It was only supposed to last a few days, but Russia has been at war for over a year now and there is no end in sight.
Mikhail Khodorkovsky was in Berlin last week to consult with the German government on the unfolding battle with Russia. Oligarchs have been in particular focus, and Khodorkovsky was a notorious oligarch in the 1990s when he acquired some of Russia’s choicest assets during the infamous loans-for-shares deal with the government in 1995 and 1996.
His career since then has been a rollercoaster ride. From being dubbed “the most corrupt oligarch in the most corrupt country in the world” by The New York Times in 1999, he reinvented himself in 2000 as a pioneer of good Russian corporate governance. The shares in his oil company Yukos became a “tourist stock” as international investors piled into the name, making him one of the richest men in the world under 40. “I’m three generations of the Rockefellers in one: the robber barons, the builders and the royalty,” he told this correspondent at the time.
He transformed again to martyr in 2003, when he was arrested on tax fraud charges and jailed for ten years. Yukos was seized by the state, broken up and sold at a series of dodgy auctions to the state-owned oil major Rosneft, making the latter the biggest oil company in the world in the process.
After his release in 2013, Khodorkovsky, known by his initials MBK, changed again, becoming a vocal Putin critic from exile in London, a role he had already assumed in 2001 when he founded the Open Russia, a reform-minded organisation that funds media and think-tanks to promote democracy, among other things.
After a meeting with the German Foreign Ministry in Berlin he met with a small group of journalists to discuss the situation in Russia and the war in Ukraine and made some surprising comments, including urging caution in the use of sanctions and sticking to the rule of law above all else.
The average Ivan
“The situation in Russia is different: it’s not so bad for normal people. The support for the war has not gone down; it’s gone up since the start because of economic and political grounds,” said the burly Khodorkovsky. “The economic situation for regular people has improved via three channels.”
Khodorkovsky argues that because the state has been pouring money into military production, spending has trickled down into the pockets of the average Russian working man.
Regarding the first channel, “most of Russia’s military production factories are based in small poor towns. That means there is a lot of work in these towns and the locals are happy about it,” Khodorkovsky said.
The second channel is to sign up as a kontraktnik, as those that sign limited contracts of service in the army are known. bne IntelliNews’ Moscow correspondent reports that in just the last two weeks the capital has been plastered with posters advertising work. The Kremlin has also just released a slickly produced recruitment advert extolling service for muzhik, as Russian refer to “real men”.
“The pay for a military contract is 10 times higher than the average salary and all the recruits are signing up from the poor regions,” says Khodorkovsky. “On top of these wages there is the money the state is paying to the families of the dead and compensation for the wounded. Some of this money is more than a family could earn in their entire lifetimes.” The final channel is simply the state social payments as the Kremlin sprinkles money all over the population to keep them sweet and compensation for rising utility, fuel and food costs caused by the war.
“The psychological problem these people have to deal with is to explain why they are fighting their brothers in Ukraine other than to earn money,” says Khodorkovsky. “That makes them more open to the propaganda. If you ask the average person why the war started they will answer: '[Nato] would have bombed our village if we didn't go to war'.” When asked how long the war will last, Khodorkovsky says that history teaches that war fatigue usually sets in after two years. “And we have only had one year so far.” He also says that the Kremlin will start to run out of money after two years, but admits that the money might last a few years longer.
Little change for the elite
For the elite very little has changed, says Khodorkovsky. “Those guys still have everything they had before, access to everything they needed to access before. It’s just a little more expensive than before,” Khodorkovsky told a small group of German journalist in Berlin where he had been speaking with the government. “The holiday destinations have changed from the EU to Dubai, but the restaurants are full. The nightclubs in Moscow are full. Are the elite satisfied with the situation? No. Can they influence events? No,” said Khodorkovsky. But that doesn't mean the situation is entirely stable. The elite are concerned by Putin’s fall or death, which would have far-reaching consequences and could end up with their ousting or jailing. But Khodorkovsky goes on to argue that the situation will not destabilise unless there is a significant military defeat in Ukraine or if Putin dies.
“At this point a military defeat is unlikely,” says Khodorkovsky. “The West is following its own line. If the weapons and money that have been given [up till] now [had been] given in the first month of the war then it would have been over very fast. Instead, the Kremlin has had a year to get ready and mobilise the economy and ramp up military production.” To highlight the half-hearted support for Ukraine, currently there are numerous reports on Ukraine’s preparation for a spring counteroffensive, but Khodorkovsky is sceptical that it can succeed.
“In my opinion, without proper air cover a counter-attack can’t succeed. For the West, providing fighter jets is a red line and by the time they are prepared to cross it, it will be too late,” said Khodorkovsky.
The former oil tycoon is also sceptical that ceasefire negotiations can start anytime soon. “As long as this regime is in place the war can’t stop,” says Khodorkovsky.
Khodorkovsky, who was jailed in 2003 for tax fraud and spent 10 years in jail while the state nationalised his Yukos oil company, says that Putin remains worried about his popular base and has repeatedly turned to war to shore up his support.
“Putin needs people to vote in the elections – and there hasn’t been a real election in Russia for more than 10 years,” says Khodorkovsky. “These wars are very useful for him. At the start of this one about 10% of the population were willing to fight. Now that is about 20%. Putin needs the nationalism fervour to maintain his support. The alternative is to improve the economy, but these sanctions are not coming off.”
Oligarch and refugee-packed Berlin is a poignant venue for the press conference, as walk down any street and you are likely to hear Russian being spoken, by the hundreds of thousands of Ukrainian refugees that have fled to Germany since hostilities started, but there were already 8mn Russian living in Germany, migrants that arrived following the fall of the Wall. The German constitution grants citizenship to anyone that can prove they have German heritage, and Catherine the Great (born a German princess) encouraged thousands of German farmers to migrate to Russia to develop its agriculture, the so-called Volga Nemtsi. Since then there has been a fresh wave of Russians arriving, fleeing the war as well.
