Russia's Top 5 Stories of 2017

Hackers and Trump’s ties, Russian investment in bitcoin and Silicon Valley and Putin’s last presidential term.

Phpto: Alexey Belkin/TASS

1. Russia—U.S. Relations Become #1 issue

What happened:

Relations with the U.S. never stopped being a big deal in Russia. With the DNC hack, Trump’s surprise win and the Democrats’ and Robert Mueller’s hunt for his Russian ties, in 2017 Russia became a #1 issue in the U.S. for the first time since the end of the Cold War.

• The role of Russia in the American election might have been exaggerated. From the inside, some stories of Russian meddling looked at times like jokes, and most accounts of Russian ties seemed to tell more about the wishful thinking of Trump’s team than about real collusion.
• But Russian hackers seem to be real. We haven’t yet seen the evidence of Russian efforts to influence the election that the U.S. intelligence community claimed to have in January 2017. But, as The Bell has reported, in December 2016 two Russian top cyber-crime experts were arrested on suspicion of leaking information to Washington that confirmed the Russian hacking attacks.
• More evidence, though somewhat dubious, came from Konstantin Kozlovsky, a hacker jailed in 2016 for breaking into bank accounts. In August 2017, Kozlovsky claimed that he was involved in the breach of the DNC servers and Hillary Clinton’s email on assignments from FSB officers, The Bell has learned. In late December, Kozlovsky said in an interview that he has left digital fingerprints in the DNC file system — so now it’s for the U.S. intelligence to confirm his story.
• For the Russians, the deterioration of the relations caused only problems. The July 2017 CAATS Act could lead to the freezing of international assets of Russian oligarchs and to a ban on investment in Russian sovereign debt, which would dramatically depreciate the ruble.

Why the world should care:

Russia’s efforts to restore worldwide political influence (with reports of attempts of meddling in the elections in Europe) became a matter of frustration for the Western policy makers, journalists and voters. The November midterm elections in the U.S. may become the next stage of international cyber warfare — worth watching.

2. Russian Billionaires Turn to Crypto as Economy Stumbles

What happened:

The domestic economic downturn and fears of new sanctions have put Russian investors on a quest for new opportunities — and, like many others, they found them in bitcoin and blockchain. At least 10% of the Russian Forbes’ list has invested both in cryptocurrencies and blockchain-based startups, The Bell has reported. It’s no surprise — Russian entrepreneurs couldn’t pass up combination of high yields and anonymity.

Silicon Valley is another destination that still draws wealthy Russians, inspired by iron-ore tycoon Alisher Usmanov, who made almost $2 billion as an early investor in Facebook. This year, we found Russian money in Lyft, Snap, Hyperloop One, even in the Chinese Uber subsidiary and its former rival and now partner Didi Chuxing.

Why the world should care:

Despite the sanctions, the Russian elite still wants to boost its international status and gain recognition as big tech investors rather than nouveaux riches who can only get rich on natural resources. This trend is strong enough to overcome the tumultuous geopolitical circumstances and it might lead to further change in Russian policies.

3. Russian economy turns from recession to stagnation

What happened:

For the global economy, 2017 was a success. The world’s GDP grew 3.6%, and the emerging markets’ 4,2%. The financial markets performed even better: the S&P500 index gained 20%, the MSCI all-country index 22%, or $9 trillion.

Russia missed both rallies. The domestic GDP growth will not exceed 1.8%, and for the domestic financial market 2017 was a nightmare — the RTS index lost 1.4%, the worst result in the world besides the Middle East markets.

Russian economy is still doing better than in the previous years — 1.8% growth is the best figure since 2012. The bad news is that this growth won’t be speeding up. The World Bank predicts the same 1.7% for 2018 and 1.8% for 2019. This matches the 2016 forecast by the Russian Ministry of Economy, which said that the country might face 20 years of economic stagnation.

