Russia's Business Leaders Prepare For U.S. Sanctions
By: Analysis | Stratfor.comFebruary 22, 2018
Highlights
  • The possibility that Washington will retaliate with sanctions against Russian meddling in U.S. elections has prompted many wealthy Russians to consider how they will protect their wealth.
  • One prominent metals tycoon has begun distancing himself from the firms he once ran, prompting questions about how many others will do the same.
  • If many of Russia's wealthiest influencers begin stepping out of leadership roles in their firms, the power-balance among the business elite will shift — and this could have political repercussions. 

As Washington increases pressure on the Russian elite, one of Russia's most wealthy oligarchs is stepping down from two of his most prominent positions in a likely bid to save his empire. On Feb. 23, metals tycoon Oleg Deripaska will officially leave his presidential posts at RUSAL, the world's second largest aluminum firm, and En+ Group, a private Russian energy firm; Deripaska's representatives told Russian newspaper Kommersant that he will continue to hold controlling stakes in the two firms. By withdrawing from two of his most important posts, Deripaska is likely attempting to insulate his firms from coming U.S. sanctions, a move that other business leaders in the country may soon follow.

The prominent oligarch has long been on Washington's radar, and his name has been raised during various U.S. investigations into Russia. In January, Deripaska unsurprisingly appeared on the U.S. Treasury Department's list of prominent Russian elites and oligarchs that the United States is considering sanctioning. And he became a more of a target in early February after Anti-Kremlin activist Alexei Navalny published video and audio evidence of Deripaska discussing U.S. election meddling with Deputy Prime Minister Sergei Prikhodko. The meeting reportedly took place after Deripaska met with Paul Manafort, the former campaign manager to U.S. President Donald Trump. 

If the United States decides to expand sanctions against prominent Russian figures, it's not clear how severe the restrictions would be. But even limited personal sanctions could sour Western business and investment sentiments, damaging the financial health of Russia's business class and the country at large. En+ is a publicly listed company that will attempt to rally $1 billion in new shares in the coming months. Meanwhile, RUSAL carries more than $7 billion in net debt and is considering borrowing more to financially settle Deripaska's battle for control of shares of Norilsk Nickel, the world's largest nickel firm. If Deripaska is sanctioned, Western banks and investors may be wary of taking part in future dealings with his firms, so he is distancing himself ahead of time.

Deripaska was once Russia's wealthiest man, worth $28 billion before the 2008 financial crisis and worth an estimated $5.2 billion now. The tycoon is also one of the old-school, post-Soviet elites who has played Russian President Vladimir Putin's games most successfully over the past several decades, allowing the Kremlin to co-opt his foreign business ties and opening his wallet when Russia faced financial struggles. His clear move to protect his firms from sanctions by stepping down from leadership positions thus inspires the question of how many other major Russian elites — even ones who may have previously seemed unflappable — will follow suit.

Already, Russian oligarchs seem to be preparing themselves for the financial hurdles that will come with U.S. penalties. The country's wealthiest traditionally hold their fortunes abroad, wary of banks over which the Kremlin and Russian security services have eyes. But several Russian elites have begun moving billions of dollars back into Russia, so that they have tighter control over their wealth. The Kremlin has also been assisting in this effort, hoping to protect its countries' most powerful business peopleand to prevent any massive drain on their fortunes. Starting in March, the Kremlin will even enact a tax holiday to encourage the return of Russian cash. But an influx of billions of dollars could either give the stagnant Russian economy a bump or, conversely, bloat the country's economic system and contribute to inflation. Additionally, the return of so many elites' fortunes to the country could provide the Kremlin with an opportunity to dive into a new round of anti-corruption investigations and crackdowns.

Moreover, if many of Russia's wealthiest influencers begin stepping out of leadership roles in their firms, the power-balance among elites may shift, testing their priorities and their loyalty to the Kremlin in the face of external pressure.

This article originally appeared on Stratfor.com
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