Why the Current Wave of Nationalization in Russia is More Than Just a Redistribution of Assets

It is hard to surprise anyone in Russia when something is taken away. After the war began, this became the business of the state. At first, it seemed like a manifestation of a mania for control and an acceleration of the long-declared “nationalization of the elites.” Experts identified several types of businessmen whose assets were confiscated. Most often, three categories were named: “oppositionists” who spoke out against the regime; those who had “lost their connection to the Motherland” — living abroad or holding a second passport; and those who were unlucky enough to own companies not tied to the defense industry, or simply those whose businesses the state considers strategic. In 2023, there were 15, last year — 5, according to Prosecutor General Igor Krasnov.

In total, in 2024 the Prosecutor General’s Office transferred property worth nearly 2.4 trillion rubles to the state, reported Krasnov. Recently, the law firm NSP calculated, that the assets seized over the past few years are now worth 3.9 trillion rubles, “which demonstrates the broad scale of nationalization.” There are different ways to count, but it is clear that since about the end of last year, nationalization has been gaining momentum, and anyone can become a victim. One of the latest high-profile cases is Yuzhuralzoloto of Konstantin Strukov, the deputy speaker of the Chelyabinsk Regional Duma, which already during the war, at the end of 2023, held an IPO. News like “the court granted the claim to transfer to the revenue of the Russian Federation…” now appear regularly.

What this could mean is explained by Andrei Yakovlev, associate at the Davis Center for Russian and Eurasian Studies at Harvard University, who has long studied Russian elites and the relationship between business and government.

No arguments with the state

After the Yukos case, for almost 20 years before the war, the redistribution of property mostly looked like “a dispute between economic entities” (this phrase, which became a meme in Russia, was used by Vladimir Putin to describe the takeover of NTV television network from Vladimir Gusinsky in 2001. — IStories): one side would bring in people in uniform and, with their help, take away assets, sharing part of the spoils with them. This was the standard scenario of forceful pressure on business from the mid-2000s until 2022, inclusive.

The war added to this the redistribution of assets belonging to foreign companies that had left Russia. In essence, this was a consolidation of the elite base and was done in the interests of those groups on whom the Kremlin now relies and plans to continue relying. Many suffered from sanctions, including those close to Putin, and they needed to be compensated. The assets of departing foreigners made this easiest to do.

However, since the summer of 2023, this process has spread to the assets of Russian owners who, for various reasons, had fewer opportunities to protect themselves. In particular, these were entrepreneurs who did not live in Russia (including due to political pressure) or who left the country after the start of the war. For example, the chemical company Metafrax Chemicals was taken from Seyfeddin Rustamov, who lived in the U.S., the largest pasta factory in Russia, Makfa, from Mikhail Yurevich, and the car dealer Rolf from Sergey Petrov.

But as Putin has repeatedly stated, this was not about nationalization. All these assets, as a rule, were then privatized and handed over to “close comrades” on terms favorable to them. Metafrax Chemicals went to Roskhim, a company close to the Rotenberg brothers, Arkady and Boris; Rolf, formerly owned by Sergey Petrov, went to Umar Kremlev, and Makfa was transferred to the management of a structure of the state-owned Rosselkhozbank (which is considered the domain of the Patrushev clan). We’ll see who ends up with it, but the business taken from the French, Danone, was privatized using the company’s own funds by the appointed manager — a nephew of Ramzan Kadyrov.

In 2023, the mechanism used to seize property changed. The “dispute between economic entities” was left in the past; now the issue was framed as a threat to Russia’s national security and economic sovereignty due to the actions or inaction of the current owners. The scheme, with such an unchallengeable argument, radically accelerated the process.

“Disputes between economic entities” could drag on for years, even if the owner was in pretrial detention. A classic example is the Magomedov brothers, whose key asset, Fesco, was taken five years after their arrest, in 2023. When it comes to national security, issues are resolved instantly. From the filing of the lawsuit for the nationalization of Yuzhuralzoloto to the transfer of shares to state ownership, two weeks passed.

There’s no money, so hang in there!

