Crude World (29 page)

The Central Intelligence Agency realized in the 1980s that nuclear missiles were not the only doomsday weapon that could destroy the Soviet Union. A steep fall in oil prices might do the job without radioactive consequences. When Saudi Arabia’s King Fahd visited Washington in 1985, the price of a barrel was $30, a very high level (in those days) that was painful for consumers. President Reagan urged Fahd to lower oil prices, which could be done through higher production. Reagan’s stance was shaped largely by domestic concerns—Americans would have more money in their pockets if oil cost less. But the impact on Soviet finances was emphasized by CIA director
William Casey, who met secretly with the Saudi ruler to promote the virtues of low oil prices as an economic dagger into the hearts of the godless Communists in Moscow.

As it happened, King Fahd was upset with his OPEC comrades, all of whom sold more oil than allotted under their quotas. It was time to rap them on their knuckles. At the end of 1985, the Saudi monarch raised output dramatically and by the middle of 1986 a barrel cost just $12. This occurred as Mikhail Gorbachev came to power and tried to reform the dying Soviet system. “Gorbachev’s incipient perestroika was instantly fleeced of much of its hard-currency receipts,” Kotkin noted. According to Yegor Gaidar, who oversaw the economic “shock therapy” that accelerated Russia’s transition to capitalism during the Yeltsin era, the fall in oil prices deprived the Soviet Union of $20 billion a year—“money without which the country simply could not survive.” As Casey certainly celebrated at CIA headquarters, cheap oil doomed the Soviet regime. A political generation later, it’s possible history will repeat itself.

Six months after Putin’s Krispy Kreme moment, I visited the Moscow headquarters of the company that owned the presidentially inaugurated gas station in Chelsea.

The tower that housed Lukoil were built to intimidate rather than please. It was impossible to see inside the glass windows, tinted in a menacing shade of zinc and grime, and the contours of the structure discouraged long-lasting gazes—the tower was a brutal dagger that jutted into the sky. But inside, on the executive floor, the offices were as expensively outfitted as any of the citadels in Houston. The desks were made of tasteful hardwoods, the track lighting cast just-so amounts of light and the Prada suits worn not just by executive vice presidents but also by their secretaries indicated a pleasure and pride in letting visitors know that sartorial choices at Lukoil were not affected by price tags.

Vagit Alekperov, the president and largest single shareholder, whom I mentioned in
chapter 6
, had evidently gone to the same anti-charm school as Putin. Alekperov’s laser stare could melt a glacier. His
hair was a few millimeters longer than a crew cut, and with his stocky frame, he had the hard look of a high-priced thug. He spoke in a voice that often slid into a mumble, as if it was not his job to speak clearly but yours to listen closely. Most people chose to listen closely, because his company presided over more oil than Exxon and employed 150,000 people. Alekperov’s personal fortune was in the billions of dollars, so subordinates scurried in a manner that evoked a royal and fear-inspired court.

The oil world is known for rough characters—Texas wildcatters are as tough as the prairie and proud of it—but Alekperov made his American cohorts look like sissies. At the start of his career, in the 1970s, Alekperov lived on primitive offshore rigs in the Caspian Sea that routinely suffered blowouts and erupted into flames. An explosion once threw him into stormy waters; he had to swim for his life. In the late 1970s he was sent to Siberia, where, the story goes, a pipeline ruptured and repairmen refused to get near it, fearing an explosion. Alekperov sat on the pipe so his reluctant workers would gain some confidence. His do-what-it-takes attitude also applies to ethics. When negotiations stalled over access to Kazakhstan’s Tengiz field, Alekperov gave the Kazakh president a $19 million executive jet. Asked by a reporter whether any strings were attached, Alekperov replied, “Nothing is free.” Lukoil won a chunk of the Kazakh project.

Because crude oil and political power are umbilically connected in Russia, Alekperov was nonetheless answerable to a higher authority. I learned this within moments of entering his office.

