Cornucopia
Page 56
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The international demand for energy and the price of oil was of course beyond Fitzwilliams’ control. Even Vladimir Putin had not foreseen the convergence of events that were to lead to a crisis that would soon escape his control.
Since the fall of the Soviet Union, the world had dramatically changed: China had become its workshop and its economy had grown to five times that of Russia’s, which was almost entirely dependent on its energy exports.
With the collapse of oil and commodities things had started to unravel. Too many things happened at once and too quickly. INI had got in too deep with too many highly leveraged loans to the Russia’s energy industry.
The risks he had been told were low, oil and gas prices were riding high, Russia was booming. Peak oil was just around the corner. The world was running out of those commodities. The loans looked good: six, seven even eight percent interest on bonds with twice yearly coupons.
His outrageously paid analysts had calculated the risk on Russian bonds was low for the industry. They were not of course investment-grade bonds, such as treasuries, the yields of which were much lower. The only trouble was his quants hadn’t built fuckin Putin and fuckin Saudi Arabia into their equation, not only that, they had written off North American shale oil as a fuckin pipe dream, which even if they got oil out of the ground the impact on markets would at best be fuckin marginal.
The loans to Yakutneft and Polar and East Siberian oil fields, in Russia’s vast, almost empty, Far Eastern Federal District, where production costs were sixty, seventy and even eighty dollars a barrel, had been in retrospective dangerously risky. Already Vostokneft had appealed to Moscow for aide. As the price of Urals crude, a mix of Urals heavy and high-grade oils Western Siberia light oil, fell, default on certain loans loomed, bonds were downgraded to junk status, the cost of insuring against default exploded.
Then, the Black Swan, which by definition nobody could have imagined, appeared: Vladimir Putin seized the Crimea and Russia’s oil giants were hit by sanctions. Gazprom, Rosneft and Yakutneft were facing huge revenue losses, in addition they were shut out of long-term financing. Arrogant rhetoric suddenly looked hollow and the assumption that oil prices would continue to rise forever was shown do be nothing less than wishful thinking by ingenuous managers devoid of geopolitical experience.
All this left INI holding a lot of near to worthless paper, which went a considerable way to explaining Fitzwilliams’ hapless fate. Up to that point he had mistakenly placed his faith in the idea that Tarasov and his Russian friends could save the bank if anything went wrong and the last thing he had imagined was Russia going bust.
John Francis had spoken of the risks, a voice in the wilderness, and he as CEO had chosen to ignore his words of caution.
As Fitzwilliams’ wife, Alice, an internationally known Irish racehorse owner, a figure in the Irish Thoroughbred Association, drily put it, he had backed the wrong horse.
Tarasov had been his downfall and Kennedy’s astucious move to Hong Kong had distanced him from Moscow in more ways than one, leaving Fitzwilliams exposed not only to the dangers of being too closely bound to Russia and its financial risks, but also his own physical well being.
Putin’s links to the underworld had long been suspected by the FBI, more recently in connection with the murder of Alexander Litvinenko, who had been investigating the connections between the Russian leader and Semion Mogilevich, a Ukrainian Mafiya boss, and, the murder of Anna Politkovskaya, an outspoken critic of the Kremlin.
Fitzwilliams’ question was how to distance himself from Tarasov, without being seen as a traitor, an idea his republican spirit found difficult to accommodate. Tarasov was a marked man, an enemy of the Kremlin, destroyed by those who coveting his influence and wealth, had poisoned their leader’s mind with accusations of disloyalty. Like other fallen members of the Kremlin’s inner sanctum Tarasov was accused of tax evasion and economic crimes. In Russia he was now considered a common criminal, facing a long term of harsh imprisonment, exile and possible death.
For foreigners, like Michael Fitzwilliams, who fell foul of the Kremlin, different forms of coercion were employed. The FSB was well experienced in using blackmail, scandal, accidents, and if necessary murder to achieve the Kremlin’s evil ends.
