It was in 1992 when Alexei Mordashov became the finance director of Severstal before its privatization. His senior director instructed him to acquire shares to keep the business from outside investors. He later formed two investment funds to buy the equities owned by the workers and build a major stake in the company.
He subsequently became the chief executive of the company in 1996 at the age of 31. It was his foresight that compelled and inspired him to transform Severstal into a conglomerate by acquiring companies from the steel, mining, and coal industries.
Mordashov is readily recognized as one of the most popular Russian oligarchs who amassed wealth and came into power after the collapse of the Soviet Union in 1991
. Not only he is one of the top five wealthiest individuals in Russia but also one of the top 100 billionaires in the world with an estimated net worth of USD 29.1 billion as of 2021.
There are currently over a hundred oligarchs in Russia with business interests in different sectors and industries
. The media has described them as ultrawealthy individuals who dominate not only the Russian business landscape but also influence the Russian political scene.
A number of these extremely wealthy individuals and their families have owned and operated businesses in the hydrocarbon and mining industries. Some have maintained control over critical economic activities such as banking and finance, as well as telecommunications and fertilizers, while others have entered newer markets.
Then there are those who have become close associates of Vladimir Putin and other important government officials. They are not only exceptionally affluent but also have intimate connections with the Russian intelligence community and the Russian military
Oligarchy in Russia Explained: Wealth and Power Accumulation During the Post-Soviet Era
An oligarch is generally regarded as an individual who is one of the selected few who rule or influence leaders in an oligarchy. Meriam-Webster defines an oligarchy both as a leadership condition ruled by a few and as a government in which a small group of people exercises control or influence over different aspects of society, politics, and the economy.
In Russia, the term “oligarch” has been popularly ascribed to so-called business oligarchs who successfully acquired extreme and disproportionate amounts of wealth after the collapse of the Soviet Union. Their meteoric rise to power seemed to happen overnight.
But how did these Russian oligarchs become rich? What is their source of power? How do they influence the Russian political landscape? Understanding the success and status of these individuals and their families requires understanding the political conditions and economic policies that transpired during the early years of the post-Soviet era.
The Birth of the Russian Oligarchs
Severstal emerged from the consolidation of the state-owned iron and steel complex in Cherepovets City. Former Russian President Boris Yeltsin ordered the transformation of these metallurgies and mills into a single joint-stock company in 1993.
Details of how Mordashov was able to raise capital and the relevant processes he went through to acquire Severstal are not readily available to the public. However, for other notable Russian oligarchs, their accumulation of wealth and rise to power can be understood better through the Russian privatization during the post-Soviet era.
Privatization was the trend in Russia during the early 1990s following the collapse of the Soviet Union. Russian economist and politician Grigory Yavlinsky was one of the architects behind the market liberalization of the Russian economy.
He designed reforms aimed to open the economy to private investors and lessen the control of the government. These reforms stemmed from the perestroika political movement that began in 1985. It advocated for the reconstruction of the Soviet political and economic systems. But the movement had limitations and criticisms.
Political tension ensued across the Soviet political landscape during the late 1980s to early 1990s due to a brewing economic crisis. Liberals started to push their agenda while hardline socialists tried to maintain the status quo centered on socialism.
Yavlinsky came up with the 500 Days economic reform package program that synthesized some of the points raised by liberal and socialist factions and recommended decentralization and some privatization. The Supreme Soviet adopted several measures in the program and positioned it as “modern capitalism” rather than a return to capitalism.
But the post-Soviet era proved the latter. Yeltsin took office as the new president of Russia in 1991. His government headed the transition of Russia from an economic system
based on socialism and communism
to a market-based economic system.
The conditions under the Yeltsin regime encouraged the participation of a few individuals. These individuals started almost from nothing and became affluent within a short period through specific privatization programs such as the 1992-1994 voucher-privatization scheme spanning and all-cash sales and loans-for-shares schemes in 1995.
Analysts noted that some of them had strong connections with elected but alleged corrupt government officials. One notable example of corruption was the infamous loans-for-shares scheme that helped the re-election campaign of Yeltsin.
The scheme characterized the transferred stakes in former state-owned natural resources companies from the government to selected individuals in exchange for loans that financed the government. However, the government purposely defaulted on these loans to allow these individuals to auction at a discount the stakes they acquired from bigger companies.
Most of these individuals owned the acquiring companies themselves. The auctions were rigged and they lacked competition. The Yeltsin government was fundamentally instrumental to the rise of the first generation of Russian oligarchs.
Political Influence of the Oligarchs
The oligarchs from the Yeltsin regime did not only acquire wealth but also substantial political influence. Remember that they played an important role in financing the re-election bid of Yeltsin in 1996. Furthermore, because of their close association with the Russian president, it was easier for them to ask for privileges needed to advance their business interests.
An example of this privilege was access to insider information about the financial decisions of the Russian government. They used the information to guide their strategies and decisions that allowed them to accumulate wealth further.
There were nine Russian oligarchs considered as most connected to the Yeltsin regime and most influential both in the political and business landscapes. These were Boris Berezovsky, Mikhail Friedman, Vladimir Gusinsky, Mikhail Khodorkovsky, Vladimir Potanin, Alexander Smolensky, Pyotr Aven, Vladimir Vinogradov, and Vitaly Malkin.
