RUSSIAN OLIGARCH ON U.S.-RUSSIA RELATIONS, PUTIN'S

C O N F I D E N T I A L MOSCOW 002959

SIPDIS

STATE FOR EUR/RUS; NSC FOR JELLISON

E.O. 12958: DECL: 10/06/2018
TAGS: ECON ETRD PGOV PINR PREL RS EINV
SUBJECT: RUSSIAN OLIGARCH ON U.S.-RUSSIA RELATIONS, PUTIN'S
PREEMINENCE, AND RUSSIA'S FINANCIAL CRISIS

Classified By: Ambassador John R. Beyrle for Reasons 1.4 (b) and (d).

--------------
Summary
--------------


1. (C) In an October 1 meeting, Russian oligarch Vladimir
Potanin, whose Interros-holding company controls much of
Norilsk Nickel, told the Ambassador that the existence of
shared strategic interests was not enough to help
U.S.-Russian relations recover. What was needed was a
constructive change in how we thought about one another, and
how we resolved our disagreements. To accomplish this, he
advised that the new U.S. President engage directly with
Prime Minister Putin, who remained the real power in the
country. Potanin predicted that the financial crisis in
Russia could rearrange the ranks of the oligarchs, while
strengthening the hand of those opposed to market economics.
End Summary.

--------------
U.S.-Russia Relations
--------------


2. (C) The Ambassador began the meeting by stressing that the
U.S. and Russia shared strategic interests and that we
continued to desire a partnership with Russia. There had
been disagreements in the relationship even before the
Georgia conflict but they had been manageable and economic
ties, for instance, had been growing rapidly. Now, he said,
recent events had made a partnership more difficult to
develop. Both countries needed to resist the temptation to
fall back into Cold War rhetoric and tit-for-tat actions,
such as Russia sending ships to the Caribbean after U.S.
ships entered the Black Sea to deliver humanitarian aid to
Georgia.


3. (C) Potanin responded forcefully that talk of shared
interests and shared goals might mean something to the small
part of the populace involved in those issues but it carried
little weight with the vast majority of Russians. Relations
were bad and were getting worse. Anti-Russian sentiment in
the U.S. was rising; and anti-American sentiment in Russia
was also rising. Potanin said Russians, in particular young
Russians, simply did not understand America's U.S. policy and
were turned off by America's anti-Russian rhetoric and its
double standard on Kosovo and South Ossetia.


4. (C) Potanin said what was needed was a change in how we
viewed each other and how we resolved disagreements.
Friendship was the ability to talk frankly to one another as
equals. The U.S. had missed an historic opportunity after
September 11, when Putin had backed the U.S. in Central Asia
and Afghanistan over domestic opposition, to cement ties. If
the U.S. wanted better relations now, it could not continue
to talk to Russia as if it were a student taking an exam. At
the same time, he conceded, Russia needed to cool its
rhetoric. As an investor in the U.S., he had an interest in
keeping relations from deteriorating further and, to that
end, he had urged Putin to be less strident toward the U.S


5. (C) Potanin added that Russia had not been high enough on
the U.S. agenda and its interests had not been taken into
account on a host of issues. That needed to change. If the
U.S. continued to push MAP for Ukraine and Georgia there
would be more tension. Ukraine was integral to Russian
history and while Georgia was not Ukraine, it was not
Uzbekistan either. Russia had long and deep ties to Georgia
well.

--------------
Putin Still in Charge
--------------


6. (C) The Ambassador said many Russian officials he had met
seemed to want to revive a U.S.-Russia intergovernmental
commission (IGC) as a way to improve bilateral ties --
something similar to Gore-Chernomyrdin. He asked Potanin for
his views on how it could be structured. He also suggested
that a personal relationship between the new U.S. President
and Medvedev would be important to better relations.


7. (C) Potanin replied that bringing the two Presidents
together was a good idea. He added that an IGC could be
headed by Putin and the new Vice President. However, he
cautioned that the new U.S. President should also have a
separate relationship and agenda with Putin. Potanin said

bluntly that, diplomatic niceties aside, Putin was still the
real power in Russia and the new President had to interact
with him directly for relations to improve.

--------------
Threats to Economy
--------------


8. (C) The Ambassador said the financial crisis in the U.S.
was a major shock to our economy. Russia was also in the
midst of a financial crisis. The $50 billion package
announced by PM Putin earlier in the week was, as a
percentage of GDP, comparable to the $700 billion Paulson
Plan. In that regard, he asked Potanin his views of GOR
efforts to date.


9. (C) Potanin replied that the GOR had moved more quickly
and more decisively than the American government. Although
the U.S. had strong instruments with which to manage the
crisis, it was still spreading, including to Russia and other
countries and he urged action. Potanin added that Russia had
another advantage in that fewer Russians than Americans were
directly linked to the financial system. As a result, so
far, the effects in Russia had not been widespread.


10. (C) However, Potanin said that while Russia had
sufficient financial resources to avoid a 1998-style
collapse, the situation would get worse. There was a trust
problem in the financial system, which was causing a
liquidity crunch. It was very difficult right now to
refinance loans. He predicted this would lead to a shake out
not only in the financial sector but also among the
"oligarchs," some of whom, such as Basic Element's Oleg
Deripaska, might lose that status in the coming correction.
(Note: Potanin is locked in a battle with Deripaska over
control of Norilsk Nickel. However, other financial contacts
have also told us Deripaska is heavily leveraged and could be
in trouble.)


11. (C) Potanin added that another threat from the crisis was
that it could strengthen the hand of those who viewed
Russia's seventeen years of market capitalism as an
"experiment." These individuals were advocating for a return
to state control of the economy. Potanin said that many
Russians still misunderstood and mistrusted that market
economy. These people would, therefore, see a return to
state control as natural and would support it.

--------------
Comment
--------------


12. (C) Potanin was frank and open with the Ambassador and
was focused on the big picture rather than his business
dealings, including his running feuds with fellow oligarchs
Deripaska and Mikhail Prokhorov. In that regard, his
comments on Putin, with whom he is said to have a close
relationship, were clear and unambiguous ) Putin is still
the leader of Russia and in his view will remain so despite
Medvedev's presence in the Kremlin.
RUBIN