What is happening now is a logical continuation of the process that began in 2023. But this redistribution of property has significant differences from the model of forceful pressure on business and asset seizures typical of the 2000s or 2010s, when any FSB department head or district prosecutor could take part in a corporate raid. Unlike the previous model, nationalization is a centralized process that requires approval at the very top. The need for such approval to some extent limited the scale of nationalization, but now this process has sharply accelerated due to the objective deterioration of the economic situation.

Until mid-2024, the Kremlin had enough money to fully fund the war, cover social obligations — not increasing spending on them, but at least indexing them to inflation — and at the same time provide rents to the elites in the form of various types of state support (in addition to handing out pieces of property). Moreover, the rapid economic growth in 2023–2024 itself created an additional source of rent for the elites.

Last fall, it became clear that there was no longer enough money for everything. With the budget for 2025–2027, the Kremlin directly stated that its main priority is financing the army and the defense industry: military spending was once again increased — after a 70% rise in 2024. At the end of 2023, Finance Minister Anton Siluanov called the 2024–2026 budget a “victory budget”: we are once again dramatically increasing military spending, but then we’ll be able to cut it back (for 2025, military spending was then planned at 8.5 trillion rubles after 10.8 trillion in 2024, and for the following year, 2026, 7.7 trillion was budgeted). But less than a year passed before the 2025 budget included military spending of 13.5 trillion rubles — with no plans for any significant reduction in 2026 and 2027. In reality, in 2022–2024, actual military spending kept exceeding the plan, but overall economic growth and high oil prices gave the government additional sources of funding.

Since the end of 2024, the situation has changed. The economy has started to slow down. Part of the rent that came from rapid growth is evaporating. Oil prices have also dropped significantly.

Times are changing

But tensions within the elites are rising. The suicide of the Minister of Transport Roman Starovoyt testifies to the extent of this. People in the bureaucratic elite are genuinely exhausted; they are under stress.

It began with the pandemic, 2021 seemed to offer a brief respite, but then the war started — a war for which they were completely unprepared and which they did not want. According to my conversations with people in Moscow, at the start of this year, there were high hopes in the bureaucratic and business elite for Trump — with expectations of at least some normalization of relations with the West. But due to the Kremlin’s hardline stance, these hopes were dashed.

The situation in business is no better; there, too, moods could return to those of 2022. Many were unhappy about the war, but when rapid growth began, conversations like those between Iosif Prigozhin and Farhad Akhmedov (both harshly critical of the war) quieted down. Now businessmen realize that the fat years are ending, and they may once again start to ask themselves: what was all this for, and why did we need it?

For all their cynicism and opportunism, today’s Russian business elite and bureaucracy are quite competent; these people went through fire and water in the 1990s and 2000s, they understand how to work in the Russian market, they have teams. It was precisely through the efforts of these people that Putin’s system maintained stability not only over the past three years, but also for the previous 20 — for which they received generous compensation. However, within the framework of their informal contract with the Kremlin, these people never signed up to “die” for the country, for Putin, or for an idea. That’s not what they’re about. Now, when the regime no longer has the resources to compensate everyone, such people, who possess their own resources, become a risk factor for the regime.

Against the backdrop of a deteriorating economic situation, the Kremlin needs the Russian elite to be made up of people who may be less competent, but who will stick with Putin to the end, since the collapse of the regime would mean personal collapse for them.

Loans-for-shares auctions 2.0

That is why the decision to launch a major redistribution of property now is entirely rational. There is still money in the budget, but the Kremlin is trying to act ahead of the curve. When the economy enters a serious crisis, it will be too late. If, by then, there are still independent players in business with billions in assets and large workforces, and they can, say, make it to the Emirates and strike some kind of deal there, that would be very dangerous for the regime.

The seizure of assets can take place, for example, following the logic of “loans-for-shares auctions.” Before the 1996 elections, key assets remaining in state ownership after mass privatization were handed over to entrepreneurs close to the regime for very little money. Everyone involved in this scheme understood: if Boris Yeltsin lost the election and the Communists returned to power, these people would lose the property they had acquired. So they had every incentive to stand behind this government to the end.

