When wars are directly contributing to lining the pockets of those at the top, it stands to question the motives for starting and continuing wars in the first place.
Introduction
In early 2022, tensions started to peak between Russia and Ukraine. As the world's eyes turned from COVID-19 to the rising conflict in the East, more and more corporations started to pledge their support for Ukraine by pulling out of Russia and ceasing business with the Russian people. McDonald's said it would temporarily shut down its 850+ restaurants in Russia, while Starbucks also said that its 100 coffee shops in the country would close their doors.
L'Oréal and Estee Lauder both closed shop and ceased online sales to the country, with Estee Lauder in particular losing one of their most profitable markets. Manufacturers such as Nestle, Mondelez, and Procter & Gamble halted investment in Russia but said they would continue providing essentials. The reason behind many of these decisions was to detract from the Russian economy and take a public stance on the war. Statements released had similar reasoning along the lines of "shareholders will not stand for the continued generation of profits from Russia".
Losses
One would think that this is a noble thing to do. The amount of business lost for these companies was astronomical, especially with the combined effects of the COVID-19 recession from just before. Foreign companies that halted operations in Russia or pulled out completely have incurred losses of more than $240 billion in total since the end of February 2022. A whopping total of $70 - $90 billion was lost on the very first day of the Russia/Ukraine war alone.
Surely this amount would cripple the Russian economy, right? However, this seems to be the opposite of true. As a result of new closures, rich businessmen and high net worth individuals started buying shuttered locations and establishing Russian-owned chains in their place. For instance, when McDonald's stopped operating in Russia in February (and fully exited the country by May), Siberian mining oligarch Alexander Govor bought the large majority of locations and converted them into a new Russian burger chain called Vkusno i tochka (meaning "Tasty and that's it"). Similarly, old Starbucks locations are now being converted into “Stars Coffee” by its new owners, Pro-Putin rapper Timur Yunusov (Timati) and restaurateur Anton Pinskiy.
Russia once housed the world's busiest McDonalds in Pushkin Square, opened during the Soviet era. This was a powerful symbol of Western influence and global unity, bridging the gap between past and present. Fast forward to 2022, McDonald's write-off from exiting Russia will be between $1.2 billion to $1.4 billion. Just closing its restaurants for the first few weeks in Russia hit earnings significantly, costing them $127 million that quarter. Now, the old locations are once again a symbol of Russian nationalism, with new Russian corporations taking over and further bolstering the Russian economy by keeping money flowing within the confines of their own borders. The World Bank predicted that the Russian economy will grow by 11.2% as a result of the invasion.
Oligarchs
It may be surprising to learn that what happened here is not unique. The oligarchs of today's day and age draw many parallels to the powerful and wealthy boyar class of late-medieval Muscovy (present day central Russia). Historian Edward L. Keenan described boyars as “the top rung of the aristocracy” in the 1400s, with their influence heavily ingrained in Russia's political system. Flash forward to now, Russia still has a disproportionate amount of oligarchs and higher-than-average levels of wealth disparity, both linked to the collapse of the Soviet Union in the nineties.
The majority of this group of elite businessmen gained their wealth through purchasing newly privatized Soviet Union Assets. Since ownership of state assets was contested, many of these transactions happened under questionable circumstances with ex-USSR officials at a severe discount to market rate. As a result, this class has essentially become the ruling tier of Russia, owning the majority of economic assets in the nation. Not only do Russia's oligarchs have superior influence over business and economics, but they also control a large part of the country's politics, media, and governance. New policies that they influence, directly or indirectly, allow for them to continue growing their wealth at a significant advantage over others. In 1996, prominent oligarchs Roman Abramovich, Michail Khordorkovsky, Boris Berezovsky, and Vladimir Potanin helped fund the re-election of Yeltsin (Russia's first president after Gorbachev) in exchange for favorable policies surrounding loan-for-share purchases, their predominant method of acquiring assets for cheap. These four oligarchs made up four out of the seven most powerful men in the nation, who were known as the "seven-banker outfit" for the incredible power and influence over Yeltsin's government. It is estimated that these 7 controlled between 50-70% of the entire Russian economy from 1996-2000. Controlling the economic assets allows oligarchs to be front and center of any decision making party, and thus completing the cycle that cements their status.
The Putin Era
When Putin was first elected in 2000, he vowed to crack down on corruption and exile certain oligarchs. In reality, the old oligarchs who remained friendly with Putin were able to continue prospering so long as they stayed out of his way politically. Many of Putin's friends and former KGB colleagues have also become newly minted oligarchs, creating a new class of silovikis, which translates roughly to "men of force." Gennady Timchenko, a long time friend of Putin, is an excellent example of this. Putin granted Timchenko one of the first oil export licenses in 1991, which allowed him to co-found the oil company Gunvor in 2000. Gunvor grew to control 35% of the state's oil exports within the first few years of operation, however, until that point was still considered a “niche player” in the market due to mostly exporting Russian oil through Estonia. Gunvor's expansion really started to kick off at the tail end of the 2008 economic crisis. While the majority of Russia was struggling, Timchenko's company took over two terminals in strategic points for international exports. Meanwhile, Gunvor's subsidiary companies began expanding laterally by taking over other companies in the construction and gas sectors and seeking access to oil fields. Timchenko himself previously owned shares in and controlled numerous smaller companies, such as Waterway Petroleum and Clearlake Shipping, and the financial crisis allowed him to strengthen these positions as well. Timchenko's group took everything “virtually overnight”. Today, Gunvor is the fourth largest crude oil trader in the world and with Russia being the world's largest exporter of oil in 2021, they are in a favorable position to continue moving even higher. In 2008, Forbes estimated Timchenko's fortune at USD $2.5 billion. Today, Timchenko sits at an estimated $23.1 billion, making him the 6th richest person in Russia.
