The Russian economic landscape is unlike that of any other nation in the world, formed from the unique circ*mstances that led to the creation of modern day Russia. Emerging from the Soviet Union in the early 1990s there is still significant state involvement in purportedly privately-owned businesses.
F. Jospeh Dresen of the Kennan Institute has studied the make-up of major companies in Russia and defined the situation as “state capitalism”. This means that there is substantial state ownership in businesses in a capitalist system where most companies operate in normal market conditions.
He notes that state ownership is “mainly limited to four industries: energy (oil, gas, and electricity), banks, defense industries, and transportation.” These are the most important components of the Russian economy and contain the biggest companies.
— President Biden (@POTUS) February 24, 2022On Tuesday, we stopped the Russian government from raising money from U.S. or European investors.
See AlsoAre sanctions actually hurting Russia's economy? Here's what you need to knowBill Gates Owns Far More Than The Most U.S Farmland, Here Are His 'Secret' Holdings2022’s Top Ag Issues and A Look AheadWhere Does The Food In The US Come From?Now, we will apply the same restriction to Russia's largest state-owned enterprises — companies with estimated assets of $1.4 trillion.
Which are the biggest companies in Russia?
In 2018 Russian economics publication Expert outlined the most valuable companies in Russia, ordering them in order of their annual sales volume. It is no surprise to see that the top five all feature in the four industries typically dominated by state ownership.
1. Gazprom
2. Lukoil
3. Rosneft
4. Sberbank of Russia
5. Russian Railways
Gazprom, Lukoil and Rosneft all produce the fossil fuels that power the Russian economy and are tightly-wedded to the Kremlin as a result. Gazprom, whose prominent sponsorship of Europe’s flagship Champions League competition was thought to be an attempt to expand Russian influence on the continent, provides natural gas for much of Europe.
— The Kyiv Independent (@KyivIndependent) March 14, 2022⚡️ Reuters: EU to tighten sanctions on Russia's Rosneft, Transneft, Gazprom Neft.
According to Reuters, sanctions will freeze EU funding in new Russian production and exploration projects. However, the sanctions do not include a ban on oil and gas imports.
Both Lukoil and Rosneft are enormous producers of oil and key players in the Russian economy. European nations have been unable to follow the United States’ ban on Russian oil producers because they are simply too reliant on the product. Around one-third of Europe’s crude oil demand is currently fulfilled by Russian companies.
Sberbank (banking) and Russian Railways (transportation) complete the top five, reiterating how important those four key industries are to the Russian economy. Both, of course, have huge state involvement.
Government support provides behemoths with perfect conditions
Dresen makes clear that it is the involvement of the state in certain industries that has allowed Russian companies to flourish, citing the “definite advantages” that they enjoy in the market.
They are more easy to be offered cheap credit from state-controlled financial institutions; receive implicit state guarantees for their debts; and benefit from the system of vertical power instituted by President Putin.
Under the system of vertical power, each industry and every facet of public life has been “folded into the Kremlin’s bureaucracy”. This means that they are all essentially under the rule of Putin and the most successful companies are only allowed their market advantages because they help fulfil broader ambitions.
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In many instances the main priority of these institutions is not simply to make as much money as possible, but can become a tool for Putin to achieve his political aims. Dresen points out that Russian state corporations are not simply designed to provide the greatest profits, but simply allow the Russian elite to maintain control of Russian society and the exert influence overseas.
Gazprom has grown to be the world’s largest producers of natural gas and operates as a key political tool of the Kremlin. Over winter Russia was forced to deny accusations that it had deliberately reduced the supply of gas to Europe to send heating prices soaring and put pressure on European governments.
At a time when there were early reports of possible Russian aggression against Ukraine, the Kremlin was able to threaten the West with blackouts and huge price rises at a time when that could have been disastrous. Europe’s reluctance to impose the toughest sanctions on Russia’s most lucrative economy, despite having launched a full-scale invasion on a neighbouring state, is testament the effectiveness of state influence in private businesses.
