Preface. Since this blog focuses on peak resources, I drastically rearranged my notes from this book in the order I found most interesting. I’m also interested in corruption, Putin, fake news, and more, as you’ll see below. Since the book is 405 pages, I’ve obviously left out quite a bit, so buy it if you want to know more and much better flow and continuity.
Although peak oil is often spoken of as a geological issue, it can also stop flowing from wars, financial crashes, and in Russia’s case, from corruption.
By the way, Russia isn’t communist any more. It is a mafia totalitarian state. The only 5 nations that are still “communist” are North Korea, China, Cuba, Vietnam, and Laos.
Alice Friedemann www.energyskeptic.com author of “When Trucks Stop Running: Energy and the Future of Transportation”, 2015, Springer, Barriers to Making Algal Biofuels, and “Crunch! Whole Grain Artisan Chips and Crackers”. Podcasts: Collapse Chronicles, Derrick Jensen, Practical Prepping, KunstlerCast 253, KunstlerCast278, Peak Prosperity , XX2 report
Maddow, R. 2019. Blowout: Corrupted Democracy, Rogue State Russia, and the Richest, Most Destructive Industry on Earth. Crown.
Russia Peak Oil & Corruption
Putin had decided that Russia would be a petro-state—choosing an economic future for his country that best served his own needs. Oil and gas could be wielded as an international cudgel to force other countries to respect and deal with Russia no matter anything else Russia did. The industry also—bonus!—trailed enough easy cash to generate almost instant, almost limitless corruption wherever needed. And when you have those kinds of goals in mind for your one indispensable industry, and you run that industry like a Mafia chop shop with less omertà, eventually the actual business side of your dark little authoritarian scheme is going to suffer. Both financially and in its basic technical competence. And indeed, by 2014, the bright red star of Russian energy was dimming.
Putin used Russian natural gas and oil not only to make money for the Russian state but also to keep neighboring countries corrupt and dependent. It solved so many problems. It reduced expectations for democratic governance and the rule of law in those countries. It created a corruptly empowered political class invested in preserving the Russia-dependent system that enriched its practitioners and their families. It also created comfortable space for organized crime to flourish. The Russian government, under Putin’s control, has steadily become more integrated with all kinds of transnational organized crime in the former Soviet sphere. The beauty of Putin’s ever-deepening kinship with the mob was that it gave him a whole other set of levers with which to settle problems—and to make problematic people go away—whenever it might be unseemly to wield the overt powers of the state.
There were substantial problems in 2012, and almost all of them of Putin’s making. Gazprom, for instance, wasn’t really able to keep up with all the new European demand, because its production capabilities sucked. The company hadn’t invested in new technologies, because as a state-sanctioned monopoly propped up by the Russian government and therefore free from competition, it really hadn’t needed to. Dig deep enough in the company accounting ledgers and you’d find that Gazprom lost about $40 billion a year to corruption and waste. That’s a loss nearly equal to its annual profits.
Why was the state gas company buying TV stations? Well, why not? Gazprom was better understood not as an energy company but as a big battering ram President Putin used to get stuff he wanted. So yes, inefficient, money-bleeding, crappy Gazprom owned a television station and a bunch of other media properties, but only because Putin had arranged it in order to silence one of the few remaining critical voices in the Russian press. Vladimir used his security forces to arrest and to intimidate the critic who owned the media company, and then he used Gazprom as the piggy bank to buy the company at a steep jailhouse discount. Independent television journalism in Russia was thus dealt another blow, and Putin would instead have another reliable mouthpiece for the Kremlin’s party line.
For pure waste, though, little in the Gazprom history measured up to the Nord Stream gambit. “We’re spending money like hell,” said Managing Director Matthias Warnig, an old pal of Putin’s from their spy days. Nord Stream was a pipeline project that was built from both sides at once—from Russia and from Germany. Same pipeline, same materials, same building standards. But the Russian side of the construction project (led by the Rotenberg brothers of St. Petersburg, and remember them) cost three times as much, per mile of pipeline, as the German side did. That money was not going into the pension and health fund of the Russian pipe fitters’ union; it went into the pockets of Putin and his pals. The founder of Grant’s Interest Rate Observer, James Grant, sized up Gazprom and rated it, simply, “the worst managed company on the planet.” Congratulations, citizens of Russia, that’s the hash your government managed to make of the globe’s biggest supplies of natural gas.
Putin had been gangstering up the Russian oil industry for years. Eschewing competition that might encourage innovation and meritocratic success, Putin instead just smashed and grabbed any homegrown enterprises that proved resourceful or entrepreneurial or attractive to legitimate investors—goodbye, Yukos. He harassed foreign interlopers, too. He invented a dubious environmental violation bill of attainder, to force Shell Oil to hand over controlling interest to Gazprom in a $20 billion project in the far east of Russia.
Wheel of Fortune. Putin and the Russians “have essentially been coasting on the assets inherited from the Soviet Union,” Gustafson explained in talks promoting his book back in 2012. “Virtually all of Russian oil comes from fields that were already known in Soviet times. There have been very few new discoveries that are producing today. The drama of this situation is that the inheritance is now starting to run down….
It might have been dawning on Putin, under that bright red Lukoil canopy in New York in September 2003, that in allowing Russian businessmen—even patriotic Russian businessmen—to do business with ExxonMobil and BP and Chevron and Shell, he risked losing his iron grip on the industry that provided the lifeblood of the Russian state.
There was still plenty of oil and gas underfoot in Russia. But it was in the tight shale formations, or offshore in the Arctic seas, and it was going to be both difficult and expensive to get. “Bottom line is Russia is not running out of oil, but it’s running out of cheap oil,” explained Gustafson. “That looks pretty bleak….
The country, meanwhile, has eroded into a stultifying economic sinkhole for average Russians. “Despite receiving $1.6 trillion from oil and gas exports from 2000 to 2011, Russia was not able to build a single multi-lane highway during this time. There is still no interstate highway linking Moscow to the Far East,” Karen Dawisha wrote in her richly detailed 2014 book, Putin’s Kleptocracy. “The inability of well-trained young graduates to succeed as entrepreneurs and innovators in Russia has stimulated emigration and plans to emigrate.” Dawisha went on to quote a pollster in Moscow on the plight of young Russians: “They have nowhere to go, nothing to do, and nothing to hope for.” “The lack of adequate medical care produces five times more deaths from cardiovascular disease among women in Russia than in Europe,” the professor wrote. “More Russian women die annually from domestic violence than the number of soldiers the USSR lost in the entire Afghan war. For Russian men, the situation is even grimmer. Poor workplace and road safety standards, plus high rates of suicide and homicide combine with the negative health effects of high alcohol consumption to make life especially precarious….According to the World Health Organization, the life expectancy of a fifteen-year-old male is three years lower in Russia than in Haiti.
Russia under Putin has become warped and stunted—a gigantic multi-continental country of 150 million souls, living on an economy considerably smaller than Italy’s.
When the Resource Curse takes hold in a country as big and influential and aggressive as 21st century Russia, it turns out to be the entire world’s problem. What has happened to Russia is like when a faraway humanitarian concern morphs from a charity cause into an international terrorism threat. Russia’s Resource Curse has become a malignant tumor spreading through the rest of the world.
