If London Punishes Russian Oligarchs, London Suffers Too

Have you spent the past few weeks waking up in the middle of the night, worrying about the tables finally being turned and the possibility of having to give up your PhD to go wipe old people's bums in Moscow? I feel you – what with Vladimir Putin's annexation of Crimea, the past few weeks have been trying for most of us. To retaliate against Putin's world takeover bid, the West has been talking of targeting Russian oligarchs. What will become of those guys – did you ever stop to think, you selfish bastard?

David Cameron recently threatened them with extreme sanctions: “Our message to Russia is clear: choose the path of diplomacy and de-escalation, or face increasing isolation and tighter and tighter sanctions. We’ve already seen 10 percent wiped off the value of the Russian stock market this month, reports of capital flight and down-rated credit ratings.”

On that note, Russian opposition politician Alexei Navalny suggested that the EU target two particular oligarchs – Alisher Usmanov, who has a significant number of shares in Arsenal Football Club, and Chelsea owner Roman Abramovich. Usmanov is believed to be the richest man in the UK with a £13.3 billion fortune, while Abramovich has to make do with slightly less – he has a meagre £9.3 billion to play with.

In the 1980s, Usmanov spent six years in prison under charges that were later found to be false. He has been a long-term acquaintance of the alleged heroin kingpin Gafur Rakhimov (who seems to have played a key role in helping Russia win the Sochi Winter Olympics), but strenuously denies any business relationship with the mysterious businessman.

Usmanov's potentially targetable assets in the UK are his share of Arsenal (roughly a third) along with his property portfolio, which includes such gems as Sutton Place in Surrey, once owned by American oil baron J Paul Getty, and a £48 million Victorian mansion in the Highgate area of North London.

By and large, Arsenal fans have made it clear that they don't welcome Usmanov at the club, yet him gaining full control of Arsenal would give them a real chance of being able to match the spending power of Chelsea and Manchester City. Gooners can look forward to another few seasons of waiting for Yaya Sanogo to "bed in" if that doesn't happen.

Chelsea, on the other hand, would struggle to continue buying titles if Abramovich were forced to give up ownership of the club as a result of the conflict in the Crimea. Under Abramovich, the club has spent more than £814 million on transfers and an even greater figure in wages. Chelsea probably wouldn't die but with their small ground, they'd struggle to generate the funds they'd need to compete at the very top of the game without Roman's fortune.

Other than the football club, Abramovich owns property on Kensington Palace Gardens, one of the avenues where the wealthy live – dubbed "Billionaire's Row" after its residents. Abramovich parted with £90 million for a 15-bedroom property on the exclusive street in 2011, after an earlier attempt was scuppered by rival tycoon, Len Blavatnik.

Despite making his fortune in Russia, Blavatnik is unlikely to worry much about the possibility of sanctions. The UK’s second richest man and owner of Warner Music Group is also an American citizen, which means there’s little chance of Cameron nationalising Blur or saving us all from Coldplay. Any remaining Babyshambles fans can also rest easy.

Another influential Russian is former KGB spy and present newspaper proprietor Alexander Lebedev, but as an outspoken critic of Putin's there’s little chance of the Evening Standard being caught on the wrong side of any geopolitical gamesmanship.

Most of the billionaires' other assets – company holdings, yachts and private jets – are kept outside of the UK, which makes them difficult for the British government to target. Luckily, there's a bunch of other, more modestly rich Russians pumping cash into London's property bubble. According to data gathered by estate agent Knight Frank, around 21 percent of super-prime London properties traded in 2013 were bought by individuals domiciled in Russia.

Any sanctions limiting Russians' ability to buy property in London could cause problems for the top end of the housing market, but it means nothing for you. It's still unlikely the rent for properties you can afford will drop or that any expropriated property would be handed over to people to live in.

Along with estate agents for the mega-rich, another group of people who could take a hammering if tougher sanctions were introduced are London's lawyers. Around 60 percent of the commercial court's work in 2012 involved people from Russia and other former-Soviet bloc countries.

One very well-known case saw the late businessman Boris Berezovsky take on Abramovich, making a £3.6bn claim for damages related to a stake in an oil company. Berezovsky lost and had to pay £35 million of Abramovich's costs, while total costs were reportedly £100 million.

Bankers would probably also have a cry in their pants over a Russian withdrawal from London. But it's difficult to know how much money the bankers and other finance types who populate the Square Mile would lose. Financial data company Thomson Reuters have said the fees charged by the bankers who help the Russians raise money are around $300 million a year. There are 70 Russian companies listed on the London Stock Exchange, but that only makes up 4 percent off all companies on the LSE.

Still, this might be the wrong approach for Western governments to take. Head of the Economics department at City University, Professor Michael Ben-Gad, thinks sanctions against oligarchs are just a way for Western politicians to appear to be "doing something" while dodging any of the grief they would get from the kind of policy that might force Putin to actually back down.

“Out of total GDP, close to 20 percent is exports and about 18 percent is related to oil and natural gas or things that are derived from those. A lot of that money goes directly into the financing of the government. Furthermore, the trade itself finances the importing of consumer goods. If that gets cut off, that's really serious," he told me.

“They rely on that trade, so presumably this could continue for some time but [at some point] it's going to begin to have an effect. They need the foreign currency to finance the consumer goods that their people have come to rely on and expect.”

Trying to destabilise Putin's regime by causing scarcity of goods, declining living standards, inflation and a currency falling in value might be more effective than confiscating a couple of mansions and some football clubs, but it would come at a heavy economic cost to the West, disrupting trade and causing energy prices to soar.

And even if Cameron did piss off all London's oligarchs by hitting them with sanctions, there are many more of them back in Russia, and many owe their fortunes to Putin. Like a modern day Czar, he also plays a crucial role in maintaining the balance of power between their competing interests. Were the oligarchs to try to overthrow him, they would be biting the hand that feeds.

@jdpoulter

Collages by Marta Parszeniew using images from here, here, here, here and here.