In traditional Western capitalist societies, businesses only profit when they perform a service that is useful to people. People only pay for items or services that benefit them in some way. However, in Russia, the rules of the game are blurry, hidden and rewritten to the benefit of those who stand to profit the most. The country's social and political dynamics are strikingly similar to the Russian Matryoshka nesting doll. There are multiple layers of ownership, politics, and social ties that must be uncovered in in order to find the true beneficiaries of any policy or decision. Gunvor and Timchenko's success was strongly favored by the Putin administration. There was already limited competition in the energy industry (as it is considered a strategic sector) and all decisions about ownership of particular assets had to be approved by the Kremlin. Gunvor received preferential treatment in deals, negotiations, and loans that were inaccessible to “regular” firms, such as the loan worth $545 million that was granted for their 2008 terminal constructions. Gunvor would not be where it is today without Putin’s favorite aid.
So what has been seen so far? As a result of tough economic crises like wars or recessions, the rich get richer, companies get consolidated/monopolized, and citizens get less bargaining power. The oligarchs at the top continue silently winning, profiting from favorable government policies and the rapid sell-offs of assets. Meanwhile, the average Russian working-class citizens and the global economy are the ones who suffer. But what is there to do about it?
Sanctions
For the longest time, the answer was 'sanctions'. However, sanctions only seem to drive the ruling class closer together. Boris and Arkady Rotenberg, two brothers who rose to siloviki status under Putin, were first sanctioned by the US back in 2014 for their repeated participation and enabling of “Putin pet projects”. The most notable of these was their construction of the Kerch Strait Bridge, a 12-mile bridge that connected Russia with its newly-annexed territory Crimea. This bridge had heavy logistical and political complications associated with it, evident by the circumstances it was built in, however Arkady Rotenburg's company happily did it, completing the bridge in 2018. The sanctions against them ended up working in their favor, as the brothers have proved their allegiance to the Kremlin and have received even larger contacts than before through the government.
Sanctioning is also simply not an easy task. Property assets are difficult to trace, as they are often held in tax havens, shell companies, or relative's names. Many luxury yachts owned by oligarchs mysteriously 'went missing' at the start of the invasion, with their last reported sightings being months or even years back. "It's hard to say how much their wealth has suffered because we don't know how much they had," said Jodi Vittori, Global Politics and Security professor at Georgetown University.
Sanctions also effectively punish everyone due to how interconnected the world is. In fact, sanctions often end up hurting the global economy more than the sanction targets. One example of this is when the US sanctioned billionaire Oleg Deripaska, owner of the United Co. Rusal, in 2018, due to money laundering investigations and a myriad of other charges against him. Rusal was (and still is) one of the world's leading aluminum production companies, and when he and his company counterparts were sanctioned, aluminum prices soared. The crisis only subsided after Deipaska agreed to significantly reduce ownership in the company to meet US Treasury guidelines. This is why even now, in the midst of the Russia-Ukraine crisis, many steel tycoons, fertilizer giants, and other backbone-industry oligarchs are still sanction-free.
Sanctions did not break the spirit of Russia, and they likely never will. The current class of oligarchs will not stand up to what is going on to what is going on in the war, despite the rising sanctions piling against them. After all, they are the unofficial aristocrats of Russia, and their agreement with Putin is essentially to "stay quiet, stay out of the way, and be handsomely rewarded". Their loyalty is not without reason. Oligarchs like Vladimir Gusinsky and Mikhail Khodorkovsky paid the price for daring to speak their truth, and their stories rest as threats of what happens to those who cross the line.
Beyond this, however, is a simple fact: war is in the best interest of (the majority of) the ruling class. Oligarchs are incentivized to want the country to go through periods of difficulty, as this allows them to continue to propagate their empireand solidify their wealth. Multinationals like McDonalds and Starbucks rapidly exiting the country doesn’t send the financial message they think it does. Rather, it creates gaps in the economy that oligarchs are all too eager to buy up and fill. Russian oligarchs have a long history of profiting off times of crisis, and unfortunately, the current socio-political structure of Russia continues to enable this.
At its heart, the Russia-Ukraine war is trading human loss for capital gain. It is a battle of politics, greed, and selfishness. The response in the West cannot be to pull out our multinational companies or economically sanction the country, as we only hurt ourselves and make the ruling class stronger. The real root of this problem must be targeted in order to create tangible change, not just for the people of Ukraine, but for the society of Russia as well.