But as Putin’s Russian Federation revealed itself to be a robustly corrupt, authoritarian regime happily committed to securing its own survival by force, it repeatedly and increasingly put itself into rogue state territory, and that ultimately screwed up its ability to play in the global markets as if it were some kind of normal country. Putin’s best-known exports list has lately comprised the most dreaded organized crime syndicates on earth, money laundering on such a massive industrial scale that it can bring down whole national cornerstone banks in any part of the globe, exotic assassinations, rogue-state-friendly weapons systems, illegal out-of-uniform military incursions, and the first seizure of another country’s territory in Europe since World War II. That sort of activity can get in the way of a country’s global business operations, on the odd chance that there’s anyone on the face of the globe who sees it as their responsibility to punish and isolate the kinds of international bad actors that invade their neighbors, shoot down civilian airliners, and send intelligence officers armed with nerve agent to assassinate their exiles in British cathedral towns.
If the problem is that Russia’s behavior is too outré to be accepted in the global economy, then change the expectations for what counts as outré. Be the leveler. Corrupt other countries. Gain control over the former Soviet states in the near abroad by owning their politicians, by controlling the range of possibilities their people are allowed to choose for themselves. Ruin exemplars of governance and responsive democracy. Support separatism and the dissolution of bonds and treaties and Western norms wherever they’re vulnerable. Become internationally powerful through force (when you can muster it) or sabotage. Cheating is now Russia’s most viable avenue in world affairs.
This is the vexing predicament facing the Kremlin: Putin’s thug dream of resurgent Russian dominance—fueled by oil and gas—is one that can’t come true without international help to make his one indispensable industry capable of competing in the global market. And he can’t get that international help as long as he’s recognized as a gangster and treated like one.
So as of 2015, Putin faced a rapidly diminishing ability to use oil and gas as a substitute for legitimate global power, and no way forward without some kind of move—any move, no matter how nutty—to get those sanctions lifted and to relieve Russia of the burden of U.S.-led opprobrium and global Western leadership. It was worth trying almost anything.
As Special Counsel Mueller and reporters throughout Europe and America have made clear, the Russian Federation ultimately embarked on a deliberate and aggressive campaign to tear apart Western alliances, to rot democracy, and to piss in the punch bowl of free elections all over the civilized world. It continues to this day. And Putin isn’t doing this because of Russia’s strength. Not according to people who have watched the action up close. Russia “gives the impression that I am a lion who walks through the world hitting France with one paw, with the other Britain and America,” says Romanian security expert Dan Dungaciu. “But it is not a lion. It is rather in the role of a hyena, which senses a crisis and goes there and plays on the crisis.
Russian fake news and interference in 2016 election
it’s clear that jobs at Internet Research were coveted. Most of the hundreds of young people who worked at 55 Savushkina made around $700 a month; under the table, in cash. No need to report it to the tax authorities. This was very good money indeed for playing make-believe on your computer, twelve hours a day (two days on, two days off). The salary was equal to that of a full professor at a local university
Most all of the fun at Internet Research was in creating personas that could comment and blog and post and tweet and network with people anywhere in the world: a European fortune-teller who opined on dating, dieting, crystals, and feng shui; a young professional woman who unleashed bons mots about Kim Kardashian’s latest nekkid selfie; a specialist in vintage automobile repair living on a sunny coast in Central America; a movie critic in Los Angeles. “It was an opportunity for them to live a life they always dreamed about and to pretend to be somebody else,
“They can be a gorgeous knockout. They can be bodybuilders. They can live in any part of the globe. In America. They could live the life they’ve always wanted to live—through the internet.
The Internet Research Agency was engaged in constant, rapid-response-driven information warfare. Speaking to co-workers was frowned upon. Talking about the work to anybody outside the building was forbidden. The nondisclosure form was the first thing a new employee signed. Show up late and you were docked pay. Fall short on the quota of work and you were docked pay. The folks on the social media teams were expected to produce five political posts, ten nonpolitical posts, and more than 150 comments every two days. Without fail.
The topics and tenor of the political content were decided at the top, every day. “We’d come in, turn on a proxy server to hide our real location and then read the technical tasks we had been sent,” an Internet Research Agency employee explained to The Guardian in March 2015. Most of the technical tasks the previous year, as the agency was getting its sea legs, centered on Ukraine—looking for ways to justify Putin’s invasion and takeover of Crimea and his ongoing military effort to do the same in the Donbas. Daily tasks called for savaging the new democratically elected, pro-EU, pro-U.S., anti-Russian government in Kyiv. They were fascists, anti-Semites, baby killers. Ukrainians fighting in their own country against out-of-uniform Russian soldiers and artillery and tanks were invariably described as “terrorists.” The more shocking the fake stories about heinous atrocities committed by the Ukrainians against the Russian “freedom fighters” in the Donbas, the better.
In the first days of March 2015, immediately following the assassination of the Putin critic Boris Nemtsov, technical task orders spurred hundreds of posts and tweets pointing fingers at Ukraine for the murder. It wasn’t Putin but the government in Kyiv that had killed Nemtsov! How does that even remotely make sense? Oh, follow along, why don’t you. See, the Ukrainians killed him as an exercise in reverse psychology. Shooting Nemtsov on the night before his big antiwar march was designed to stir up anti-Putin opposition in Russia! Killing an anti-Putin leader—that’s obviously a plot against Putin. “The murder is pure provocation….The state is doing everything to catch Nemtsov’s murderers….[Putin’s] best specialists have been sent to fulfill this goal.” There was no evidence, no hint of corroboration, to back up this nonsensical claim. Which means you just have to make it more loudly and more frequently.
And it wasn’t just about shaping the response to real events that people would normally be talking about. The Internet Research Agency spread word of stories and ideas and characters that would otherwise not get a second glance if it weren’t for the artificial hype its employees were churning out on a twenty-four-hour no-rest double-shift schedule. The morning after Foreign Minister Nathan Smith (Texas National Movement) gave his interview across town in St. Petersburg, Internet Research trolls were tasked to weigh in on the momentous secession crisis facing the Lone Star State. Dozens of tweets and social media posts started popping up, ready to be shared and retweeted, all across America. And in not particularly bad English.
Internet Research soon set up its own Facebook page promoting secession—and it was a hit! “Heart of Texas” drew followers by the tens of thousands, all of whom could be spoon-fed content devised by Russian agents in St. Petersburg and in turn pass it on to who knows how many Facebook friends and Twitter followers. “Heart of Texas” was one of scores of separate IRA-controlled Facebook pages
They had to get up to speed on American culture and politics, and specifically the most contentious and divisive issues of the day—immigration, gun laws, race, the Confederate flag. They had to spend hours screening one slightly cartoonish but very popular political series on Netflix. “At first we were forced to watch the ‘House of Cards’ in English,” said one of the trolls who worked at IRA in 2015. “It was necessary to know all the main problems of the United States of America. Tax problems, the problem of gays, sexual minorities, weapons. Our goal wasn’t to turn Americans toward Russia. Our goal was to set Americans against their own government. To provoke unrest, provoke dissatisfaction.
We also know that the Kremlin-run trolls at the Internet Research Agency were actively spewing incendiary provocations and content designed to promote Donald Trump leading up to, and all the way through, the 2016 general election campaign, and then through the start of the Trump administration. Content created by the Internet Research Agency and its brethren is known to have reached well over a hundred million Americans in the election season. The IRA greatest hits Facebook pages were “Stop A.I.” (meaning “All Invaders,” complete with many graphics of scary-looking Muslims), “Being Patriotic,” “Blacktivist,” and “Heart of Texas.” Each of those pages got more than eleven million discrete engagements.
African American voters—the bread and butter of the Democratic base vote—appear to have been targeted more aggressively than any other demographic, to turn them against Clinton or to dissuade them from voting altogether. “A particular hype and hatred for Trump is misleading the people and forcing Blacks to vote Killary,” said the IRA-invented Woke Blacks. “We cannot resort to the lesser of two devils. Then we’d surely be better off without voting AT ALL.