With an expansive view of Moscow, Alekperov’s quarters were furnished in a severe, Germano-Scandinavian fashion, the floors and walls covered in a polished cut of blond wood, and the couches and chairs upholstered in red leather. A large relief map of the world hung on one wall, with small lights marking the places where Lukoil had investments. (The map had many lights.) On the wall behind Alekperov’s titanium-and-glass desk, on which there was not a stray paper, hung an ornate carving of Russia’s coat of arms, which features a double-headed eagle. Owing to the map and the official seal, the office felt like the work space of a general or a politician, and this impression was confirmed
by the sole picture on Alekperov’s desk. The color photograph did not show his wife or teenage son. It showed Vladimir Putin.

If the coat of arms had been replaced with a hammer and sickle, and the photo of Putin swapped with Brezhnev’s, I could have imagined myself back in the USSR, and so could Alekperov, who was the Soviet Union’s last energy minister. Now, instead of laboring on behalf of Marxism-Leninism, Alekperov worked for Russia, Inc. The name was different, but the new institution functioned in a similar way to the old one. Alekperov understood that in Russia, as in the Soviet Union, the Kremlin was the center of economic as well as political power. The Kremlin’s wishes were to be obeyed, not questioned.

“Politics are close to me, but there are different ways of participating in politics,” he told me, speaking carefully. “I don’t have personal ambitions. I have only one task connected with politics: to help the country and the company.” He nodded affirmatively when asked whether he regularly met Putin. He said, in a tone of unusual reverence, “I treat him with great respect.”

On Tverskaya, the historic boulevard that spills into Red Square, I waded through money. Designer boutiques lined the street and were tucked into the lobbies of five-star hotels that charged nearly any price they desired. The road was a conga line of late-model BMWs and Mercedes-Benzes, some with bulletproof doors and windows that were necessary precautions against assassination. Murders for hire still happened all the time, due to lethal rivalries for control of Russia’s wealth that had begun in the 1990s. Draped in the must-have accessories of the nouveaux riches—Gucci, Hermès and Tiffany—the men and women who descended from these gleaming and armored sedans could have been on Rodeo Drive for all the cosmetic surgery and distance from ordinary life they projected. There seemed to be sushi bars every few yards, in a city that just a few years earlier, during my last visit, had had the dismal ambience of a soup kitchen running low on soup. Now it was so different, thanks to hundreds of billions of dollars in oil revenues flowing into the wallets of an elite that had already run out of sensible ways to spend its wealth. America’s gilded age had nothing on
this. Roman Abramovich, an oil multibillionaire, acquired for personal use not only a $100 million Boeing 767 and several yachts costing more than $100 million apiece, but a British soccer club that passed into his hands for $230 million. He explained his investment strategy as “I love this sport. … Why don’t I get my own team?”

I entered the glittering lobby of the Marriott Hotel on Tverskaya to meet one of the few people sounding an alarm. Andrei Illarionov was an improbable candidate to shout out that the emperor had no clothes (or too much oil), because he was Putin’s senior economic adviser. Married to an American, Illarionov was a passionate fan of Ayn Rand, who wrote
Atlas Shrugged
and other celebrations of the blessings of free markets and the evils of government regulation. (Illarionov had presented Putin with a collection of Rand’s works.) Though Moscow did not lack for laissez-faire economists who treasured Thatcher as much as Pushkin, Illarionov was the best and the drollest. His jowls and thick voice gave him the look and sound of Rodney Dangerfield with an economics PhD. He was an anomaly in a regime led by a former KGB agent whose doctoral thesis was titled “The Strategic Planning of Regional Resources Under the Formation of Market Relations.”

We found an out-of-the-way couch in the lobby and got down to business: a soliloquy by Illarionov about the ruination of Russia’s future. The problem consisted of the way oil and gas revenues were being used by Putin to enlarge his personal power and that of the government. Illarionov noted that the police had recently arrested Mikhail Khodorkovsky, an oil billionaire who backed the opposition; Khodorkovsky’s company, Yukos, was being seized by the government. Illarionov, who had begun to openly criticize the regime in which he served, described the Yukos takeover as “the swindle of the year.” He accused Putin of creating a “corporate state” that stifled individual initiative and the growth of a diversified private sector. When the injections of petroadrenaline plateaued, as they would one day, Russia would have little else to keep its economy going, Illarionov argued.

The president’s economic adviser was, it turned out, a dissenter.

