THE RUSSIA HOUSE

How Vladimir Putin’s ‘Kremlin, Inc.’ is pulling the levers of power in the next White House and why President-elect Donald J. Trump doesn’t mind.

To understand the relationship, we need to understand how Putin rules. The Russian President controls his country through his party, the congress (Duma) and the liberal civil service which oversee the day-to-day operation of the government. He also wields power through a handful of Russian billionaires, commonly referred to as “the oligarchs” or as one Russian magazine calls them, “Kremlin, Inc.” As a unit, they represent one fifth of Russia’s annual economic output.

Putin inherited the oligarch system from his predecessor, Boris Yeltsin. Under Putin, the faces have changed and power has been consolidated but its vast control over all of Russia’s key industries remains. He is the undisputed Chairman who blesses any deal made by the oligarchs and retains the right to hire and fire any oligarch at any time.

The Russian President meets with his heads of business often, either at regular evening parties at his dacha in Barvikha, West of Moscow, or at his Black Sea home, near Sochi. While Putin still controls the day to day operations of the government, he largely exerts power through the oligarchs, often using the companies as foreign policy instruments of power, as he did with Gazprom in the Ukraine.

Trump’s Secretary of State appointee and outgoing ExxonMobil CEO, Rex Tillerson’s relationship with Putin goes back almost two decades. Tillerson has been jockeying for power in Putin’s inner circle since. His break came in 2012, in an apparent coup of Russia’s oil industry co-ordinated with Putin’s Energy Tsar and ally, Sergei Sechin.

At the time, Russia’s oil output was controlled by two entities, state-controlled Rosneft and privately-held TNK-BP (a joint-venture between British Petroleum and a group of oligarchs led by Mikhael Fridman).

At this point, it may be useful to give you a bit of history on Mikhael Fridman. Forbes ranks him as Russia’s second richest man, valued at more than $15.3 Bn dollars. In the years following the demise of the USSR, he went from owning a window washing company to purchasing a biscuit factory and then, with his friends, launched Alfa Bank. He recruited Pyotr Aven, a Russian insider who back in the 90’s was able to help Vladimir Putin avoid corruption charges in the St. Petersburg government. Fridman climbed the ranks and was an undisputed oligarch at “Kremlin, Inc.”

As the U.S. District Court for the District of Columbia once ruled, after considering a libel suit filed by the bankers, “Aven and Fridman have assumed an unforeseen level of prominence and influence in the economic and political affairs of their nation.”

Fridman was at once a Moscow insider and a thorn in Putin’s side. As TNK-BP was unraveling, Fridman and his partner began to lose influence at “Kremlin, Inc.” One former Alfa Bank employee recalled a ceremony a decade ago at which Putin awarded Aven a government honor. In typical Putin style, he couldn’t resist a wry remark as he presented the award.

Putin: “Remind me, why am I giving this to you?”
Aven: “Because I haven’t done anything you can put me in jail for.”
Putin: “No, not yet.”

In 2012, Fridman resigned as TNK-BP’s CEO, after falling out with his British partners and Putin. BP began looking elsewhere for access to the Russian market, and found it in a deal with state-controlled Rosneft to develop the prized Arctic resources in Russia – but Fridman blocked the deal.

Enter ExxonMobil Chief Executive and now Secretary of State appointee, Rex Tillerson. He threw Exxon’s weight into the Arctic deal and won it in exchange for Rosneft’s access to energy projects in the US and globally. For his work, Tillerson was awarded the Order of Friendship by Putin – one of Russia’s highest honors. He was now firmly entrenched in Putin’s oligarch circle of power at “Kremlin Inc.” Fridman was on his way out.

Mr Putin – who presided over the deal signing at his Black Sea resort – called it one of the most important deals involving Russia and the US, potentially valued at $500 Bn. The deal was subsequently killed by President Obama’s sanctions in response to Russia’s invasion of Crimea and Ukraine. As many have noted, the lifting of Russian sanctions will not only stand to enrich Exxon, it also gives Russia a substantial stake in the global oil market including, in the US.

In 2013, Rosneft consolidated its hold over the Russian oil industry. They bought out the oligarch’s share of TNK-BP for $27BN in a $55 Bn cash and stock deal, again presided over by Vladimir Putin – this time at his mansion outside Moscow. The deal made the state-run company one of the world’s largest producer of oil.

After the collapse of TNK-BP, Fridman and his co-horts left Russia, distancing themselves from Putin and have been left largely unaffected by US sanctions. In October, Slate magazine published an article citing well-regarded cyber-security sources who uncovered what they say is an unusual regular server connection between Alfa Bank and Trump Towers.

Which brings us to Carter Page – President-Elect Donald J. Trump’s now ex-foreign affairs advisor and point-man on all things Moscow. While fashioning himself as a foreign affairs analyst, his roots are as an investment advisor with a mixed track record in Russia.

In March, Trump listed Page as one of his top foreign affairs advisers when he spoke to the Washington Post Editorial Board but by July, Trump’s team was at pains to point out that he is not a representative of the campaign.

