Russian power struggle: Could Putin lose his leverage over Moscow elite?

Russia faces an economic crisis, but with the ruble falling, the superwealthy are buying the latest luxury cars and may end up being the source of President Vladimir Putin's biggest power struggle, the CBC's Susan Ormiston reports from Moscow.

Superwealthy could pose challenge for president facing economic crisis

Even though Russia faces an economic crisis, wealthy Russians were in the mood for buying the latest Rolls Royces last year, says Tatiana Fitzgerald, managing director of Rolls Royce Moscow. (Susan Ormiston/CBC)

What crisis? When the going gets tough in Russia, the superwealthy go shopping. 

Moscow’s Rolls Royce dealership had its best year ever in 2014, helped by a sprint of sales in the last two weeks of December.

“People were in the mood for purchasing or shopping or maybe it was like an investment,” says Tatiana Fitzgerald, managing director of Rolls Royce Moscow.

“People were in the mood for purchasing or shopping or maybe it was like an investment."-Tatania Fitzgerald

The ruble was heading down, worth less every day, and it hasn’t stopped falling.

But rather than watch their money devalue, Rolls Royce customers converted between 17 and 18 million rubles into the fast, slick Wraith, Rolls Royce’s newest model, perhaps hoping it would hold its value.

Rolls Royce attracts some well-heeled business elite and it is those powerbrokers who supported President Vladimir Putin. They are powerful friends, but they are also now watching Russia’s international politics isolating the country and hurting their bottom lines.

In a country so reliant on imports, goods priced in euros, pounds or dollars will see a steep increase this year. The ruble is down 50 per cent against the U.S. dollar.

Fitzgerald expects the cars in her showroom will be priced up.

Huge transformation

A Russian businesswoman in her 40s, she helps explain the vast transformation in this country since the collapse of the Soviet Union and the rise of resource industries.
President Vladimir Putin hosted a Kremlin meeting for 40 Russian businessmen after the Russian central bank hiked interest rates and the ruble fell. (Getty Images)

“Years ago, none of us had money; there was nothing and even if you did have money you couldn’t buy anything,” she says.

“So when we got all these brands into the country people were like 'Wow! I can have it, I can afford it.' 

“Even 10 years ago, you couldn’t imagine having three Rolls Royce dealerships in Russia,” she says.

Fitzgerald is married to an American from Chicago, (thus the surname). They are living in Russia during the chilliest East-West relations since the post-Second World War Cold War.

"I’m trying to explain to [my husband] what our country is trying to do,” she says.

“Of course, there are a lot of people who are disappointed, but it’s not like us who are closing the borders.   

“The way I feel it’s like Europe saying we don’t want you; for ordinary people, well, what did we do wrong? It’s not our fault the countries don’t have good relations."

Blaming sanctions

Nearly everyone blames the sanctions imposed by Europe, the U.S and Canada to force Russia’s hand over Ukraine. European foreign ministers are meeting Thursday in Brussels debating whether to extend and toughen those sanctions.

Sanctions are partly responsible for squeezing the life out of Russia’s economy. And the elites, those who shop at Rolls Royce, are seeing part of their fortunes vanish.

“This is the most dangerous time for the authoritarian political regime."- Kiril Rogov

“This is the most dangerous time for the authoritarian political regime, when elites lose their belief in the future of the regime," says Kiril Rogov, senior researcher at the Gaidar Institute for Economic Policy in Moscow.

In Russia, he says the first signs of a splintering of power will be among this elite group. It may have begun already.

For the past few years, Putin has pulled the levers of power using oil and gas revenues to help businessmen get rich, and in return ensuring their loyalty.

As well, Putin mobilized the country into his version of an ultra-nationalist imperial superpower rising out of the collapse of the Soviet Union.
Sergey Markov, a pro-Kremlin analyst, warns that businessmen who criticize Putin risk censure by other Russians. (Corinne Seminoff/CBC)

Now, with those revenues shrinking, Putin may be losing leverage with the elites.

On Dec. 19 last year, as the ruble fell and Russia’s central bank raised the cost of borrowing to 17 per cent, Putin invited 40 of the country’s elite to a meeting at the Kremlin. They had already lost collectively more than $60 billion in 2014, according to the Bloomberg Billionaires Index.

“We want to feel your support and we want to give you support.”- Vladimir Putin 

“We want to feel your support and we want to give you support,” Putin told the glum-looking group.

Then mindful of the record levels of capital fleeing the country — more than $130 billion  Putin reminded them of their responsibility to Mother Russia.

“You have a very large population of people who depend on you. You have a massive responsibility for their welfare, for their standard of life, their salaries, and the government must understood you, too. So we must work very closely together."

Turning point

Putin is facing a dangerous turning point, says Rogov. He "understands he has no resources to stabilize the economy at this moment. It doesn’t depend on his will at this moment. That makes him very angry and very nervous."

People close to Putin says he’s given up expecting that the West will remove the sanctions and has instead amplified the roar of the Russian bear against the West.

Putin’s circle of advisers is reportedly tightening up, relying mostly on advice from the heads of intelligence, security and defence.

Sergey Markov, a pro-Kremlin political scientist who worked with Putin in the 2012 election and oversaw the referendum in Crimea that saw the region secede from Ukraine and join Russia, says 90 per cent of Russians support backing the rebels in Eastern Ukraine.
Rolls Royce Moscow has record year in 2014 in spite of shrinking Russian economy. (Corinne Seminoff CBC News )

But in a country where polling often does not accurately measure public opinion, it is difficult to verify a real level of support.

But Markov’s point is this: "Some of the billionaires are probably not happy about some sanctions and they may believe that Moscow should give up on Russians in Ukraine and allow the terrorist junta to suppress them," he says. 

If they say something against Vladimir Putin, they are not saying it against Vladimir Putin, but against the Russian people.- Sergey Markov 

“But they understand,” he pauses for emphasis, “if they say something against Vladimir Putin, they are not saying it against Vladimir Putin, but against the Russian people, and this is of course what they are afraid of very much.”

Putin is facing the biggest political challenge of his 15 years in power.

The hawks in the Kremlin want him to act even more aggressively in Ukraine. Others want to reduce tensions to protect their own economic interests.

With 2015 shaping into a full-blown economic crisis, the question is which way will Putin go and who will be pushing him?


Susan Ormiston

Senior correspondent

Susan Ormiston's career spans more than 25 years reporting from hot spots such as Afghanistan, Egypt, Libya, Haiti, Lebanon and South Africa.


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