Illarionov was late for a dinner at Prague, an ornate restaurant a few miles away, so we jumped into his government-issued Audi and
continued talking as his driver weaved through the gridlock. Thanks to its new affluence, which put vast numbers of cars on the roads, Moscow at rush hour was far worse than Manhattan. Despite Putin’s law-and-order reputation, the streets were like Chicago’s of the Capone era. A few days earlier, a business executive had been killed near the Marriott, along with his driver and bodyguard, when a motorcyclist put a bomb on the roof of his armored Volvo. What was remarkable about this assassination was that in the previous year this executive had survived an assassination attempt on the very same street. Where the Mafia’s violence didn’t reach, the police state’s arm was felt. I dined at a posh restaurant one evening with a banker who needed, midcourse, to make a business call. He faced a problem because he knew his cell phone was bugged and he assumed mine was, too. So he borrowed a phone from another diner, a total stranger. The diner offered his phone without a blink; he no doubt asked the same favor of strangers, too. (It would not matter if the stranger’s phone was bugged, because the eavesdroppers would have no idea who was making the call.) It was a merry-go-round of precaution, and for the city’s monied elite, this was completely normal. Prudence is not unusual in business circles, but these gestures stemmed from fear rather than competition.

By the time we arrived at Prague, Illarionov was arguing that oil allowed Putin and other strongmen to claim responsibility for a tide of prosperity that only coincided with their rule. This amounted to a lesser version of the resource curse, because Putin and Hugo Chávez were not enemies of their people in the fashion of Equatorial Guinea’s Teodoro Obiang or Angola’s José Eduardo dos Santos, who for motives of greed, fear or general inhumanity were hoarding their nations’ wealth and killing or imprisoning those who disagreed. Critics could say what they wanted of Chávez, but he cared about Venezuela and was not torturing opposition leaders. Putin reportedly amassed a personal fortune while in office but was a nationalist who wanted Russia to be strong. The non-cataclysmic condition of their nations was also due to the existence of middle classes that acted as brakes on the worst excesses of dictatorship.

This does not mean Putin and Chávez were making the right decisions. Illarionov’s attention was fixed on the Aladdin-like powers that
oil imparted to these men. “There is a paradox,” he said as we walked into the restaurant, where a banquet had begun for a group of Western economists to whom Illarionov was a rock star, or as close as the world of Hayek and Friedman gets to heart-throbbing adulation. “What do you use this power for? Do you use it to reduce the size of the government, to break monopolies, to make the country more competitive and liberal? Or do you use this power to just preserve your own power?”

Since Putin had come to office, the state had acquired control of NTV, an influential, privately owned television station that broadcast nationally. Most of the independent newspapers had been acquired by firms loyal to the state. Russia was becoming the third-most-dangerous country for independent journalists, ranking behind only Iraq and Colombia in the number of murdered reporters. Opinion polls showed Putin’s popularity as quite high, but it would be hard to be unpopular when the media laud you every day and oil prices as well as your production of oil are rising fast. It did not matter whether the emperor had any clothes—whether, in other words, the country’s economy was becoming softer rather than stronger. What mattered, at this exuberant moment, was whether the emperor had money to dole out and a subservient press to take note of his largesse.

Illarionov posed his doubts at a time, in 2004, when it was possible to believe that Putin might still listen to smart advice that did not come from his colleagues in the security services. I wanted to ask Illarionov for a final prediction of the way things would turn out, but the doors to the banquet hall had just been opened. Illarionov was swallowed by the din of a celebration that was far from over.

“Power” is a vague word. It can mean gasoline or knowledge or the authority to order an execution. Oil is unique because it can be transformed into so many types of power—it can make lights burn and planes fly; it can turn wildcatters into millionaires and nations into superpowers. This is a problem as well as an attribute, because when power is measured in the hundreds of billions of barrels, and when it can be controlled by one man or one institution, it can be too much of a good thing.

In Russia, as elsewhere, if the state does not control oil, oil can control the state. It’s a dilemma: What is better, for oil to be in the hands of companies that become immensely powerful or for the government to own everything and become the center of all things? Illarionov’s free-market argument was sympathetic, but his Randian alternative—oil in the hands of the Russian private sector—was in this case a cause for concern. This was not a theoretical issue, because Putin was at that moment cracking down on Russia’s wealthiest oil baron. In this story, there are no heroes or villains, just problems that few countries resolve.