The IRA-created United Muslims of America posted an ad that read, “American Muslim voters refuse to vote for Hillary Clinton because she wants to continue war on Muslims in the middle east and voted yes for invading Iraq.” An official-sounding but fake “TEN_GOP” account—often assumed to be registered to the Republicans’ state party in Tennessee—shouted out a make-believe story about the election board in Broward County illegally counting tens of thousands of fraudulent mail-in ballots marked for Hillary.
As the election neared, the Internet Research Agency pros turned both rhetorical barrels on Hillary Clinton. If the Democratic nominee won the presidency, a “Heart of Texas” Facebook ad screamed two weeks before the election, there would be no choice but to secede. Because another Clinton in the White House would mean “higher taxes to feed undocumented aliens. More refugees, mosques, and terrorist attacks. Banned guns. Continuing economic depression.
They found the most ragged faults and fissures in our democracy: immigration, race, religion, economic injustice, mass shootings. Then they poured infectious waste into them. They used traditional media, social media, and disinformation to try to make citizens of differing experiences and viewpoints hate and distrust each other as much as possible; made public discourse and discussion as evil and mean-spirited and alienating as possible; created miserable expectations for coarseness and cruelty and blatant dishonesty in politics and civic life.
The Russian operation pushed American politicians and political parties to more and more extreme positions; it celebrated all manner of fringe, splinter, and radical politics and demonized centrists, moderates, and anybody on any point of the ideological spectrum who actually believed the levers of government could be harnessed for anything useful at all. And his achievement came cheap. A thousand—ten thousand—highly trained Illegals chatting up middle managers at conferences and dead dropping their expense forms could never have pulled off something this high-impact. This new type of operation was infinitely more effective, and bargain-basement affordable, and, because it worked, the blowback has been minimal. At basically zero cost, Putin succeeded in his biggest aim: he corrupted and polluted our most treasured possession, our democracy.
Tillerson and Russia
Russia was dependent on foreign know-how in oil and across the board for that matter, as can be seen in how few inventions were patented there, Russia took home only 0.2 percent of the 1.3 million overseas patents awarded since 2000 by the U.S. Patent and Trademark Office, lagging behind the state of Alabama in total annual awards.
Rosneft sucks. It wasn’t as if it got big and powerful by streamlining its supply chains and inventing stuff. Rosneft sucks all the time, but especially lately, when—because of sanctions against Russia for its terrible international behavior—it no longer has access to all that nifty Western Arctic- and shale-drilling technology it needs to reap that increasingly hard-to-get Russian oil.
Russia’s economic future therefore depends on Putin making deals with major international oil and gas companies who can be counted on to understand his imperatives and to not care at all about ethics and governance and geopolitical consequences of their cozying up to the Kremlin. Those kinds of deals aren’t just beneficial to the Russian economy; they’re critical necessities for Putin’s one-track plan for twenty-first-century Russia. And it turns out that as long as Putin is honoring the “sanctity of contract” and implementing friendly tax laws, industry leaders from the West have shown little hesitation in making those deals. That’s the business part.
Here comes the hero. Here comes the handsome hero. Aside from being the possessor of impressive (and very valuable) technological prowess—or so it was said—Tillerson had shown himself a savvy strategist, both in business and in geopolitics. Why was Exxon (under Tillerson) welcomed with a bear hug when Shell and BP and even Exxon (before Tillerson) had all been roared at and given such a hard time? Well, for one, Tillerson was not making boneheaded Lee Raymond–esque demands about getting majority control of Rosneft; Rex made clear—in word and in deed—that he was fine with Putin staying in charge; he just wanted to be a good minority partner. He also seemed dialed in to the foreign policy game afoot in Russia.
In the ExxonMobil-Rosneft megadeal, ExxonMobil was giving as well as it was getting. Rosneft received 30% stakes in a handful of ExxonMobil’s projects in North America, from Alberta, Canada, to the Gulf of Mexico. In exchange, ExxonMobil was getting a crack at unlocking all that hard-to-get oil and gas in the tight formations in Siberia, in the Black Sea, and, most important and most difficult, in the Arctic waters of the Kara Sea. The up-front costs would be enormous. The project could be on line for more than twenty years. Total spending might well run into the hundreds of billions.
The arctic in 2008, “accounts for about 22% of the undiscovered, technically recoverable resources in the world. The Arctic accounts for about 13% of the world’s undiscovered oil, 30% of the undiscovered natural gas, and 20% of the undiscovered natural gas liquids.” A lot of that potential hydrocarbon haul—maybe most of it—resided in Russian territory. But it wasn’t going to be easy to get,
What the Russians brought to the oil and gas game north of the Arctic Circle in 2012 was sheer brute force. Which was much needed. Almost any maritime operation in the Arctic promised a punishing battle against the harshest nature can offer. The Northern Sea Route from Murmansk, Russia (up near the northern coast of Finland), through the Barents Sea, the Kara Sea, the East Siberian Sea, the Chukchi Sea, and out through the Bering Strait was navigable only a few months a year because of ice.
Americans like to think the dueling-superpower thing ended conclusively with the Cold War, with the United States now the undisputed winner in every conceivable matchup between the two countries. But in ice water? Turns out Russia still ruled. In 2011, a tanker chartered by Russia, the STI Heritage, made the quickest Northern Sea Route run of that year—just eight days—with two nuclear-powered, fresh-vegetable-producing icebreakers clearing the way. Russian-escorted tankers filled with tens of thousands of tons of iron, jet fuel, and gas condensate had made the Arctic transit more than thirty times that year. The Russian Federation was already writing big checks to manufacture four even larger and more powerful icebreakers to lead the fleet. Three of them double-reactor nuclear. Which meant the Russians would be able to plow out to offshore Arctic drilling sites and to deliver crude oil and liquid natural gas from that icy domain to almost any country in the world, for years to come.
But here was the problem: despite its unrivaled ice-busting prowess, Russia didn’t bring much to the actual offshore drilling operations in the frozen north. Russian companies, for instance, offered little in the way of useful drilling rigs or equipment of any kind—not even basics like subsea wellheads. In 2012, having made Russia’s economy and its power in the world almost entirely dependent on oil and gas, Putin faced a serious conundrum: his ability to maintain Russia’s place as an “energy superpower” depended almost entirely on availing himself of the expertise and technology of major Western oil companies. Russia had oil companies, sure, but they were gangster economy creations, and not one of them was technically or even financially competent.
They all wanted in, of course. The potential profits were ginormous. But success in the Russian Arctic would require overcoming two very difficult challenges. First, some Western oil major would have to figure out the proper care and feeding of Vladimir Putin, given the desperately high stakes of oil and gas for his presidency. Look at the ashes of Yukos; look at the chewed-up remains that Putin and Sechin spit out from what used to be BP’s “joint venture” in the country. This was going to be a delicate thing. What Western company would be willing to put itself in service to the Russian government, in service to Putin? Whose shareholders, whose home country, would stand for it? Which executives could stomach making that kind of arrangement? And then there was the second difficult prospect for this potential partnership. No one much liked to talk about it. But, um, were the Western oil majors actually capable of drilling up in the Arctic? They said they were, but could they really do it?
Exxon had in fact sunk a ton of money into this potentially globally transformational project. It could change Exxon’s future, and Russia’s, and the world’s. One immediate problem it faced, though, was the weather in the Arctic. The Exxon-Rosneft team had a window of about 70 days before the ice floes closed in on the drilling platform.
