Sergei Tarasov had reason to be nervous, his friend Andrei Veronihkin had very discreetly put his palatial yacht up for sale. Twelve million euros, half the price he had paid for it, and it was rumoured he would be prepared to accept almost any reasonable offer given the difficulties he like certain other oligarchs were having in getting rid of their symbols of conspicuous consumption.
The yacht, safely anchored in Dominican waters, protected from the risk of seizure by bailiffs, lay just a few cables off Smeaton’s jetty. It could accommodate sixteen guests in sumptuous staterooms, and came with gold leaf trimmings, marble, bullet proof windows and even a helicopter landing pad. Barton after a visit with Malcolm Smeaton agreed it was an exercise in nouveau riche poor taste.
The news of Georgia’s invasion came like a bolt out of the blue. The reaction was a sudden and unexpected reversal of oil prices. For Russians it came like a throwback to the bad days of the nineties as the country’s banks started haemorrhaging cash at an alarming rate as depositors rushed to change their roubles into dollars.
The Russian economy was seen by all for what it really was; an oil and gas economy. To the Kremlin’s dismay, their untimely and arrogant invasion coupled with the stock market crash saw hundreds of billion dollars in Russian reserves suddenly evaporate into the country’s polluted ether.
As liquidities dried up, forcing oil prices to tumble, fear began to stalk the Kremlin. The Moscow Times headlines announced ‘Police Fear Crisis Unrest’. The bluster gave way to panic, even men like Veronihkin turned to the state for help. Oligarchs and state owned companies faced debts of hundreds of billions in dollar and euro liabilities, desperately hoping oil prices would rebound and save them from the disaster caused in part by their own lack of foresight.
That last week in August Russia’s stock exchange was seriously rattled as hot money poured out of the country. Panicked at the spectre of war, following Russia’s recognition of the breakaway regions of South Ossetia and Abkhazia as independent states following its invasion of Georgia, investors dumped Russian shares on a market whose very existence depended on speculative capital.
Russia was not alone, the other stock markets of the other BRICs, as Goldman Sachs had dubbed them — Brazil, India and China — were equally faced with the sudden prospect of collapse. After a period when it seemed that the BRICS were about to inherit the earth the brutal reversal came as a shock.
The situation resembled that of Japan’s in the mid-nineteen eighties, when pundits were predicting it would soon be the world’s new superpower, at least financially; that never happened. When Japan’s real estate and stock market bubble finally burst, its major banks were pushed into insolvency and the country was plunged into two long decades of stagflation, from which it may never recover
All of a sudden Russia had lost its shine. Its inefficient oil industry was looking less interesting and the value of its banks plunged. The dark days that followed the fall of the Soviet Empire were about to return with capital flight threatening the country’s stability. The Kremlin was forced to change its bellicose tone with Medvedev, after he had boasted Moscow could buy out American and European businesses at the snap of a finger, looking exactly like what he was, Putin’s puppet, and as for Putin he was keeping a low profile as his oligarch friends ran for cover and the central bank struggled to shore up the hard hit rouble.
Moscow possessed the world’s third largest of dollars thanks to the demand for Russian oil and gas that had grown at a spectacular over the previous decade. That summer, pushed by speculation, oil revenues flooded into Moscow’s coffers. The illusion of power was irresistible and Moscow, in a display of post-Soviet might, flexed its muscles by sending its tanks into Georgia. Unfortunately for the Kremlin, Cold War posturing in a globalized economy had the opposite effect to that hoped for and the proverbial shit hit the fan.
The energy bubble like all bubbles burst and as the gravity of the crisis slowly dawned, bankers who had loaned incommensurately large sums of money to Russian oligarchs — to speculate on commercial property, buy private jets, yachts, art and antiques — began to get extremely nervous. Fitzwilliams was one of them; he had financed Tarasov’s highly leverage property investments in London.
Alosha Demirshian, in spite of his amiable grandfatherly demeanour, hid a nasty background. He was in reality a vicious mobster, a Russian-Armenian who had made his money from trafficking forged one hundred dollar bills — in bulk. Demirshian, the head of a tentacular crime consortium, along with his brother in arms Sergei Lauristin, had in the space of just four or five years transformed himself into St Petersburg’s richest property developer. At the outset this had been nothing more than a money laundering façade for a multitude of criminal activities, then more by circumstance than design property boomed overshadowing the Armenian’s criminal activities.
Demirshian’s penchant for crime had however prevented him from making a complete transformation; he was like an old Mafia boss who could not shake off his reputation and a lifetime of bad habits. Demirshian was reluctantly forced into retirement on to the French Riviera after an obscure finance company, the Ural Group, said to be controlled by the aging mafiyosa, was suspected of corrupting senior officials of the Russian Interior Ministry, members of the FSB, the ex-KGB, and tax officials in a massive fraud relating to Gazprom shares. Fortuitously the evidence was lost in a maze of wire transfers and electronic paper to unknown beneficiaries, which did not prevent Demirshian’s return to St Petersburg from being out of the question.