Posted by on March 23, 2014

There was a small announcement made by the US Treasury Department the other day. While imposing travel and other sanctions on Gennedy Timchenko, the Treasury alleged that Vladimir Putin had a direct financial interest in Gunvor Group Ltd., the energy trading firm controlled by Timchenko and his Swedish partner.

This all may have been a bit perplexing to those schooled in classical political science and international relations. But to those, like me, who are fans of the television show the Sopranos, it all makes perfect sense. To understand Putin’s Russia, it is best to look at it as a Mafia enterprise.

Putin is widely thought to have more money than he could have saved from his government salary, even if he were very thrifty. Maybe as much as a $100 billion more. He got this money the same way that Tony Soprano got his: he has his little “taste” of every racket in Russia, the biggest of which, of course, is the sale of oil and other natural resources.

Take the case of the Gunvor Group, for example, which received a big trading contract from the state-controlled oil company Rosneft shortly after Rosneft received many of the assets seized from Mikhail Khodorkovsky’s Yukos Oil. This, of course, is probably not a total coincidence. It is also a fair bet that Putin got his “taste” of this deal.

The US government knows about Putin’s money and probably knows where a fair amount of it is. It is trying to use this knowledge to make Putin toe the line on the Ukraine. The US is threatening to politically embarrass Putin with the Russian public and also threatening, via Putin’s capos, his personal economics.

The political embarrassment probably won’t work. The US will never be able to show Putin’s name on a share register or property title. To protect his interests, Tony Soprano didn’t need papers so long as he had his fists and his gun; almost nobody has more fists and guns than President Putin. The Russian political opponents of Putin already know what he is and don’t need the US to tell them. Putin’s political supporters, on the other hand, are either fellow gang members or they are the stolid, brainwashed masses that will never be convinced by anything coming from the US. No joy here.

The threat to Putin’s money probably won’t work either. Although the US authorities have probably found a lot of it – one imagines that there are whole sections of the NSA and the CIA dedicated to the search – there is no way that they have found it all; the crumbs will be more than enough to support Putins for generations to come. Plus Putin, like Tony Soprano, is a young guy with a big and profitable territory. If needed, he will have plenty of time and opportunity to reload.

But the biggest reason that it won’t work is 500 million hostages, also known as Europeans. Europe counts on Russia for about one-third of its oil and natural gas; for certain countries, the percentages are much higher. Poke Putin enough and he will shut off the taps. Tankers can be diverted and the oil can be replaced, but the natural gas cannot. So, as the cover of this week’s Economist magazine puts it, the most the West will do is put Putin “on the naughty step”, just as it did back in 2008 when he cut off a couple of slices of the Republic of Georgia.

So what can the West do? In the short term, not much. In the medium term, to use the words of the interim Prime Minister of the Ukraine, Arseniy Yatsenyuk, “we need to consider an energy independence of the entire European Union…in order not to give anyone including Russia…(a means) to use energy as a new nuclear weapon”. In other words, as I have argued before, when most of the hydrocarbons owned by the “good guys” have already been developed and where much of the remainder sits with the likes of Putin, Venezuela’s Thug-du-Jour and various Middle Eastern kleptocrats, a sensible energy policy is as much a political necessity as it is an economic and environmental one.

This won’t happen overnight, so the West will have to bide its time. But we can start taking the first steps now, including following Marco Rubio’s infinitely logical suggestion to repeal the US export ban on natural gas. The infrastructure will take a while to put in place, but this will eventually allow the US “shale gale” to create the conditions necessary for sufficiently tough economic penalties to deal with the Russian Cosa Nostra definitively.

And, who knows, the West might not even need to wait this long: start putting the structures in place to liberate Europe from Russia’s hold and some of the more far-sighted capos might conclude that Putin can no longer be afforded. After all, as the famous final episode of the Sopranos showed, even the head of the family can never rest entirely easy.

Roger Barris, London

PS. My most avid reader, who also happens to be my mother, has asked me to clarify one point. I am thankful for this because it turns out that my post was factually wrong, although still correct in spirit. I referred to a US export ban on natural gas. In fact, there is no such ban. What there is, however, is an approval process by the Department of Energy for the creation of liquified natural gas (“LNG”) terminals that is so ponderously slow and bureaucratic that Republican Representative Boehner in a recent Wall Street Journal op-ed piece referred to it as a “de-facto” export ban. One of the reasons for this is, of course, special interests, which benefit from natural gas prices in the US that are substantially below world levels. Specifically, this is the chemical companies that use natural gas as a feedstock and sections of the country (such as the Northeast) where natural gas is heavily used for home heating. As for the latter group, although these people definitely benefit from having lower gas prices, they would probably also benefit from lower iPhone prices if we made it difficult for Apple to export these. Their benefit is, of course, no argument for interfering with free market prices, since this interference always creates more losers than winners.

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