Tillerson’s efforts on behalf of President Putin to lift sanctions after his invasion of Ukraine were not merely secondhand, or sotto voce. At a public forum that spring, Rex insisted rather churlishly that sanctions were rarely effective—because they were, as a rule, poorly implemented. Tillerson was apparently not at all concerned that he might be undermining a critical and very delicate U.S. foreign policy strategy, that threats of economic isolation from the U.S. government would not be quite so worrisome to Putin if the head of the biggest U.S. oil company was simultaneously jumping into his lap. He just kept jumping. Tillerson assured his shareholders at ExxonMobil’s annual meeting that the upcoming drilling campaign in the Russian Arctic was still a go.
Thank God for Russia. Thank God for the honeypot of known oil reserves in western Siberia, not to mention the vast untapped reserves off Russia’s Arctic shelf. Lukoil had five Arctic-ready, icebreaking oil tankers on order at that very moment
There was already a plan afoot, worked out among the energy pooh-bahs of the Bush and Putin administrations. U.S. companies would help finance a new pipeline from the oil fields in western Siberia to the Russian port city of Murmansk, as well as new storage tanks there and improved deep-water facilities commodious enough for big tankers to maneuver in and out.
Putin thought that Russia could be supplying 10% of U.S. oil imports before George W. Bush finished his second term in office. Maybe more. “It’s not just oil,” Bush’s deputy secretary of energy had said on a reconnaissance visit to Murmansk. “Natural gas is also going to be an important factor in our energy relations.
The future U.S. ambassador to Moscow Michael McFaul—was just beginning to take the measure of the new Russian president and had already warned of the risk that Putin would evolve into an autocrat who monopolized control of government and the economy behind the window dressing of democratic institutions.
Hopes for a world-changing American-Russian partnership—the canopy to protect us all from the vagaries of the international and political weather—have long since crumbled. As has the idea of Vladimir Putin as a force for global stability.
His efforts to restore Russia as a world-stage superpower no longer depend on capacity and know-how. They depend on cheating. Putin and his minions cheat at the financial markets. They cheat at the Olympics. They cheat at their own fake democracy. They cheat other people out of their democracies.
I do not propose to discount or minimize the powerful and positive effects the producers of our hydrocarbons have had on our own country and on the world at large. I like driving a pickup and heating my house as much as the next person, and the through line between energy and economic growth and development is as clear to me as an electric streetlight piercing the black night.
I also want to be clear: the oil and gas industry is essentially a big casino that can produce both power and triumphant great gobs of cash, often with little regard for merit. That equation invites gangsterism, extortion, thuggery, and the sorts of folks who enjoy these hobbies.
Russia’s one essential industry today has to keep up even with the West, even with the democracies. Putin knows Russia can’t do it alone, but it also won’t do it together—not if it has to be on the West’s terms. And so the West’s terms must be changed. Behold the new world disorder. Behold the foreign trolls in your Facebook feed.
How Putin rose to power
Yeltsin did manage to install his own replacement on his way out of office: a little-known pol who appeared both willing and able to shield the Yeltsin family from criminal prosecution—forty-seven-year-old Vladimir Putin. A trained Soviet KGB operative then heading its successor outfit, the FSB, Putin had done the sitting Russian president the memorable favor of successfully derailing the criminal investigation into the Yeltsin clan. He did so by blackmailing Russia’s prosecutor general with a fake sex tape. Putin made sure the grainy tape of an actor playing the prosecutor general and two prostitutes (playing themselves) was broadcast on Russian television. The poor quality of the video rendered it unconvincing, but Putin made an appearance at the TV studio that night to personally vouch for the tape’s authenticity. His word sufficed.
The prosecutor resigned, and the case against Yeltsin was abruptly closed. Yeltsin had rewarded the FSB boss’s intrepidity by nominating him to be the next prime minister. So when Yeltsin stepped aside on the final day of the twentieth century, Vladimir Putin was the next man up for the Russian presidency
Putin and his security-minded retinue had learned a few tricks for exercising power after branching off from spying into politics to run Russia’s second city, St. Petersburg, in the early 1990s. Like the Yeltsin-made oligarchs, they found that democracy and capitalism, harnessed just so, could still deliver personal benefits just like the old communist regime did. Putin’s team installed and managed a vigorous kleptocracy from their offices at city hall. The citizens of St. Petersburg might suffer from want of food and electricity and decent wages, but Deputy Mayor Putin and his key aides made out splendidly.
Putin’s St. Petersburg clan relied on graft, financial manipulation, and violence as needed. There was no government or civil institution powerful enough to check them. The courts and the legal system were not instruments of justice in siloviki hands but instruments of power, or vlast. “For my friends, everything; for my enemies, the law,” the saying went. Putin and his siloviki carried these tools from St. Petersburg to Moscow in 1996 (at Yeltsin’s invitation)
The Russian people got a less soothing picture of exactly what Putin meant to accomplish in the days leading up to his inauguration, when a leading liberal newspaper in Moscow published the secret siloviki manifesto Reform of the Administration of the President of the Russian Federation. The document was tidy, easy to understand, and uncommonly forthright. Control over the economy and politics would once again devolve to a central authority, that is, the president’s office. The legislature of the Russian Federation, the Duma, would be rendered impotent, as would local governors, administrators, and politicians—no matter how seemingly friendly. Key media outlets would be bought and controlled by the Russian government, to help provide “active agitation and propaganda” in support of Putin, and to actively discredit and undermine any opposition to the same. Who would be in charge of the state’s new modern adventure in securing permanent, unitary, unchallenged power? The institution Putin most trusted: the FSB. “All of the special and secret activities of the Directorate relating to counteracting the forces of opposition to the President,” read the manifesto, “will be entirely in the hands and under the control of the special services.
The toughest nut for Putin to crack when he first took office was the question of the oligarchs Yeltsin left behind (and their powerful gangster counterparts). A few months into his new regime, President Putin called them all, including Khodorkovsky, to a meeting at Stalin’s old dacha just outside Moscow, still outfitted with the desk and daybed from which Stalin dreamed up his Great Purge of enemies and elites. With that unsubtle setting as an ambient cue, Putin laid down the new law, or more precisely, the new balance of vlast. They could hold on to their ill-gotten gains, Putin told them, and operate as they had for the last decade, as long as they offered no opposition to the new regime in the Kremlin.
All this might have been forgiven, considering the extraordinary tax revenue Yukos was adding to the Russian government till (as much as 5% of the annual government take, according to Gessen), but Putin believed by then that Khodorkovsky was also in the middle of entering into a pact that was something near treason. It wasn’t just the noise about promoting anti-Putin political parties; it was worse: Putin learned he was negotiating the deal with Lee Raymond and Raymond’s number two, Rex Tillerson, that would give ExxonMobil 30% of Yukos—a deal that might one day permit the American company to gain controlling ownership of the most able and impressive company in the single crucial industry in Russia. Russia might not have been a superpower anymore, it might not have had a first-world military or economy or anything else anymore, but by God Russia had oil. And now Russia was supposed to willingly give that up, too? The thought, to Vladimir Putin, must have been somewhere between nauseating and enraging. Khodorkovsky’s great meritocratic free-market ride came to a screeching halt.
J. P. Morgan joined Morgan Stanley as one of the four joint global coordinators and book runners while Goldman Sachs signed on as a senior co–lead manager. To put it bluntly, Rosneft’s IPO campaign ended up making the world complicit in Putin’s theft of Yukos and spread the shame of it around the globe. The markets knew the Russian government had ripped off that company and framed its leader, flat out stealing billions from Yukos shareholders. But Morgan Stanley and the markets and the investors in those markets chose to look the other way because the potential payoff was too enticing.
