The War and the Future of Ukraine’s Oligarchy

BY MYKHAILO MINAKOV

Vladimir Putin’s February 2022 decision to launch an assault on Ukraine has killed civilians and soldiers and destroyed countless structures across Ukraine. But it has also brought an end to some of the processes and phenomena associated with the post-Soviet way of life. The institution of oligarchy may very well become one of them.

A Short History of Post-Soviet Oligarchy

The Ukrainian oligarchy is rooted in the 1990s, when Ukraine—as well as other countries in Eastern Europe, the Southern Caucasus, and Central Asia—allowed some individuals and their clans to get an iron grip simultaneously on the Soviet industrial legacy, the administration of the new state, the state budget, and public opinion.

The post-Soviet oligarchy was based on the inseparability of economic wealth, political influence, and personal networks. It united public administrators, the police, judges, parliamentarians, and politicians in stable clans and patronal pyramids, vertical chains of personal relations that connected a clan to many subordinate social groups.

In Ukraine, oligarchy prohibited the separation of public and private spheres. (It did so in other post-Soviet states as well, such as Russia, Georgia, and Kazakhstan.) It created systems of “grand corruption”—a phenomenon that the European Court of Auditors defines as “the abuse of high-level power that benefits the few at the expense of the many.”

The post-Soviet oligarchy is an ambiguous phenomenon. On the one hand, oligarchy and grand corruption prevent democracies from effectively applying the rule of law, providing access to justice in the court system, or assuring the inviolability of private property. Oligarchy, then, can be an obstacle for liberal democracies.

On the other hand, because oligarchy exists in the form of many competing clans, it creates systemic obstacles for those with autocratic leanings. Clan competition for control at the center of power gives citizens some degree of freedom and leads to less predictable election results.

Oligarchy emerged with the post-Soviet states, and in many ways the destiny of the oligarchic clans was inseparable from the destiny of these states.

Some postcommunist states underwent some version of the deoligarchization process. This process could lead to one of two diametrically opposed results.

For example, if the 1990s saw attempts at building oligarchic clans in Poland and Lithuania, the internal forces of democracy and the external norms endorsed by the EU forced would-be oligarchs to settle for being “just” captains of industry. This meant that liberal democracy and a market economy could develop without patronal pyramids and grand corruption.

In Russia, the process was different and produced a different result. Between 2002 and 2004 Putin, whose regime had just taken an authoritarian turn, forced Russian oligarchs and their clans into a single patronal pyramid, which he himself headed. The legal proceedings against former Yukos chairman Mikhail Khodorkovsky and the many criminal prosecutions of regional oligarchic figures showed the clans what they could expect if they did not fall in line. Oligarchs as an independent political force seized to exist. At the same time, corruption on a grand scale was becoming part of the real political system, as formal and informal institutions served the interests of the ruling elite.

By 2021, the 30th anniversary of the dissolution of the USSR, only a handful of post-Soviet countries had more or less independent oligarchic clans. Ukraine was one of them, along with Armenia, Georgia, Kyrgyzstan, and Moldova.

Evolution and Decline of the Oligarchy in Ukraine

In Ukraine, contention between oligarchic groups caused several deep political crises that put the state on the verge of collapse. These crises occurred in 1993, resulting in early elections of the president and parliament; in 2004, resulting in the fall of the Kuchma regime; and in 2014, leading to the fall of the Yanukovych regime. In each case, oligarchic groups supported both sides, and the victory of protesters meant that some clans were deposed while other clans had a clearer path to power.

Thus in 1994, following the 1993 crisis, the Dnipropetrovsk clans came to power in Kyiv. By the end of 2005, following the 2004 Orange Revolution, the clans from Sumy, Kharkiv, Dnipropetrovsk, and Donetsk had returned to power. In 2014, following the Euromaidan, some oligarchic groups lost a lot but managed to survive and bring outsized influence to bear on substantial parts of the government again.

The rotating fates of the clans, however, were only one face of the coin. The Euromaidan also kicked off stronger institutional integration with Western institutions. This convergence prompted the creation of a set of new state anti-corruption agencies: the National Agency for the Prevention of Corruption, the Special Anticorruption Prosecutor, the National Anti-Corruption Bureau, the State Bureau of Investigations, and the High Anti-Corruption Court.

This suite of institutions did not have enough teeth to limit corruption during Petro Poroshenko’s presidency, but its force gradually grew. And in 2021, when President Volodymyr Zelensky’s team dared to approve several anti-oligarchic acts, the anticorruption institutions and new legislation provided grounds for expectations of real deoligarchization in 2022.

War’s Impact on Oligarchy

The ongoing war in Ukraine has delayed but not canceled the deoligarchization process. The destruction of Ukrainian industry, economic hardships, and the mobilization of many workers have weakened the economic might of the oligarchs. According to Forbes data for the U.S. and Ukraine, the wealth of the following individuals has dropped considerably from January to July of this year:

• Rinat Akhmetov: from $13.7 billion to $4.4 billion
• Victor Pinchuk: from $2.6 billion to $2 billion
• Vadym Novinsky: from $3.5 billion to $1.4 billion
• Genadiy Boholyubov: from $2 billion to $1.1 billion
• Ihor Kolomoisky: from $1.8 billion to $1 billion
• Petro Poroshenko: from $1.6 billion to $0.7 billion

Most of these individuals are doing their best to vacate the legal grounds that would mean inclusion on the registry of oligarchs introduced by President Zelensky last June. According to the Ukraine’s National Security and Defense Council, there are 86 people who could be legally recognized as oligarchs in Ukraine.

To avoid qualifying as an oligarch, Novinsky gave up his seat in parliament. Akhmetov, founder of System Capital Management Group (owner of the Azovstal steel complex in Mariupol), divested his media businesses and said he would transfer those licenses to the Ukrainian state. It looks like the end of the oligarchic era as well for Kolomoisky, founder of PrivatBank, who has allegedly been stripped of Ukrainian citizenship.

Only Petro Poroshenko, among the six, remains active in politics. He is one of the leaders of a parliamentary opposition group and a tireless critic of the Zelensky administration. The accusations of high treason lodged against him seem not to have been investigated actively in recent months, but the mass media channels once associated with him have been shut down.

So the Russian war against Ukraine, Zelensky’s deoligarchization policies, and Ukraine’s anticorruption system together might finally put an end to oligarchy. The question is: will Ukraine take advantage of this chance? If it does, will the deoligarchization push Ukraine toward democracy or autocracy? Or will this post-Soviet dilemma simply disappear, along with the entire epoch?

The opinions expressed in this article are those solely of the author and do not reflect the views of the Kennan Institute.