Page may no longer represent Trump, but he remains an advisor to sanctions-targeted Gazprom, run by another of Putin’s oligarchs, Alexey Miller.  Gazprom, is the crown jewel of Putin’s resource companies at “Kremlin, Inc.” The gas corporation has been heavily affected by US sanctions, yet Page has been involved in some of its biggest deals – including the development of The Sakhalin Oil And Gas Field. Gazprom’s former deputy CFO is now an official adviser to Page’s firm, Global Energy Capital LLC.

Gazprom is more than just a gas company, it is a Russian instrument of foreign policy and power. It was Gazprom that shut off gas to its biggest and most lucrative customers during the military incursion into Crimea. The company maintains a private army, employs a half million people and runs entire cities around Russia. Gazprom’s Alexey Miller has also hosted Secretary of State appointee Rex Tillerson in public forums.

Putin’s spokesman Dmitry Peskov says, “although Gazprom is an international corporation, the largest shareholder is the Russian state. There is nothing strange in the fact that the relationship between the government and Gazprom is really very close.”  In, 2001, Gazprom, led a forceful takeover of NTV, a popular television channel that was openly critical of the government.

In July this year, Carter Page – still acting as a Trump adviser – met with Rosneft CEO Igor Sechin, and Igor Diveykin, a high–ranking Russian intelligence official.

The meeting alarmed Washington’s intelligence community and outgoing Democratic Senator Harry Reid, who scribed a letter to FBI Director James Comey asking, “whether a Trump advisor who has been highly critical of U.S. and European economic sanctions on Russia, and who has conflicts of interest due to investments in Russian energy conglomerate Gazprom, met with high-ranking sanctioned individuals while in Moscow in July of 2016, well after Trump became the presumptive Republican nominee?”

Page has denied the meeting took place calling the accusations, “absolute garbage” but regardless of whether the meeting took place or not, Trump’s advisor has been very vocal about President Obama’s policy of exporting American values.

Page recently told the New Economic School in Moscow, “Washington and other Western capitals have impeded potential progress through their often hypocritical focus on ideas such as democratization, inequality, corruption, and regime change.”

In February 2015, Page described the West as “football team bullies” citing “condescending mistreatment” of Russia, Iran and China. He likened the treatment of these nations to the treatment of slaves and blamed the US for spurring “economic disaster” in Russia and Ukraine.

Now Senator Reid, is calling on FBI Director James Comey to be investigated, comparing him to another famed Bureau Chief with political ambitions. “I did not believe Comey was the new J. Edgar Hoover,” Senator Reid said. “I thought that he would do the right thing for the country.”

So, what we know is that Trump is now indirectly connected to at least two of the biggest oligarchs in Russia. His Secretary of State appointee, Rex Tillerson is one of Putin’s closest non-Russian friends and tied directly to business deals with Rosneft CEO Sechin. Trump’s ex-advisor, Carter Page, reportedly met Sechin in July and  is also an investment advisor to another oligarch, Alexey Miller of Gazprom.

Retired Gen. Michael Flynn, Trump’s pick for National Security Adviser is also connected to Putin. Flynn appears regularly on the Kremlin sponsored English language cable news network RT. Flynn flew to Moscow last year for RT’s gala and sat with Putin.

Then there’s John Bolton, who is being touted as a potential Deputy Foreign Secretary. Bolton is connected to the group of oil oligarchs and to Dick Cheney but that’s a story for another day.

And if you’ve been keeping score, Trump’s former campaign chief, Paul Manafort, worked as an adviser to Viktor Yanukovych, who was Putin’s puppet president of Ukraine.

There’s another factor driving a deep connection between Trump and Putin and that is liquid cash. While his net-worth is estimated at $3 Bn, his debt has climbed from $350M last year to $650 m this year. To finance this ballooning line-item, Trump has been highly reliant on money from Russia because US banks have mostly black-balled Trump.

According the Washington Post, “since the 1980s, Trump and his family members have made numerous trips to Moscow in search of business opportunities, and they have relied on Russian investors to buy their properties around the world. “Russians make up a pretty disproportionate cross-section of a lot of our assets,” Trump’s son, Donald Jr., told a real estate conference in 2008. “We see a lot of money pouring in from Russia.”

Trump isn’t denying his appreciation of all things Putin. It’s his calculation that closer ties with Moscow are a benefit to Washington. He believes America’s policy of advancing human rights ahead of economic benefit is working against US interests. In a Trump world, anything that advances the country’s power is worth the price of doing business – even if it’s with autocratic rulers with a poor human rights record.

It should be noted, Putin’s aggressive stance on US politics comes at a time when sanctions have left him with a large deficit. Last week on Wednesday, the state sold off a 19% stake in Rosneft to Swiss Commodity firm, Glencore, with a sovereign wealth fund in Qatar as secondary funders. The $11 Bn dollar deal will help Kremlin pay for the growing deficit but it won’t turn the tables on the US.

Putin is betting “Kremlin, Inc.” can do that with its new ally in the West, President-elect Donald J. Trump. With Tillerson at State and Flynn as National Security Adviser, Putin will have direct influence over world affairs and the country’s military strategy, potentially working around the President-elect. This would represent an unparalleled intrusion into the most important levers of foreign influence and give Putin unprecedented power to not only benefit Russia, but to exert pressure on any nation on the planet.