Putin could imagine the world lining up to pay respects at his doorstep, according to The New York Times, in spite of his gangster behavior and in spite of the fact that the Russian oil and gas industry he controlled was known for its “tumbledown” machinery and technological deficiencies. “President Vladimir V. Putin has elevated energy to a central position in Russia’s foreign policy,” the newspaper wrote in 2006, “giving Moscow influence and respect in world affairs not seen since the demise of the Soviet Union, as consuming nations court the Kremlin for access to ever scarcer energy.
The basic problem is that oil doesn’t happily coexist with other industries upon which you might build a reasonably stable national economy. That’s true in the third world, the first world, and even in the world in between, e.g. Russia. It creates such large, up-front, sweat-free gains for connected elites that no one wants to do anything else but chase the oil jackpot. And as oil crowds out other industries, the profits don’t ever seem to end up redounding to the nation at large. Extracting oil takes a lot of up-front capital investment, but that expensive initial, physical investment doesn’t create anything utile for any other purpose.
Oil extraction is much more capital-intensive than it is labor-intensive—which means it doesn’t produce a lot of lasting jobs.
Even with less rapacious political elites, there’s still the baseline problem that oil is a tradable commodity subject to wild international winds; with big swings in the price of oil, any effort at long-term, sane budgeting and investment for the population’s basic needs is impossible in a country newly dependent on oil revenues for its cash.
Russia’s power and wealth comes from oil and gas
While the median household in the oil exporter Norway enjoyed an income of more than $50,000, and Saudi Arabia about $25,000, the median household income in Russia was less than $12,000. Oil exporters such as Algeria, Venezuela, Qatar, Kuwait, and of course Saudi Arabia held back enough crude that their citizens at least got fuel at rock-bottom prices. Russians received no such break. And even if a Russian could afford an entire tank of full-price petrol, the state of the roads made driving dicey. A trip on any of the major thoroughfares connecting Moscow’s international airport to downtown was an obstacle course of potholes.
At a state visit in Berlin in September 2005, Putin persuaded the German chancellor, Gerhard Schröder, to sign on to a partnership to build a new 750-mile pipeline under the Baltic Sea to carry Gazprom gas into Germany. Gazprom would then take large ownership stakes in the new Nord Stream pipeline and new storage facilities across Europe. The European Commission nodded in approval of Nord Stream, especially after proposals to extend the pipeline into the Netherlands, Britain, Sweden, and Finland. News of the deal came as a relief to Western Europe, where natural gas reserves were dwindling so fast there was fear they’d be entirely depleted in five years. Europeans desperately wanted and needed that plentiful Russian gas to heat their homes and run their factories.
On New Year’s Day 2006, Putin offered Europe a little demonstration of just how vital was his proposed new pipeline and just how desperate things could get if it went unbuilt. That day, as the frigid season was setting in across Europe, Gazprom made sudden drastic cuts in its supply of gas into Ukraine, which at that time held the only extant pipelines from Russia into the rest of Europe. Ukraine predictably siphoned off the gas it needed from the supply transiting through its landscape into other European countries. Gas deliveries into Austria dropped by a third the next day; gas deliveries to Hungary fell by 40% on the day following. Slovakia, also down 40%, declared a national emergency. Industrial output in Bulgaria and Romania ground to a stop. While these and other European nations shivered in panic, the Russians pointed the finger at Ukraine for stealing the natural gas bound for them, and insisted Gazprom customers could not rely on Ukraine to play fair with EU-bound gas. By the time the Russians made peace with Ukraine and turned the spigot back on, the new Nord Stream (which bypassed the allegedly pilfering Ukrainians entirely) was the talk of Europe.
By the time the Nord Stream project broke ground in 2010, Team Putin had proposed a second and longer pipeline, South Stream, which would carry gas from Russia across the Black Sea and then as far as Austria and Italy. Nord Stream had been on line for almost six months in March 2012, when Putin won a third presidential term. Russia was supplying the European Union 40% of its natural gas imports while cutting Ukraine out of the deal. Gazprom supplied every single cubic meter of imported natural gas up the line to EU members Bulgaria, Slovenia, Slovakia, Latvia, Estonia, and Finland. It supplied about a third of Germany’s natural gas imports (as well as a third of its oil imports). Add to that, Russia had completed a new pipeline for pumping oil into China, the country with the fastest-growing economy and the fastest-growing energy needs
To discerning eyes in 2012, a map of the two pipelines transiting much of the continent appeared like a pair of giant pincers with which Russia would squeeze Europe.
More Russian corruption
Putin’s record $12 billion Winter Games budget had ballooned to $50 billion, according to the report. This made the final price tag for Sochi the biggest ever for an Olympic Games, winter or summer. Almost ten times the cost of the immediately previous 2010 Vancouver Games. More than the cost of the previous 21 Winter Olympics combined. Nemtsov generously pointed out that major budgetary overruns are the rule in these projects. Vancouver’s final bill, for instance, was a little more than double the original estimate. But that was nothing like what happened in Sochi. The cost of constructing the new thirty-mile highway and rail line leading from the Black Sea into the snowy mountains had run to more than three times the cost of the recent American space program to send a rover to the planet Mars (which is 34 million miles away). A new natural gas pipeline, built by the same Kremlin-favored Russian company that had built the inexplicably expensive Russian side of the Nord Stream pipeline, came in at five times the average cost of a European pipeline. Labor costs did not account for any markups. Pay was lousy and spotty on every project. Workers who complained aloud were silenced with firings or even beatings.
Kremlin contractors simply imported foreigners who were willing to work 80-hour weeks and didn’t whine when their lousy, $2-an-hour wages were delayed or never paid. Putin’s builders had pocketed somewhere between $25 billion and $30 billion in “embezzlement and kickbacks. More than 90 percent of the money spent on the Games came right out of the Russian Federation’s government accounts. “The money stolen,” read the report, “could have paid for 3,000 high-quality roads, housing for 800,000 people or thousands of ice palaces and soccer fields all over Russia.
The flow of goods and cash into Sochi set off a full-on organized crime war that left a trail of dead gangsters.
Putin was the proud owner of a new compound as well, this one in the mountains outside Sochi. “It is called Lunnaya Polyana, or Moon Field, a reference to the barren landscape upon which it sits,” wrote Forrest. “It is protected by some of the 30,000 Spetsnaz special-forces troops that Russian military has dispersed into the mountains, there to live in tents until the Olympics are over. Putin has built himself two massive chalets, two helipads, a power station, and two ski lifts, servicing surrounding peaks.” Smack in the middle of what was supposed to be a protected national park, “the Russian state built a private dacha on a UNESCO site under the guise of conducting meteorological research.
Russia vs Ukraine
In the aftermath of his forcible annexation of Crimea, Putin was enjoying an enormous surge in popularity inside Russia. This first step in the advent of what he called Novorossiya (New Russia)—restoring the lost territory and the old glory of a faded empire—had caused Putin’s personal approval ratings to jump into the mid-80s by the summer of 2014. The approval numbers among his long-standing base constituency of poor, rural, less-educated Russians had ticked up to around 90%. The approval numbers among the urban intelligentsia, meanwhile, soared from below 50 to 75%. Russians had suddenly decided—after ten years of saying otherwise—that they would rather be struggling citizens of a superpower nation with swagger than struggling citizens of a beat country.
The international community was alarmed, if not outright horrified, that the Russian putsch hadn’t stopped there. Putin’s military had also massed soldiers, tanks, and artillery on the Ukrainian border as a sign of encouragement to separatists in the Donetsk and Luhansk oblasts, a region known as the Donbas. Somewhere between a quarter and a third of the population in those two oblasts had voiced support for annexation to Russia. Putin’s commanders explained they had moved military assets to the border in case they were called to sweep in and protect the Russian-speaking population in these oblasts from the depredations of Ukrainian leaders who had taken charge of the federal government in Kyiv.