A heated debate has broken out over the question of whether these newer arrivals should be let in simply because they don't want to fight in Putin’s war.
“If you believe that those Russians that want to come here because they don't want to fight and that if you shut them up in Russia there will be a revolution, then that is not going to happen,” said Khodorkovsky. “People with no weapons in their hands are not going to rise up against a totalitarian regime. If they stay they are faced with two choices: go to jail or co-operate with the regime. The answer is either you don't let them in, but that is inhuman, or you let them in but give them the full social package, but that is expensive,” says Khodorkovsky, who now lives in exile in London.
Part of the reason that Khodorkovsky supports allowing the refusniki into Europe is that this is the most attractive cadre that Russia has to offer: young, motivated, highly trained professionals – many of them from the IT sector – that are perfectly capable of looking after themselves. “You only need to give them a work permit and allow them to open a bank account. They won’t ask for social support. They will just start to rebuild their lives. If these people leave, then that is a problem for Putin.”
As for the oligarchs, so far the EU has seized $22bn worth of oligarch assets that will be turned over to Ukraine. However, as reported by bne IntelliNews, the campaign to seize oligarch assets is not going well. Russia’s super-rich saw their wealth increase from $353bn in 2022 to $505bn this year and added another 20 names to those that are worth more than $1bn, according to the latest Forbes rich list.
Fertiliser and coal producer Andrei Melnichenko is now the richest man in Russia and is worth more than $20bn. Only five participants in last year's list have renounced their Russian citizenship: Yuri Milner (DST funds), Nikolai Storonsky (Revolut), Timur Turlov (Freedom Finance) and JetBrains co-founders Sergey Dmitriev and Valentin Kipyatkov.
Some have called for the West to more aggressively seize the oligarchs’ assets to raise money for Ukraine’s reconstruction, but as a man that saw his company seized by the state, Khodorkovsky is more cautious.
“No Putin is worth undermining property rights [for],” says Khodorkovsky. “I’m for it but only if it is done via a court of law. I’m for giving people an exit. If they clearly denounce the war then it should be possible to be redeemed. What that should cost is a different question. Confiscation must be done by the courts.”
In Khodorkovsky’s own situation there was a court case that resulted in his conviction following his arrest in 2003. At the time it was widely assumed that he would cut a deal with the Kremlin and be released, but according to bne IntelliNews sources close to the company Khodorkovsky refused and preferred to go to jail than succumb to Kremlin pressure. He spent a decade in a penal colony as a result.
Ukraine is now also having a “Yukos moment” after the assets of Vadym Novynskyi’s Smart Holding were seized after he was sanctioned for “abetting the aggressor” last week. This case is still at the beginning, but Smart Holding is one of Ukraine’s biggest companies and owns significant assets in the domestic gas production that were a target of the seizures. The company’s management told bne IntelliNews that Novynskyi has done nothing wrong other than support the Ukraine Orthodox Church, which is linked to the Moscow Patriarchy.
The fastest rising star of the Kremlin’s elite has been Yevgeny Prigozhin, known as “Putin’s chef” and the leader of the Wagner PMC. After the Russian army suffered humiliating setbacks in September around Kharkiv and Kherson, it has taken a largely defensive position, leaving the active fighting to the Wagner troops around Bakhmut. Some have speculated that Prigozhin is making a bid for a larger role in the military and politically after the war.
“Prigozhin is a mirror as to how Putin sees the world. He doesn't see institutions, but people. If the army is fighting badly, he doesn't think 'what is wrong with this institution?' He only orders the generals to work harder,” said Khodorkovsky. “Since the Second World War, Russia has fought with a strafnoi battalion [or strafbat, the penal battalions that were executed if they retreated]. Prigozhin is the strafbat and plays the role that the NVKD used to.”
The Russian economy has done surprisingly well despite the extreme sanctions that have been imposed. In the early days of the war, economists were predicting a 15% contraction of the economy in 2022, but by the end of the year GDP was only 2.1% smaller. Nevertheless, Khodorkovsky says sanctions are working.
“The first big change is that Putin’s influence in Europe has fallen heavily,” says Khodorkovsky. “Before the war there were plenty of Western politicians that were interested in lobbying for Russia and getting access to Russian money. Now they can’t get it and won’t take it.”
The sanctions on technology have also been extremely effective and painful.
“Putin has been able to get round these sanctions, but it remains a huge problem for Russia,” says Khodorkovsky. “And there is no chance for developing alternatives, as all the tech people have left the country, especially military tech.” China has the arms and the technology, but even it has been reluctant to help.” The third aspect of the sanctions is the complete remake of Russia’s energy sector that Europe’s refusal to buy oil and gas has brought about.
“Russia can no longer sell energy on the premium market [in Europe]. It can sell to China and India, but the transport costs are much higher,” says Khodorkovsky. “When I was running Yukos we once had a deal to sell oil to Cuba. But all we did was a swap deal: oil was delivered from our partners in Venezuela to Cuba and we shipped oil from Russia to Europe. No one had any significant transport costs. Now you do.”
Khodorkovsky says that the sanctions are good, as they force Putin to only do business with other authoritarian regimes. He is cut off from the premium markets in the West.
“There is the possibility of another authoritarian round in Russia. The fear most Russians have is not that Putin will lose the war, but that Russia will lose it,” says Khodorkovsky. “People support Putin, but they are not convinced of his war. Russia has lost some 100,000 people in this war, but in WWII it was 32mn people, 20% of the population. That is the difference between Putin’s war and the people’s war.”