To repeat such a scheme under current conditions, assets must first be nationalized from those who are weaker or considered unreliable. The May decision by the Constitutional Court created the legal basis for this. The statute of limitations for privatization cases has been abolished: it now starts from the end of the prosecutor’s investigation, which can uncover violations even 30 years old. Under this seemingly legal pretext, property can be seized at will. For example, from one of the oligarchs of the 1990s.

The scenario could look like this. The assets of a certain oligarch worth, say, a trillion rubles are nationalized. The state neither gains nor loses from this: these assets have to be managed, which is a headache — the Finance Ministry has said so directly. State managers, like Rostec chief Sergey Chemezov, are more about asking the state for money than bringing in revenue to the budget. So the state will not keep the property; it will be sold — Siluanov has already started talking about a “big privatization.”

An asset worth a trillion rubles can be sold to the right hands, for example, for 300 or 500 billion. State banks like Sberbank or VTB will gladly provide loans for this under informal Kremlin guarantees.

In the end, a trusted businessman will get the asset for a third or half its value, but will know: if the regime collapses, he will lose this asset (those whose assets are being seized now will have their day of reckoning). Therefore, he has every reason to stick with the regime to the end, while the Kremlin gets several hundred billion rubles for the budget. That is not bad money, and if scaled up, the regime could keep going for a few more years.

Elite 2.0

Putin has proclaimed “veterans of the special military operation” as the new elite, but they will not be the ones participating in such deals. Entrusting such people with the management of large businesses is risky — they could ruin them. Much has already been handed over to “friends” (like the Rotenbergs or the Kovalchuks), but the Kremlin also needs broader “support groups.” And it seems the casting for this is already underway.

Most likely, the new elite will be drawn from “second-tier” businessmen. They have experience and competence — they created their own more or less successful businesses, but now want access to much larger assets.

The price for gaining access will be some public act that cuts off the new owners’ paths to retreat. For example, a speech like the one made at the meeting with Putin by Aleksei Repik, chairman of Business Russia — an association of medium-sized businesses, that very “second tier” (unlike the Russian Union of Industrialists and Entrepreneurs, which represents oligarchic business, and Opora Rossii, which acts on behalf of small business). Never before had someone like Repik spoken to Putin in such terms, not even at the United Russia party congress: his flag-waving patriotism surprised even the journalists of official media. Repik also spoke extremely harshly about the return of foreign companies (let them compensate for damages and create joint ventures where control will be in the hands of new Russian owners of their former assets), proposed raising the personal income tax for Russians who have left the country to 30%, and, one could say, swore an oath: “Vladimir Vladimirovich, you can be absolutely sure: just as 80 years ago, the home front is secure.”

Usually, if Putin wanted to discuss something serious with business, he would meet with the Russian Union of Industrialists and Entrepreneurs, but this time, for such a “public” conversation, Business Russia was chosen. This meeting took place a day after the Constitutional Court’s decision to abolish the statute of limitations in privatization disputes.

Figures like Aleksei Repik or Umar Kremlev are the prototypes of the new business elite. It is with such people that the Kremlin will replace the entrepreneurs of the 1990s–2000s — people like Sergey Petrov, who built Rolf from scratch, or Vadim Moshkovich, who created the Rusagro holding.

Such an elite will resemble the North Korean one. In North Korea, despite all the repressions carried out by the Kim family in Stalinist fashion, the elite understands: if the regime weakens, reunification with South Korea will become inevitable within two or three steps, and in that scenario, this elite has no chance of retaining any social status. That is why, even during the famine of the 1990s, there was no elite coup. And this is precisely what the Kremlin is now trying to do — to replace the elite of the 1990s–2000s (corrupt and cynical, but not prepared to die with the regime) with people who will have no choice. However, it is far from certain that this will succeed.

The silence of the elites

When the first wave of nationalization hit in 2023 (with a focus on assets in the chemical industry), there was tension, which was publicly articulated by Russian Union of Industrialists and Entrepreneurs President Alexander Shokhin, Economic Development Minister Maksim Reshetnikov, and Putin’s aide (now deputy head of his administration) Maksim Oreshkin (1, 2, 3). In September 2023, Putin spoke at the Eastern Economic Forum, after which several lawsuits were withdrawn (1, 2).