The area nearby also accounted for something near 90 percent of Ukraine’s oil and gas production, and fracking technology promised to open new fields.
Ukraine had been a founding member of the Union of Soviet Socialist Republics in the early twentieth century, but a conflicted one. The citizenry’s sense of itself as a separate and sovereign nation was never extinguished, and when it finally got the chance in 1991, the industrialized nation of fifty million chose independence, with an exclamation point. Nine in ten Ukrainians voted “yes” in the world-changing Act of Independence referendum that year. Even in Ukraine’s largely Russian-speaking oblasts on the Russian border like Luhansk, Donetsk, and Crimea, voters overwhelmingly picked independence. Three years later, the new Ukrainian government traded in its nuclear arsenal—the third largest in the world behind the United States and Russia at the time—for “security assurances.” The United States, the United Kingdom, and Russia signed on to the Budapest Memorandum in December 1994. Ukraine handed over its 176 long-range missiles and its nearly 2,000 nuclear warheads, and in return the other major nuclear powers agreed to respect Ukraine’s existing borders and its sovereignty.
The West chipped in with a large aid package. Cash-poor Russia promised what it could, and what it could promise was a robust and ongoing supply of cheap energy.
Ukraine had a mammoth appetite for gas—for Russian gas. The country consumed more fuel as a percentage of its GDP than any nation in the world, and its fuel of choice was natural gas. The country bought three-quarters of its supply through Russia’s state-controlled monopoly, Gazprom; it also made money transiting Russian gas through pipelines to Gazprom customers in Europe. So even after the Orange Revolution and the election of Yushchenko, Russia still managed to keep a hold on the reins of Ukraine’s economy, and its politics—which was perfect, as far as Putin was concerned. The infinitely corruptible energy business allowed Putin to pick and choose who would be rich and who would be powerful in Ukraine. He had learned this system well in St. Petersburg and then in Moscow, and it fast became Putin’s strategy for projecting Russian power beyond its borders. The biggest threat he had to keep at bay was the prospect of strong, rich, stable, Western-oriented democracies in Russia’s near abroad. That sort of thing could not only challenge or constrain Russia’s regional power; it could conceivably—the horror—inspire the Russian people themselves, leading them to demand a democratic say in their own government as well.
There was fantastical corruption at the very heart of the Ukrainian state, and so would the prospect of all the richest and most powerful and influential people in Ukraine being dependent on Russia’s every whim. It cost Gazprom a pretty penny—straight out of Russian government coffers—but it was worth it. Firtash (as well as some of Putin’s other Ukrainian oligarchs) would have plenty of cash to spread around to shape their country in ways that Putin would appreciate. Some of that cash went back to Moscow as tribute. Even more of it went to prop up Yanukovych’s Party of Regions, which meant a whole bunch of it passed through or ended up in the offshore bank accounts of the mercenary American political operative Paul Manafort, who was always available to help his friend Yanukovych, for a price. The price ended up being about $75 million over the course of a decade.
Manafort was clearly quite taken with Dmitry Firtash, the source of much of that cash. He went so far as to set up a handful of business entities designed to help folks like Dmitry, and most particularly Dmitry, get money out of Eastern Europe and Central Asia and into U.S. or international real estate holdings. “The advantages of a single investor,” wrote Manafort, “include less exposure, more flexibility, less reporting requirements and the ability to organize off-shore to maximize the return of the investor.
Tymoshenko was a particular threat to Moscow’s influence in Ukraine. She had made herself the front-runner in the 2010 presidential election by seizing on Firtash’s sweetheart gas deal and promising to end it. She made a good case: Why on earth should RosUkrEnergo be allowed to siphon off $800 million in a single year by playing a middleman nobody needed?
One of Yanukovych’s first acts as president was to sic a rabid state prosecutor on Yulia Tymoshenko. Lock her up! Yanukovych’s prosecutor charged Tymoshenko with the crime of abusing her official powers by “illegally” arranging the new Firtash-free gas deal with Russia without the required bureaucratic sign-offs. Tymoshenko had a lot of sympathy in the United States and Europe, so Manafort got right to work on the public relations front. According to reporting by Luke Harding in The Guardian—later corroborated in legal filings by Robert Mueller’s special prosecution team—Manafort engaged a sleazy PR firm run by American expats to draw up an energetic media operation to smear Tymoshenko.
Despite FBC’s best efforts, Tymoshenko’s conviction in October 2011—she was sentenced to seven years in prison, ordered to pay $194 million in restitution, and barred from running in the next presidential election—was seen in government offices across the West for what it was: a hit job by Yanukovych on his most able political opponent. So Manafort’s dirty trickster public relations team kept at it. They got excellent help from emerging alt-right media sites like Breitbart News, which tossed a guilt-by-association anti-Semitism spray grenade.
Corruption-wise, things were going along pretty swimmingly in Ukraine. With Tymoshenko stashed in prison, trashed by American PR firms and law firms and anything else Manafort could cook up, Russia’s man in Ukraine—Dmitry Firtash—got back into the gas deal, which was better than ever. His company’s operating profit for the years 2012 and 2013 added up to nearly $4 billion. With that kind of money available for corrupting any actual governance in the interests of the people in Ukraine, Putin’s natural gas supplier monopoly hovered over the heads of the Ukrainian people like a sword.
Ukrainian companies were ratcheting up their own production in the country’s oil and gas fields, signing production deals with the major Western oil companies. They could frack, too! Ukraine had almost 400 million barrels of proven oil reserves, and God only knew how much natural gas once the serious fracking got going. Ukrainian officials were already talking about being able to produce every cubic meter of natural gas the country needed, inside the country. And to be able to export gas to Europe at a profit. This was revolting to Putin, whose lifeblood income came from Russia’s natural gas sales in Europe and whose gravitational pull over countries in his orbit was the control, corruption, and cash that energy supplies afforded him.
Putin was done trying to make nice. He had had it with the United States meddling on his turf. He figured the United States had put $5 billion into moving Ukraine into the Western win column. Vice President Joseph R. Biden had been in and out of Kyiv for years, insisting the Obama administration would protect Ukraine from Russian aggression. “We do not recognize—and I want to reiterate it—any sphere of influence,” Biden reminded.
Privately, American officials were even tougher on Russia’s decline—pointing to the increasing death rates among the country’s younger set, its rampant alcoholism, its military’s decline into second-tier status, and its rampant corruption. Hey, just saying, it can’t be easy being a former superpower
In less than three weeks, Putin ripped Crimea from Ukraine and took it for Russia. The “exit of Crimea from Ukraine,” the Kremlin claimed, was the result of “complex international processes.” It was the first time since World War II that one country had rewritten another’s borders by force and seized an entire landmass and its people for itself. Putin had blatantly violated Russia’s vow to respect Ukrainian sovereignty, and he didn’t seem content to stop at Crimea. He was already moving his forces toward other oblasts in the east of Ukraine, which also happened to be the oblasts with promising fields of oil and gas.
The move left Western leaders in a pickle; they were clearly shaken and uncertain of the proper response. The wrong move could easily tip into regional or even global disaster. Europe was hugely dependent on Gazprom’s natural gas. “There is no sensible alternative to Russian gas to meet Europe’s energy needs,” Germany’s economy minister, Sigmar Gabriel, said at the time. “Many people acted as if there [were] plenty of other sources from which Europe could draw its gas, but this is not the case.
