18 July 2012
John Lough

John Lough

Associate Fellow, Russia and Eurasia Programme


Rival groups fighting for control of Russia's vast energy sector are caught in a stand-off.

In one corner is Arkadiy Dvorkovich, the Duke University-educated deputy prime minister responsible for energy issues and a Dmitry Medvedev loyalist. In the other corner is Igor Sechin, his predecessor as deputy prime minister and long-time associate of Vladimir Putin. Sechin is regarded by many as the archetypal silovik who played a vital role in restoring state ownership of the Russian oil industry through Rosneft's hostile takeover of Yukos (2003-05).

Analysts regularly paint Dvorkovich as a 'progressive' figure who favours greater liberalization and privatization of the energy sector and Sechin as a 'conservative' who would like to make the state holding company Rosneftegaz the vehicle for privatization and increase its influence in the process.

New Developments

Their battle took another turn recently when Dvorkovich appeared to gain ground on Sechin after a newly formed presidential energy commission chaired by President Putin refused to sanction the privatization of the state hydroelectric company through Rosneftegaz. Dvorkovich put down another marker by saying that the Medvedev-led government would decide the dividends to be given by Rosneftegaz and have them paid to the state budget.

Just months ago, many commentators said Igor Sechin was finished. He had been forced off the boards of Rosneft and its holding company Rosneftegaz. He had also suffered the humiliation of being outplayed by BP's Russian owners, who had stopped the consummation of BP's deal to explore the Arctic jointly with Rosneft. But reports of Sechin's demise have proved greatly exaggerated and he should not be written off. 

Since Putin's return to the Kremlin, Sechin has returned as CEO of Rosneft and a board member of Rosneftegaz. He has also been appointed to the influential position of secretary of the presidential energy commission. Meanwhile, Dvorkovich is chair of a government commission on the energy sector.

Centres of Power

It is by no means unusual to have duplicate structures in the Russian government system but it is a mistake to believe that they are the real locus of decision-making.

Instead, policy decisions on energy issues are made by a small group of individuals, usually associates of Putin who have direct access to him. Top managers of leading companies often play a role in this process. This system does not favour Dvorkovich; he does not have an energy background and still has to develop relationships with some of the industry's key players.

However, in Russian power struggles, tactical moves can often obscure the real game that is being played out. The question that observers should be asking is not what Dvorkovich or Sechin has gained but why the system has allowed them to fight so publicly.

All the President's Men

Under Putin, rivalries and conflicts within the ruling elite can often take place in public so that they can be overseen and controlled by Putin, who acts as a supreme arbiter or mediator. This form of divide and rule underlines Putin's considerable personal importance to the functioning of the system and is a source of his power. The resulting decision-making model is slow and inefficient because it uses informal mechanisms of 'manual control' to reconcile competing interests.

The role of government structures in these cases is limited to providing a platform for rival interests to stake out their positions, allowing Putin to play for time and gauge possibilities for compromise.

Difficult decisions lie ahead. Putin will have to mediate a position on energy sector privatization that 'progressives' and 'conservatives' can both accept. This is likely to entail a number of separate decisions giving roughly balanced concessions to both. He also has to negotiate an outcome to the deadlock at TNK-BP after BP's announcement that it intends to sell its 50% stake in Russia's third largest oil company, which accounts for 14% of crude oil production. The prize of controlling TNK-BP is likely to provoke fierce rivalries. The complexity of ownership scenarios and their consequences for the sector as a whole may make it impossible to agree a resolution that keeps the main parties happy.

While competitive divisions have been a balancing force at the heart of Putin's system of rule since he came to power in 1999, the energy sector poses problems that are not easily managed, and could divide rival groups and destabilize that system. Putin's loss of support in society over the past year adds another complication since he may no longer be able to exert the same authority to resolve major disputes.