y. Lebedev, a prominent banker, told the The New York Times. “It’s those who are here who will take the burden.”
Many of these oligarchs have been through this before. When Russia invaded Georgia in 2008, the Russian stock market reached its lowest point in two years.
The oligarchs are under pressure partly because the Russian economy is so reliant on foreign countries buying energy. The National Center for Policy Analysis says the energy business provided at least half of Russia’s budget last year. Energy also represents 30 percent of Russian GDP and has accounted for 50 percent of GDP growth since 2000.
Goldberg said this reliance makes Russia weak, even as it takes Crimea.
“Russia is a failed state in 21st-century terms,” he said.
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