The United States and the European Union drew up a list of Russian oligarchs and Kremlin officials, froze their assets in the West, and declared them off-limits for American and European businesses. The people on the list had one thing in common: they were Putin’s most trusted consiglieri. Among them were Arkady and Boris Rotenberg, Russian Railways’ president, Vladimir Yakunin. And Igor Sechin.
the newly inaugurated Poroshenko got to work on behalf of Ukrainians. One of his first acts as president was to sign the official Association Agreement with the European Union that his Russian-tool predecessor had tried to back out of. “This is a really historic date for Ukraine,” Poroshenko said at the signing ceremony. He then further exasperated Putin by expressing his hopes that Ukraine would one day be a full member of the EU. Poroshenko also defied Putin in an even more aggressive way; he mounted a serious military counteroffensive in the Donbas, using the national army to reinforce the pro-Ukrainian militia groups who had formed in the long weeks of absence of help from Kyiv.
June and July turned out to be very, very bad months for President Putin. There was a surge in the number of dead Russian soldiers being shipped back home from the Donbas. The corpses arrived in Russia under the cover of secrecy, cryptically marked “Cargo 200.” The Putin critic and political opponent Boris Nemtsov saw it happen and immediately began a campaign to catalog a name-by-name record of the casualties for public release. Nemtsov understood there was a limit to how many husbands, wives, sons, daughters, brothers, and sisters Russians were willing to sacrifice for another chunk of Ukraine. Officials in the Kremlin and the Russian military understood that too. Survivors of the dead received terse and pointed messages that suggested they keep their grief concerning these “volunteer” soldiers confined to the family circle.
On July 16, 2014, with Putin showing no signs of backing down in the face of Ukraine’s assertion of its sovereignty and the defense of its borders, the United States announced another round of sanctions. This new set, for the first time, included Rosneft. American companies were given license to go ahead with existing projects, but in the future there could be no new deals with Russia’s oil giant. European Union leaders were wary about supporting the United States on the new sanctions, because they were scared of backing the volatile Putin into a corner. Not only did EU countries do ten times more trade with Russia than did the United States, but they were dependent on Russia for much of their energy.
The spotters in the Russian brigade likely mistook the jet for a Ukrainian military plane. (The Russians had been shooting Ukrainian jets and helicopters out of the sky, with abandon, for well over a month by then.) There were almost 300 people on the flight, and more than 200 citizens of the EU.
The Kremlin denied responsibility, to little effect. Western Europe finally swung into Ukraine’s corner. Within two weeks, the EU had joined with the United States to take an even bigger bite out of Putin’s hide, and from the part he actually cared about. The new sanctions would specifically bar the sale or transfer of advanced engineering systems that Russia needed to drill new oil fields. “In the energy sector, new precision-guided restrictions will make it difficult for Russia to access the technology and equipment needed to produce oil from deep water, Arctic or shale deposits,” explained Jason Bordoff, who had just left his job as staff director in charge of energy and climate change at the National Security Council, and Elizabeth Rosenberg, a former senior sanctions adviser at the Treasury Department.
“These are precisely the complex, challenging projects that Russia will have difficulty achieving without the technology of Western energy firms. The measures are designed to make it more difficult and costly for Russian energy companies to invest in replacing declining conventional oil output and meeting future production goals.
He was also incensed by news from the international arbitration court in The Hague, which had chosen this particular moment to issue its verdict on Rosneft’s disputed grab of Yukos a dozen years earlier. The court ordered that Russia owed $50 billion in recompense and damages to Yukos shareholders and named Putin himself as a bad actor in the scheme. “Each step against Russia he [Putin] now believed to be a cynical, calculated attack against him,” Myers writes in The New Tsar. “He simply no longer cared how the West would respond. The change in Putin’s demeanor became acute after the downing of Flight 17, according to his old friend Sergei Roldugin. ‘I noticed that the more he is being teased the tougher he becomes….
Putin’s indifference and unwillingness to compromise turned pretty damn aggressive, pretty damn fast. Staging areas on Russia’s western border filled with more than 40,000 Russian soldiers and weapons (including land mines, mortars, rocket launchers, surface-to-air missiles, 152-millimeter howitzers, anti-tank guided missiles, and actual battle tanks). Russian soldiers were ordered to scrub all insignia and identifying markings from their uniforms and equipment and vehicles, hand over their cell phones, and head west into eastern Ukraine.
Most of the Russian soldiers who crossed the border were not rabid partisans for Putin’s fight, according to reporters on the ground from The Guardian. Typical among them was a recent recruit who signed up because there were no other paying jobs
The Ukrainian regular army and militia units were no real match for even poorly motivated Russian artillery and tank units. The former president Yanukovych had pretty well hollowed out the Ukrainian military while in office. The Russians killed more than a thousand Ukrainian fighters in the early stages of their new offensive and began winning back substantial chunks of the Donbas.
The Russian military, he insisted, had nothing to do with it. As did Lavrov, his foreign minister, who had made a habit of hurt and angry denial, even when presented with the half a dozen regular Russian soldiers captured in Ukraine, or with satellite images of Russian troops and weapons on the march in the Donbas. These were, he lied, “just images from computer games.
The United States, meanwhile, unleashed a very specific new sanction it had been threatening for months. The wiggle room allowed for dealing with Rosneft and the rest of the Russian oil industry was officially closed. Prior deal or no, the Obama administration declared that all American companies had to cease operations in Russia.
It didn’t take an oracle to see where this was headed. Yevtushenkov’s arrest was widely reported. It didn’t even matter that Yevtushenkov, unlike Yukos’s boss, Mikhail Khodorkovsky, had never uttered a syllable of challenge to Putin’s political authority. This time around, it was simply about business or, more precisely, power. Here was a jewel of the Russian oil industry, and its principal owner, its Russian principal owner, seemed to be forgetting his company’s first duty was to the Russian state and Vladimir Putin (and Igor Sechin). Especially now, when the future of the Russian Federation was in the balance. Bashneft, like Yukos and Lukoil and every other oil-producing company in Russia, was first and foremost a “strategic asset” of the state;
On September 27, 2014, Rosneft announced that the West Alpha rig had struck oil 7,000 feet beneath the floor of the Kara Sea. Imagine the luck! It happened right inside the window that the U.S. government had afforded ExxonMobil to pack up its things, close off the well. Turns out, ExxonMobil had used the time to just kept drilling. The hydrocarbon trap Exxon drillers had tapped was believed to hold about a billion barrels of oil and oil equivalent. This represented one of the largest single finds in years, anywhere in the world.
While Yevtushenkov was in stir, remember, a judge in Moscow “nationalized” the billionaire’s shares in Bashneft, which meant that his shares in his own company were handed over to the Russian state. In three months, Yevtushenkov had been robbed by Vladimir Putin and Igor Sechin to the tune of about $8 billion, the vast majority of his net worth. Not to mention, of course, control of the best-run and most remunerative oil company in one of the biggest oil-producing countries on earth.
Igor Sechin’s Kremlin-assisted “purchase” of a majority stake of Bashneft was concluded on remarkably favorable terms—he got the company for a pittance. Then, for a little icing on the cake, he found a court in Russia that would force Yevtushenkov to pay Rosneft $1.7 billion, for supposedly stripping Bashneft of its assets. So Putin and Sechin took his company, and then they made him pay them for the trouble of taking it. Gangster-style.
