By RFE RL
By Todd Prince and Mike Eckel*
(RFE/RL) — March was the cruelest month for one of Russian President Vladimir Putin’s longest-serving and most hawkish confidants.
Igor Sechin, the head of state oil company Rosneft, announced the company was selling billions of dollars in investments in Venezuelan oil assets, months after the United States hit two Rosneft trading units with sanctions.
That came after Russia had tried to stare down Saudi Arabia in negotiations over oil-production cuts as the coronavirus pandemic slowed demand. Riyadh balked, the bottom fell out of the market, and Russia was forced to agree to record cuts.
For the Kremlin, whose budget is heavily reliant on high oil prices, the result threatens years of economic prosperity and, potentially, Putin’s political legitimacy. To many, the blame for both events rests on Sechin’s shoulders.
Whether he deserves it is an open question.
Many analysts say that oil prices and the ruble would have eventually plunged even if Sechin had been more agreeable to Saudi proposals for production cuts.
And while Sechin spearheaded Rosneft’s move into Venezuela, which was widely seen as a money pit, it dovetailed with Kremlin foreign policy.
Still, Sechin has been singled out in Russian media and by some analysts for his role in the OPEC deal.
“It may well be that the ‘Sechin era’ in Rosneft’s leadership will be remembered not by its incompetence and losses in the early years, but by two words: March 2020,” Russian economist and University of Chicago professor Konstantin Sonin recently wrote in an opinion piece in the business newspaper Vedomosti.
Rosneft spokesman Mikhail Leontyev did not immediately respond to messages from RFE/RL seeking comment.
‘Ruthless Corporate Raider’
For Sechin’s critics, it may be a rare time to gloat. But it will unlikely affect his envious position as one of the most powerful people in Russia, Sonin told RFE/RL.
Putin values loyalty, Sonin said. And few have been as loyal to the president — and for as long — as the 59-year-old Sechin.
When Putin was working in the mayor’s office in St. Petersburg in the 1990s, his then-wife, Lyudmila, was seriously injured in a car accident. Sechin was reportedly dispatched to the scene to collect one of the couple’s two daughters.
In Moscow, when Putin was ushered in as acting president when Boris Yeltsin stepped down on December 31, 1999, Sechin was tapped to be deputy head of the presidential administration.
In July 2004, Sechin joined the board of Rosneft, then a relatively small firm producing just 20 million tons (140 million barrels) of oil a year. Today, the company produces more than 10 times that amount, making it the second-largest oil producer in the world after Saudi Aramco.
That enormous growth is due mainly to its acquisition – theft, some experts say – of major oil assets, like Yukos.
During that period, the Putin government undertook one of the most consequential moves of Putin’s presidency: the prosecution of Yukos founder Mikhail Khodorkovsky, then Russia’s wealthiest man.
In October 2003, months after alleging corruption at Rosneft, Khodorkovsky was arrested at gunpoint at a Siberian airport on charges of fraud and tax evasion.
The government moved to nationalize Yukos, and the company’s best assets were ultimately acquired by Rosneft.
In a 2005 interview with Vedomosti, Khodorkovsky called Sechin the “organizer and motor” of the Yukos case.
Sechin, in an interview with the Financial Times five years later, rejected the notion that the case against Khodorkovsky was politically motivated and that the assets of Yukos were expropriated, saying Rosneft paid a hefty price.
Gutseriyev Takes Flight
As Khodorkovsky’s company was broken up, a smaller oil producer called Russneft snapped up a 50 percent stake in one of Yukos’s Siberian subsidiaries in 2005.
Rosneft that year offered Russneft to swap its 50 percent share in the Yukos unit for a stake in a subsidiary, according to media reports. Russneft’s owner, Mikhail Gutseriyev, said the deal was unfavorable and rejected it.
A year later, investigators showed up at Gutseriyev’s office amid a tax probe that threatened seizure of the company’s shares.
The tycoon fled the country in 2007 to escape prosecution and Rosneft filed a lawsuit the following year seeking $200 million in damages from Russneft.
Vedomosti reported that Gutseriyev was told that Sechin was behind the tax probe, but could not reach the powerful Kremlin official to discuss the situation.
Gutseriyev later was allowed to return to Russia, an unusual phenomenon for a businessman who had fallen out of favor with authorities.
In 2012, as Putin returned to the presidency after a four-year stint as prime minister, Sechin took on a new role at Rosneft: president. Months later, Sechin announced his company would purchase Russia’s third-largest oil producer, TNK-BP.
The company was a mash-up of investments from a Russian company backed by three politically connected businessmen and the British oil giant BP.
The $55 billion deal was completed the following year after Rosneft secured tens of billions of debt from Western lenders. But where oil prices had been hovering at $100 a barrel during the previous few years, they fell by about half by the end of 2014.
In 2014, Russia annexed Ukraine’s Crimean Peninsula and fueled a separatist war in eastern Ukraine. In response, the West imposed sweeping economic sanctions that kept Rosneft from rolling over its massive dollar debt.That is [Sechin’s] uniqueness. He is brash and permits himself more.”–Tatiana Stanovaya, R.Politik think tank
The company was forced into a complicated deal that involved selling 625 billion rubles ($14 billion) of corporate bonds — a record amount for Russia at the time — which would then be swapped for dollars.
It was an enormous, nontransparent transaction that spooked currency traders and sent the ruble tumbling.