The Kremlin was testing the waters. In 2023, there was still ferment — so they decided to calm things down. Then, at the start of 2024, Putin declared that the elite was not those who filled their pockets in the 1990s, but “warriors and workers.” This no longer caused anxiety — meaning it was possible to go further, as we now see in the Constitutional Court’s decision. When, at the main Putin economic forum, this decision was criticized by State Duma Budget and Taxes Committee Chairman Andrei Makarov, the reaction of the ministers and businessmen present was a heavy silence, and Ksenia Sobchak compared Sberbank’s prestigious breakfast, where this took place, to a “naked party,” for which many Kremlin-loyal show business figures were punished.

In other words, the old elite acts as if nothing is happening, even though even not-so-liberal comrades are pointing this out: “Patriotic businessmen really are strange people. They must understand that sooner or later they’ll become food. Like in those stories about prison escapes from the far northern colonies, when the convicts bring along a few extra companions, who are eaten along the way.”

The oligarchic business has submitted to the authorities; Vladimir Potanin even said: “Don’t fuss over the client, but follow the course of state policy.” They’ll be “eaten” simply because they are not “native” to the regime. But not all at once, but bit by bit — first, using the examples of Moshkovich or the former owner of the nationalized Domodedovo Airport, Dmitry Kamenshchik, the old oligarchs will be offered to “pay an exit fee”: in the form of sponsoring “patriotic education” programs or direct support for the special military operation. But given the Constitutional Court’s decision, they’ll come for them all the same.

However, the risks of redistribution of property through nationalization affect not only the oligarchs. There are also many thousands of successful large and medium-sized enterprises. The old oligarchs still have administrative “protection” they continue to rely on (in my view — completely in vain). But many independent, not very large companies often have no such “roof.” At the same time, they built their businesses themselves and, unlike the top-tier oligarchs, could well function without this regime.

It is difficult to assess the mood in such businesses — you can’t include sensitive topics in officially conducted surveys these days. But at the level of personal conversations, it’s clear that there’s been a sobering up in assessments of prospects and the state of affairs in the economy. The euphoria that was especially noticeable at the end of 2023 — sanctions are nothing, we’re growing, China will help us, we’ll beat everyone and “march to Paris” — has passed. Now, in economic terms, people are seriously discussing all sorts of scenarios, including the worst ones. Also, in personal conversations, very concrete individual “exit strategies” are being discussed — with planned escape routes from the country if everything falls apart.

The question is whether, in a real crisis, these people will prefer to drop everything or will prove capable of collective action. It’s happened before: during the August 1991 coup, brokers took to the streets and provided material support to the defenders of the White House, and in the spring of 1996, most of business supported Boris Yeltsin. Business by itself can hardly change anything in the political system; such collective action requires coordination — here, the participation of reasonable people from the state is important.

Paradoxically, certain incentives for this are now emerging. In particular, according to my conversations with Moscow acquaintances from the bureaucracy, Roman Starovoyt’s suicide was a shock for them — on his example, capable representatives of the bureaucratic apparatus, on whom the system of state governance objectively depends, began to realize that they are caught between two millstones. On one side is a group that wants to move to a mobilization economy like North Korea. This vector was openly declared a year ago by Far East and Arctic Development Minister Aleksei Chekunkov, connected to Kirill Dmitriev, but the real ideologue of this group is more likely Defense Minister Andrei Belousov. The other group (the Rotenbergs, Kadyrov, Suleyman Kerimov) is pulling the country toward a model of a mafia state. However, in both models, the current competent technocrats who consider themselves the elite will be regarded simply as “expendable material.” And the fact that three deputy prime ministers and six ministers attended Starovoyt’s funeral, I see as a signal of possible changes in the bureaucratic elite.

Undoubtedly, from such an impulsive demonstration of “solidarity with a comrade” to thoughtful collective action, they still have a long way to go. And in the atmosphere of fear imposed by the Kremlin, it will not be easy for normal people in the state apparatus and in business to make that journey. But the clock is already ticking for them.