Seven of these individuals formed the Seven-Banker Outfit or the Semibankirschina. They collectively controlled between 50 to 70 percent of the Russian finance and banking sector, particularly access to capital and other investment options. They also controlled the entire Russian media and influence the opinions and positions of Yeltsin.
Furthermore, these individuals also controlled the natural resources and metals sectors. Their source of power or political influence fundamentally stemmed from their wealth and control of critical Russian industries and sectors.
Russian Oligarchs Under Vladimir Putin
Take note that the Yeltsin oligarchs were the first-generation of Russian oligarchs that came to power due to the Russian privatization and transition of Russia from socialism to a market economic system. Their rise to power was the product of the political and economic conditions during the initial years of the post-Soviet and post-socialism era.
However, a new wave of oligarchs emerged after the Yeltsin regime. These individuals represent the second-generation Russian oligarchs whose meteoric rise to wealth and power has been attributed to Vladimir Putin.
Putin was a former KGB foreign intelligence officer who rose to the rank of a lieutenant colonel before his resignation in 1991 because he did not want to be part of the intelligence community of the Yeltsin administration. He remained virtually unknown while he transitioned to Russian politics through various roles from 1991 and beyond.
Yeltsin appointed him as deputy chief of the Presidential Staff in 1997. He was later appointed as the director of the Federal Security Service or FSB in 1998. Note that FSB is effectively the successor of the KGB. His political career took off from here on.
He was later appointed as one of the three first deputy prime ministers and the acting prime minister of the Government of the Russian Federation by Yeltsin in 1999. Putin was pegged to be the next Russian president. True enough, after the unexpected resignation of Yeltsin due to health issues, he became the acting president beginning on 3 December 1999.
Some first-generation Russian oligarchs such as Boris Berezovsky claimed that they were primarily responsible for the promotion of Putin to prime minister and eventual consideration for the presidency. But the Putin presidency was different from the Yeltsin regime.
Most of the members of the Seven-Banker Outfit saw a quick dissolution of their political influence. Khodorkovsky, Berezovsky, and Gusinsky were even declared “persona non grata” in Russia by the Putin administration. Berezovsky and Gusinsky fled the country in 2000 while Khodorkovsky lost his company and freedom in 2003.
The Putin regime marked the emergence of new dynamics between the Russian oligarchs and the Russian government. Remember that the oligarchs during the Yeltsin regime had substantial influence over Yeltsin himself and the government. Yeltsin owed these individuals.
However, the tables were turned under Putin. He facilitated the emergence of a new breed of Russian oligarchs through various means. State contracts are an example. These agreements enabled businesses to charge the government excessive fees in exchange for channeling kickbacks to involved government officials.
Another is through a grand bargain agreement in which Putin allowed earlier-generation oligarchs to maintain their influence in exchange for their explicit support to his government. Those who defied him were persecuted using available legal tools.
Several individuals close to Putin also gained affluence within his regime. An example is his childhood friend Arkady Rotenberg whom he put in charge of a newly-created and state-owned distillery in 2000. Another example is his former campaign manager Vladimir Litvinenko who acquired a sizeable stake at a phosphate mining company.
The current acting Russian president is essentially instrumental in enriching the new generation of Russian oligarchs and maintaining the influence of oligarchs from the previous generation. Putin has made sure to instill unto them that they owe their fortunes to him.
Side Note: Explaining the Rise of Russian Oligarchs to Wealth and Power and their Status Under the Putin Regime
Russian oligarchs during the 1990s were essentially the major player both in the Russian political and business landscapes. Although the post-Soviet Russian government was instrumental in their accumulation of wealth, they eventually used their affluence to gain political influence. This was evident from the presidency of Yeltsin.
The former Russian president owed these business oligarchs a debt of gratitude for financing his re-election bid in 1996. He provided them with political and business favors that promoted their business interests and gave them control over political decisions.
However, the tides shifted when Yeltsin resigned and Putin replaced him as the acting president. While some oligarchs claimed that they were responsible for putting Putin in power, the current Russian president has been evidently nonchalant. He launched campaigns aimed at stripping the political influence and power of these individuals.
Putin used his political authority to use all legal tools needed to subjugate the first-generation oligarchs while also using the same authority to create a legion of second-generation oligarchs that are generally amiable and easier to manage.
The goal of the Russian president was straightforward: he wanted these Russian oligarchs to stay out of politics in exchange for business favors. His government also promised to stay out of their business as long as they remain loyal to his administration and submissive to his desires. Putin has been calling the shots since he became president.
It is also interesting to note that the post-Soviet era under the Putin regime also marked the emergence of Russian oligarchs who had no political connection or whatsoever. These include Russian-born Israeli technology investor Yuri Milner.
The depth of the relationship between Putin and Alexei Mordashov remained unclear. But it is important to note that Mordashov has been one of the Russian oligarchs who faced economic sanctions
imposed by numerous governments such as the United States and European Union
following the Russian invasion of Ukraine
in February 2022.
Mordashov remains the majority owner and in full control of Severstal. The company also remains the largest steel company in Russia and the 37th largest in the world. The wealth of Mordashov continues to expand the operations of his business.
He has also invested in businesses in different industries and sectors. These include the British leisure and travel company TUI Travel, the Russia-based National Media Group, the steam turbine manufacturer Power Machines which was previously owned by Siemens, a gold mining company, and a telecommunications service provider.