Why the world should care:

Despite slow growth, Russia is still the 12th economy in the world, and we still believe that sooner or later it will catch up with the global growth. After three years of recession, Russian companies are underpriced, trading at 6.8 P/E, three times cheaper than the the U.S. peers. It is important to follow not to miss the moment to invest.

4. Putin set to win the 2018 election, but the opposition is in the game

What happened:

The presidential election is scheduled on March 2018, but there’s already no doubt about the result. Vladimir Putin, with 87% popular support is going to win another 6 years as president. This term, at least according to the Constitution, must become his last one.

• The opposition leader Alexey Navalny was barred from the election, but the campaign gave him the opportunity to build up an effective network of supporters all around the country, which he will try to use to boycott the 2018 election.
• Another possible candidate could be Ksenia Sobchak, the reality television star with a 5-million Instagram account, socialite and daughter of Putin’s late mentor. Sobchak declared her candidacy in October, was officially cleared to run, and is widely considered a Kremlin-controlled spoiler aimed at liberal voters. While that’s probably how things will turn out, history has seen a lot of puppet politicians turn real. Sobchak became the first opposition candidate who was allowed to spoke openly against Crimea and corruption on national TV. She is set to represent the ‘moderate liberals,’ people who disagree with Putin but are not radical enough to fight the Kremlin openly.
• The latest presidential candidate came from the Communist party, which is now almost totally controlled by the Kremlin. Pavel Grudinin, the director of a state farm near Moscow and a YouTube star (Russian), replaced the eternal Communist leader Gennady Zyuganov on the ballot — and unexpectedly won lots of attention of the Russian social media users in his first days on the campaign trail.

Why the world should care

In the last 150 years, Russia has seen two scenarios of power change: revolutionary (1917) and from inside of the system (the Perestroika 1985-1991). Initially сontrolled politicians often start making changes when they get access to power. Even if not, the current candidates (and non-candidates, in the case of Navalny) get a chance to strengthen their positions and develop their competences before the 2024 election, when the intrigue will be stronger.

5. Remember this name: Russia’s informal #2 Igor Sechin builds up influence

In 2009, Igor Sechin, then deputy prime minister, was proclaimed the second most powerful man in Russia after Putin himself. Ten years later he is in charge of the largest Russian state oil company, Rosneft, and he’s as strong as ever.

Sechin has been Putin’s closest aide since the 1990s. During his patron’s first years in power, Sechin masterminded the tax claims and criminal charges that led Yukos, then the largest Russian oil company, to bankruptcy, and its owner, Mikhail Khodorkovsky, to a 10-years jail sentence. Yukos’s assets ended up in the state-owned Rosneft, led by Sechin.

This year, Sechin also placed risky bets — and won them all.

• In December, former Russian economy minister Alexey Ulyukayev was sentenced to 8 years of jail for soliciting a $2 million bribe from Sechin. Ulyukayev, the first acting minister arrested in modern Russian history, claimed that he had been framed.
• For a while, it seemed that the trial could play against Sechin. Surprisingly, the hearings were held open to the public, and Sechin was subpoenaed to court as witness. However, he ignored the call four times, never got any penalty, and his absence hasn’t prevented the court from sending Ulyukayev to jail in a case based solely on Sechin’s written evidence.
• Sechin’s second victim was billionaire Vladimir Yevtushenkov. Back in 2014, Sechin orchestrated the nationalisation of Yevtushenkov’s oil company, Bashneft, and its “privatisation” by Rosneft. In 2017, Sechin came back, winning a legally questionable $1.7 billion lawsuit, that claimed that Yevtushenkov removed part of Bashneft’s assets before nationalisation.

Why the world should care

Sechin’s #2 status is already a reason to watch him as Putin heads for his last term as president. Sechin is not a public politician, but his role in the transition period will be crucial.

Happy New Year!

Beginning from today, Russia falls asleep for almost two weeks of holidays — too bad for national GDP and news oultlets. We’ll be back with you on January 12. Thanks for being with us!

Peter Mironenko, The Bell