Russia’s top business leaders have seen their fortunes fall precipitously
On January 26, during the global economic forum in Davos, Switzerland, Oleg Deripaska, a Russian aluminium tycoon with close links to his country’s government, threw a party at a luxury chalet. The champagne flowed, music pumped from the speakers and the guests feasted on caviar. The night’s star performer was Enrique Iglesias, the famous pop singer. At some point according to photos of the event, Deripaska, 50, took to the dance floor in an open-necked shirt.
Fast forward three months and Deripaska seems far less jubilant. On April 6, the United States placed him on a sanctions list that also included six other Kremlin-connected “oligarchs”, as well as numerous other Russian officials and companies. The tough new sanctions prohibit American citizens from doing business with them and freeze any assets they have in the U. S. Citizens of other countries who deal with the Russians on the list could also face sanctions from Washington. Washington introduced the measures in the aftermath of alleged Russian meddling in the 2016 U. S. presidential election and other “malign activity,” including the Kremlin’s military campaigns in Syria and Ukraine. “Russian oligarchs and elites…will no longer be insulated from the consequences of their government’s destabilizing activities,” the U. S. Treasury Department said in a statement.
Some analysts describe the new U. S. sanctions as unprecedented because they directly target businesses owned by Russia’s political and business elite. The United States has previously slapped visa bans on Russian tycoons and officials, as well as frozen their assets. But these are the first sanctions whose primary aim appears to be to damage Moscow’s economic interests. “Sanctions are no longer an instrument of altering Russian foreign policy,” says Alexander Baunov, an analyst at the Carnegie Moscow Centre think-tank. “The new sanctions are a means of punishing Russia to the full [for its actions].”
Deripaska’s inclusion on the U. S. list wasn’t surprising. For years, he worked with Paul Manafort, President Donald Trump’s former campaign manager, who has been charged in special counsel Robert Mueller’s investigation into the Kremlin’s meddling. Russian opposition figures have accused Deripaska of passing on information about the Trump campaign from Manafort to Sergei Prikhodko, a Russian government official, while yachting off the coast of Norway in August 2016. Deripaska denies the allegations, and he describes the U. S. decision to sanction him as “groundless, ridiculous and absurd.”
There’s no denying the impact of the sanctions, however. Deripaska’s Rusal aluminum giant lost over half of its value when the markets opened for trading on April 9. His personal fortune also tumbled from $5.4 billion to $3.7 billion in just 48 hours as investors worldwide distanced themselves from his businesses.
Deripaska wasn’t the only Russian businessman on the list to take a financial beating. Viktor Vekselberg, a billionaire investor who attended Trump’s inauguration, and Suleiman Kerimov, who owns Russia’s largest gold producer, Polyus, lost a combined total of almost $2 billion. Investors also offloaded shares in Russian companies due to fears that Washington is planning further sanctions against Moscow over its backing for the regime in Damascus, as well as allegations that President Vladimir Putin ordered the attempted assassination of a Russian double agent in southern England.
On April 9, dubbed Black Monday by the country’s media, Russia’s 50 richest men lost more than $12 billion between them, according to Forbes. Many of them, like Vladimir Potanin, a metals tycoon who saw his net worth fall by $1.5 billion, weren’t even on the list.
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The U. S. sanctions also had consequences for Russia’s national currency, whose value dropped by almost 10 percent in just six days, its steepest decline since 1999, before recovering slightly.
Russian officials and state media had mocked previous U. S. sanctions against Moscow as weak and ineffective. This time around, no one is laughing. “The United States has taken a decisive step towards Russia’s economic isolation,” says Kirill Tremasov, an analyst who headed the Russian Economy Ministry’s forecasting department until last year. “[This] opens a new stage in relations with western countries. We are in a new reality.”
Alexei Navalny, the Russian opposition figurehead, welcomed the sanctions, which also targeted Kirill Shamalov, a billionaire who married one of Putin’s daughters in 2013. “These people steal our money and doom our country to poverty,” he wrote in an online post.
U. S. President Donald Trump and Russian President Vladimir Putin talk during the family photo session at the APEC Summit in Danang, Vietnam on November 11,2017. REUTERS/Jorge Silva/File Photo
Yet the U. S. measures look set to affect more than just Putin’s allies. Ordinary Russians are likely to suffer as the weakened ruble means steep increases in prices for imported food, clothes and medicine, economists say. Washington’s measures have also ruined Russians’ summer plans by making it more expensive for them to venture abroad: travel agents have reported a 40 percent decline in the number of holiday bookings for foreign destinations.
Moscow has pledged a “tough response” to the U. S. sanctions. But it’s unclear what steps it can take without harming Russia’s economy. In 2014, Putin responded to western sanctions pertaining the Kremlin’s seizure of Crimea by prohibiting the import of foodstuffs from the United States and Europe. The decision drove up domestic prices and angered members of Russia’s middle class, who suddenly had to make do without Italian cheese and Spanish ham, among other delicacies.
Now, Russia’s parliament is proposing a retaliatory ban on the import of an even wider range of American goods, including alcohol, medicines and tobacco. It has also suggested legalizing the pirating of American intellectual property, as well as a possible ban on titanium sales to Boeing. Analysts warn, however, that such moves could trigger a new round of even tougher U. S. sanctions. Other Russian officials have spoken in favor of targeting American companies that operate in Russia, such as McDonald’s, Ford and Pepsi. But these multinationals employ tens of thousands of Russians, and use domestically-produced goods in their businesses. “Russia needs to work out if the benefits of any response outweigh the costs, given the potential impact on Russian business and the Russian consumer,” says Andrew Risk, a Moscow-based advisor to GPW, a British political risk consultancy.
The Kremlin also needs to keep the business elite happy, analysts say. Russia’s government has pledged financial assistance for companies that employ large numbers of people, such as Deripaska’s Rusal, which has 62,000 employees on its payroll. Officials are also reportedly drawing up plans to relieve pressures on sanctioned companies by creating special offshore zones inside Russia that would provide them with special tax and regulatory benefits.
Yet the government’s willingness to hand out tax breaks to Kremlin-linked billionaires such as Deripaska, risks exacerbating social tensions.
Russia’s top business leaders have seen their fortunes fall precipitously