One unexpected piece of collateral damage in Sechin’s new crocodile act was the serious injury to the standing of the economic development minister at the Kremlin, Alexei Ulyukayev. Minister Ulyukayev had had the temerity to voice his opinion that Bashneft should go to the highest bidder on the open market. And Rosneft should stay out of it. For my enemies…Sechin invited Ulyukayev to his home and, truly gangster-style, presented him with a gift basket of his famous homemade sausages, some fine wine, and, unbeknownst to his guest, $2 million worth of rubles, in cash, stuffed into the bottom of the parcel. Sechin then had the minister arrested on the spot (the FSB gendarmes were conveniently there, at the ready) for soliciting and receiving a bribe. Ulyukayev was sentenced to eight years in prison and ordered to pay a $2.2 million fine. That takes care of him.
When the people of Ukraine stand up and make a rational decision for themselves, and toss out the fantastically corrupt Viktor Yanukovych and Putin’s other henchman in Kyiv, the natural gas middleman Dmitry Firtash, all Putin knows to do is turn to a different type of corruption. He attacks with lies and disinformation, because those are the only cards he has to play to prevent the Ukrainian people from making rational decisions in their own national interest.
In truth, a critical subtext of the Moscow Trump Tower project—which Mueller assessed could have been worth hundreds of millions of dollars to Trump—was dropping U.S. sanctions on Russia. No deal could have happened through them as long as sanctions remained in place. All of the potential financing entities described in conjunction with the Trump Tower Moscow deal were under sanctions. With sanctions in place, such a deal could never happen.
With an economy completely dependent on oil and gas, and an oil and gas industry completely dependent on someone else’s expertise, the sanctions that preclude Russia from getting that expertise were like a tourniquet around the neck. Sanctions were the entire ballgame for the Russians, and they had made that abundantly clear to Team Trump by the time it entered the White House.
Investigative journalist Michael Isikoff was the reporter who first ferreted out that Trump hit the ground running with a day-one concerted effort to try to unilaterally get rid of the sanctions. “Unknown to the public at the time, top Trump administration officials, almost as soon as they took office, tasked State Department staffers with developing proposals for the lifting of economic sanctions, the return of diplomatic compounds, and other steps to relieve tensions with Moscow,” reported Isikoff for Yahoo News. State Department veteran Dan Fried told him that in the first few weeks after Trump was inaugurated, he received “panicky” calls from officials who told him they had been “directed to develop a sanctions-lifting package and imploring him, ‘Please, my God, can’t you stop this?’
He could, actually. Fried and Tom Malinowski and other State Department old hands broke the emergency glass and sounded the alarm on both sides of the aisle in Congress that the Russia sanctions needed to be made statutorily binding—stat. Incredibly, it worked. With Democrat Cardin and Republican John McCain in the lead in the Senate, Congress moved with uncharacteristic agility and swiftness to pass legislation to codify the sanctions and make it harder for Trump to undo them on his own say-so. The national legislature did it at lightning speed, even after Tillerson begged members to soft-peddle the new law. “I would urge allowing the president the flexibility to adjust sanctions to meet the need in what is always an evolving diplomatic situation,” the secretary of state said as the bill was hurtling toward passage. Trump squeaked like an unoiled hinge over how much he hated the legislation and didn’t want to sign it. It was only when his hand was effectively forced by a veto-proof majority (98–2 in the Senate, 419–3 in the House) that he finally relented.
Nemtsov challenges Putin
Nemtsov became one of the president’s most vocal and most popular opponents, and a relentless burr under Putin’s saddle. He co-authored a no-holds-barred study of the Kremlin’s venality and mismanagement in its running of Gazprom in 2008. And in 2012, he publicly praised the Magnitsky Act, which permitted the U.S. Congress to mete out real economic punishment on specific individuals in Russia who committed gross human rights violations. Unlike Carter Page, who decried the Magnitsky Act as latter-day McCarthyism, Nemtsov hailed it as the way to finally nick the “crooks and abusers” among Russian businessmen and officials.
In 2015, while the battle for eastern Ukraine rumbled on, Boris Nemtsov, who had become the most fearless critic of Putin’s illegal annexation of Crimea and his illegal war in the Donbas, sat for a long interview with the Polish edition of Newsweek. He was due to lead a massive antiwar demonstration in Moscow two days later. Nemtsov understood it was likely to take decades to chip away at Putin and authoritarian rule in Russia, but he wasn’t giving up, and he was driven by a sense of urgency. “I have no doubt that the struggle for the revival of Russians will be tough,” he told the Newsweek interviewer. Putin “implanted them with a virus of inferiority complex towards the West, the belief that the only thing we can do to amaze the world is use force, violence and aggression….[Putin and his siloviki] operate in accordance with the simple principles of Joseph Goebbels: Play on the emotions; the bigger the lie, the better; lies should be repeated many times….Unfortunately, it works. The hysteria reached unprecedented levels, hence the high level of support for Putin. We need to work as quickly as possible to show the Russians that there is an alternative.
Later the next evening, walking home after a dinner out with his girlfriend, Nemtsov was gunned down on a suddenly and strangely traffic-less side of a bridge across the Moscow River, steps from the Kremlin grounds. The assassination appeared to have been meticulously planned and executed by a team of two or even three dozen people. The Kremlin fingered a group of Chechen terrorists and continues to block independent investigations into Boris Nemtsov’s murder.
And where was ExxonMobil’s chieftain, Rex Tillerson, in all this? He was standing by, waiting for the unfortunate geopolitical cloud to disperse.
Russian spying – the Illegals (TV show “The Americans” based on this)
The Illegals had gleaned, well, pretty much nothing they couldn’t have gotten reading their local newspapers. Putin’s best spies in America seem to have never really had their heart in the mission. The New Yorker’s Keith Gessen, a Russian-born American journalist and novelist who came to the United States when he was six years old, found the entire episode “sad and touching….Sad because, according to the F.B.I. affidavit, the information requested by the Russian government (‘Moscow Center,’ as it’s called) is so mundane, and some of it merely trade secrets, unbefitting a mighty state and redolent too of the central planning that once turned the U.S.S.R. into an economic basket case. Touching because the other information they are said to have sought—American plans for fighting terrorism; American plans for Iran; Obama’s hopes for last summer’s summit in Moscow—seems to dance around the real issue. Like a kid in the presence of his new crush, asking, ‘Do you like movies?,’ ‘What’s your favorite color?,’ Russia really wanted to ask America: What do you think of me?
Despite the public boasts about their heroic victory in Moscow, the Illegals were demonstrably bumbling, even slipshod. The group was under close and constant surveillance for nearly ten years, with footage and photographs and audio recordings to prove it. Their countersurveillance efforts had bordered on gross negligence. Their homes were searched and their cars tagged with GPS trackers, and the Illegals never knew. The best of the spies, Heathfield/Bezrukov, was for years kept under the watchful and unseen eye of the U.S. lead agent Peter Strzok—the G-man later torched by the Trump administration and congressional Republicans for his role in investigating the Russia scandal surrounding the U.S. 2016 presidential election. The Illegals had repeated contact with FBI agents posing as fellow Russians. “Are you ready for this [next] step?” one undercover agent asked Anna Chapman. “Shit,” she replied, “of course.
Then she unwittingly handed over her laptop to the American undercover agent, and then she bought a burner phone and a Tracfone calling card, and then she dumped the receipt into a public trash can where it was fished out by the FBI.
Richard Murphy was barely even trying. “He had a thick Russian accent and an incredibly unhappy Russian personality,” she said. “I knew he wasn’t American. I knew it was very odd.” Or as one of Richard Murphy’s Marquette Road neighbors told a reporter a few days after the arrest, as the tumblers were beginning to fall into place, “It was suspicious that he had a Russian accent and an Irish last name. Who does that?…He must have been the worst spy ever.