The Kremlin Doesn’t Believe in Friends

Does the sun set over the Kremlin without getting permission from Vladimir Putin?

Photographer: Andrey Rudakov/Bloomberg

Does the sun set over the Kremlin without getting permission from Vladimir Putin?

The U.S. and European Union expanded the list of Russian officials and companies targeted by sanctions, topped by OAO Rosneft chief Igor Sechin. Henry Meyer and Irina Reznik’s profile of Sechin makes for fascinating reading. They report:

Sechin, 53, was Putin’s colleague at the St. Petersburg mayor’s office before rising to become the head of state-run OAO Rosneft, which over the past decade he built into the world’s largest publicly traded oil company by output and reserves. Along the way, it absorbed rivals including Mikhail Khodorkovsky’s Yukos Oil Co. and BP Plc’s Russian joint venture. As Russia’s energy czar, he bagged Exxon Mobil Corp. and BP as partners in Putin’s vision of a state-led crude industry.

“Sechin is easily the most influential person in the country after Putin,” says Sergei Markov, a political analyst who advises the Kremlin and vice rector of the Plekhanov Russian University of Economics in Moscow. “Putin trusts him more than anyone else.”

Being Putin’s most trusted confidant sounds like a potentially impermanent honor that no one with an instinct for self-preservation should aspire to. In any case, the list of people whom U.S. and European policymakers deem close to the Kremlin is getting quite long. Each of their stories make for great reading. Last week, for instance, Bloomberg’s Irina Reznik and Evgenia Pismennaya charted the story of how OAO Bank Rossiya went from a tiny office close to St. Petersburg’s City Hall to $12.6 billion in largely by acting as the house bank for energy companies favored by the Kremlin.

People like Sechin and Yury Kovalchuk, the former physicist who is the biggest shareholder in Bank Rossiya, owe a lot to their patron. The more relevant question when it comes to sanctions, though, is what Putin owes them.

Among the commentariat there is plenty of talk of  stricter sanctions that would isolate Russia. Bloomberg’s Kasia Klimasinska described some of the options:

“The biggest weapon in terms of sanctions would be similar sanctions to what we did in Iran and basically try to exclude Russia from international financial markets,” said William Pomeranz, deputy director of the Kennan Institute for Advanced Russian Studies of the Woodrow Wilson Center in Washington. “The Russians fear that, and that is what the Russians want to avoid.”

The reality of sanctions to date falls far short of this  (if you haven’t reached sanctions overload, you can check out the financial world reactions in this story). Iranian sanctions have had a distinct goal: to persuade Iran to abandon its nuclear program. At the moment, there is no similar goal that is achievable in Ukraine. It’s not really clear that even the Ukrainian government is seriously pursuing the return of Crimea. Without a definite goal that could be achieved, broad sanctions that would isolate Russia from the world financial community are a non-starter.

The West seems to be settling for more limited ones that are supposed to influence Putin by hurting his friend’s pocketbooks. President Barack Obama has said that sanctions are not intended to “go after Putin, personally.” Even if that’s nominally true, they do seem directed personally at Putin’s close, long-time associates. It’s a campaign to pressure Putin by pressuring his friends.

How well will that work? The best line in Reznik and Pismennaya’s story last week belongs, believe it or not, to Putin’s spokesman, Dmitry Peskov. “Being a friend of Putin,” Peskov said, “is a rather abstract notion.” Amid all the rhetoric that emanates from the Kremlin, that line offers a useful insight. Vladimir Vladimirovich Putin has already done enough for his friends that they can be counted on to advance his interests. It’s less likely he feels the need to reciprocate by watching out for theirs.

An earlier version of this post appeared in the Market Now daily email. Click here to register and subscribe. Or here to follow @markgimein on Twitter.

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