The fate of Mikhail Khodorkovsky, the Yukos tycoon who became Russia’s richest man, was an example to those who even thought of transgressing their prerogatives. He had defied Putin in the political arena and found himself accused of economic crimes and sentenced to nine years imprisonment in Siberia. It was a brutally effective means of inspiring the loyalty of others who owed their success to the goodwill of the regime.
However, it was a two way road, the powerful businessmen that dominated Russian industry were needed by the Kremlin, just as medieval barons were needed by their kings, and like medieval barons oligarchs plotted and fought each other in their struggle for riches and favour.
A year on from Sochi, Putin’s world was near collapse. What remained of the Winter Olympics was financially speaking a black hole. Oligarchs, who had been coerced into investing in the construction of sporting installations, hotels and infrastructure for the glory of their leader, had seen their billions squandered and swindled by corrupt construction firms and officials. Facing vast losses, the Kremlin came to their succour, allowing them to unload their ruinous investments onto the state … in the form of poisoned gifts.
Crony capitalism underpinned Putin’s system and in return the Kremlin protected its friends, the rich and powerful oligarch class, when the losses engendered by its unrestrained pride, a misplaced ode to national glory, became too burdensome to bear.
The Kremlin could not take the risk of alienating its powerful barons just as Putin was embarking on another reckless adventure: sending his soldiers into the mud and chaos of the Donetsk Region, just a couple of hours drive from the soon to be forgotten Sochi extravaganza.
What Tarasov most feared had finally come to be. Like other oligarchs, he had lived under the shadow of dispossession, and was helpless as his business empire’s assets were looted by Kremlin and its cohorts. The threat had been real and the tools at the disposal of his enemies numerous, commencing with accusations of tax evasion and fraud, which the Kremlin had so effectively deployed against those who refused to bend to its iron will.
BEGINNINGS
Tarasov, unlike his fellow oligarch Khodorkovsky, had no political ambitions. The former head of Yukos, after being released from his Siberian prison at the end of 2013, had headed for exile in Switzerland. His release and pardon by Vladimir Putin had been a gesture designed to placate the West in the run-up to the Sochi Winter Olympics, when the strongman moved to burnish his image in the eyes of the world.
Exile was a long tradition for Russians fleeing tyranny, some chose Berlin or Switzerland, others London or Paris. For more than a century, the French capital had been home to waves of Russian émigrés, even though, Lenin, in exile, had called the city a foul hole. First came anti-czarist revolutionaries, then White Russians fleeing the Red revolution, followed by the victims of Stalin’s reign of terror, and finally those who fled the Evil Empire, as Ronald Reagan called it in the final phase of the Cold War.
In the course of the changes that followed the dissolution of the Soviet Union, many had dreamt of a free society, but they were bitterly disappointed as Putin’s vision of Russia took hold. Amongst those who chose exile were political dissidents and those disappointed by the failure of his economic policies, including men who had become rich under his rule.
With the simmering war in the Ukraine, coupled with economic sanctions, cracks were beginning to appear in the system. Members of Russia’s politically aware middle classes were beginning to ask questions. Amongst the working classes strikes were becoming recurrent as people sensed the life style that they had just started to get used was slipping away.
Russia’s vast regions were emptying, that is if they had even been populated by more than h
and full of European Russians. Emigration to the West was again bleeding the country of its better educated classes. All of which did not mean Russians were disposed to put their trust in men like Khodorkovsky. It required more than money and a personal confrontation with the Kremlin to win the hearts and minds of ordinary men and women, not to mind asking them to make the kind of sacrifice needed to challenge the regime.
Those like Ekaterina, a modern urbanised Russian, watched on. She like others of her generation saw her modestly privileged life style fading before her eyes. Imported foodstuffs and consumer goods were disappearing and prices rocketed as the rouble dived. Those who could headed for Berlin, London or Paris, and those who could afford it invested their cash to buy apartments anywhere but in Russia.