Rosneft’s losses on the TNK-BP acquisition were larger than all of the Russian privatization deals of the 1990s combined when adjusted for dollar inflation, Sonin estimated.
When Rosneft went public in 2006, it was the largest-ever public offering for a Russian company, and initial valuations put the company at $79.8 billion.
Rosneft today is worth $48 billion, less than the price it paid for TNK-BP, and its shares are now worth about 60 percent of their initial-public-offering price.
Between 2013 and 2017, Rosneft went on a buying spree, making some $22 billion in acquisitions.
In a November 2017 report that was critical of Sechin’s leadership, oil analysts at Sberbank, the state-controlled lender, said the campaign had “no clear focus.”
One of those purchases was the acquisition of a 50 percent stake in Bashneft, a regional oil company that had some of the most modern refining facilities in the country.
Prior to mid-2014, the company was controlled by Sistema, a sprawling conglomerate involved in everything from real estate to retail stores to telecommunications.
In 2014, however, the Russian government nationalized Bashneft. In September of that year, Sistema’s owner, Vladimir Yevtushenkov, was placed under house arrest. He was released in December 2014.
Rosneft not only ended up buying a 50 percent stake in Bashneft, but it later sued Sistema for $4.5 billion, eventually agreeing to a $1.7 billion settlement in 2017.
A year before Bashneft’s seizure, Vladimir Milov, who had been a deputy energy minister early in Putin’s first term in office, warned that Sechin had been seeking to acquire the company for a decade.
“Bashneft is the most obvious and easiest target for Sechin,” Milov predicted in 2013.
As Rosneft was maneuvering to acquire the Bashneft stake, some government officials publicly spoke out against it. Having a state-owned company acquire Bashneft, they argued, would defeat the notion of privatization.
Among those who opposed the deal was then-Economy Minister Aleksei Ulyukayev, a member of the so-called liberal camp in the Russian government.
In November 2016, a month after the Russian government grudgingly approved Rosneft’s purchase of Bashneft, Ulyukayev was arrested inside the company’s headquarters on charges of taking a “large bribe” of $2 million.
Ulyukayev claimed he was set up. He was sentenced to eight years in prison after a trial that saw repeated attempts to get Sechin – the main witness — to testify.
“Sechin has a hideous reputation” among the elite, Tatiana Stanovaya, a founder of the think tank R.Politik, told RFE/RL. “Unofficially, members of the presidential administration and government harshly criticize him.”
Sechin, she said, is willing to “go further” in pursuing his goals than other allies of Putin.
“That is his uniqueness. He is brash and permits himself more,” she said.
Sechin has clashed with just about every major figure in the Russian oil and gas sector over the years and many top officials overseeing major economic decisions.
But as the head of the state’s premier oil company, he’s carried out projects that often are driven not by shareholder interests — Rosneft has lost billions in value during this time — but by apparent political demands, such as the doomed investments in Venezuela.
In return, Sechin has aggressively sought government favors, including trillions of rubles in tax breaks for Rosneft’s oil fields and limiting access to Arctic fields to state-owned companies.
That massive project is now clouded by the collapse of oil prices.
“His added value as Rosneft CEO is his access to the Kremlin and Putin. He constantly plays palace games trying to appoint his own people in very important positions,” said Rauf Mammadov, an energy analyst at the Middle East Institute specializing in the former Soviet Union.
In Venezuela, Rosneft was at the vanguard of Russia’s attempts to woo the country’s leadership, part of Moscow’s larger plan to reassert itself on the global stage.
Rosneft partnered with Venezuelan state-owned PDVSA and lent the company billions of dollars, even as the South American country slipped into economic chaos.
In June 2019, at Russia’s premier investor forum in St. Petersburg, Sechin lambasted Washington’s foreign policy and its use of oil sanctions against countries like Venezuela.
“A number of commentators like to accuse Russia of using energy as a political tool,” Sechin told an audience whose members included China’s leader Xi Jinping.
“But indisputably the reality today is that the United States uses energy as a political weapon on a mass scale. Sanctions, or even the threat of their imposition, have a destructive effect on the global energy market ecosystem,” he said.
Eight months after his speech, Washington slapped sanctions on the first of two Rosneft trading units for helping Venezuela skirt a U.S. oil embargo.
Some Chinese firms, cautious of violating U.S. sanctions, halted trading with Rosneft, a major blow. In March, Rosneft was forced to sell its Venezuelan assets to another Russian state company.
No Position To Gamble
The Rosneft chief was reportedly the driving force behind Russia’s decision in March to reject additional production cuts proposed by the OPEC+ group, which led to the steepest one-day drop in global prices in nearly three decades.
Sechin had long complained that OPEC+ cuts only opened the door for other nations like the United States to increase output and wield greater political influence. He said the deal had forced his company to restrain low-cost output growth over the past two years,
Stanovaya said Putin made the final decision to walk away from additional production cuts. However, she said, it is possible he would have chosen otherwise had Sechin not been persistent.
Weeks after the deal’s collapse, as Russian fiscal planners tapped the country’s rainy-day fund to meet budget obligations, Russia returned to the negotiating table with Saudi Arabia and OPEC.
“Sechin’s mistake was that he did not hide [his] euphoria after the deal was broken,” Stanovaya said. “As a result, it seemed that he was behind it.”
- Todd Prince is a senior correspondent in Washington, D.C., for RFE/RL.
- Mike Eckel is a senior correspondent for RFE/RL based in Prague.