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On leadership and hard times Read the column about Rosneft head Igor Sechin that one of Russia's major newspapers deleted from its website

Source: Meduza

Konstantin Sonin, an economics professor at the University of Chicago and Moscow’s Higher School of Economics, is a regular contributor to the opinion page at the well-known Russian business newspaper Vedomosti. His latest column, “Hard times of responsibility: How the Igor Sechin era at Rosneft might be remembered,” addressed how popular opinion is likely to shape the narrative surrounding the CEO of Russia’s state-controlled oil company. The op-ed was published on the newspaper’s website at about 10:00 PM local time on April 12. However, shortly after midnight, the piece was deleted on orders from the newspaper’s controversial new acting editor-in-chief, Andrey Shmarov. Meduza has published Sonin’s column instead with his permission.

It would seem that presidents and CEOs should be judged by the results of their efforts. In reality, though, this is hardly ever the case. Leaders are judged and remembered by results even if those results were determined by circumstance. That attention and those memories become even more intense when the leaders in question are acting in hard times. In such times, the people behind the wheel are responsible for just about everything, at least in the memories created by popular opinion.

Here’s one textbook example. Yegor Gaidar became Boris Yeltsin’s finance minister in the fall of 1991, at the height of an immense crisis. Not one economist would ever think to hold him responsible for that crisis, which had already been unfolding for several years when he took office. Gaidar left the government after a year of incredibly difficult work but is still remembered as a villain in the crisis. It would be similarly well-founded to blame an ICU doctor for the death of a patient who has just experienced a massive heart attack.

The government and the Central Bank faced just about every kind of blame imaginable in 1998 even though there wasn’t much of any opportunity to do things differently. On the contrary, the government successfully minimized Russia’s losses, and just a year later, the country was headed for growth. Still, in the eyes of the people, the responsibility for hard times belongs to everyone who happens to be in power at that moment.

The same holds true today. For many years, Igor Sechin’s team at Rosneft faced criticism from industry professionals and financial journalists, but the public paid little attention because those years weren’t particularly hard. Enormous amounts of money were spent to nationalize TNK-VR (more than was spent on privatization in the 1990s), but that didn’t seem so important. In December of 2014, the country flinched as the value of the dollar jumped. Rosneft needed an urgent cash inflow, but gradually, that was forgotten, too.

The year 2020, however, has already become very difficult. For that very reason, it’s possible that 2020 will be the defining factor in how the “Sechin era” will be remembered. No, Rosneft and its executive director were not at fault for the sharp drop in oil prices that occurred in March 2020. Prices would have fallen just about as sharply even if Russia had come to an agreement with Saudi Arabia to cut down on oil extraction. A drop in oil demand played a much larger role: first, China declared a quarantine, suddenly slowing economic growth, and then the U.S. and Europe introduced limits on business operations and on people’s movements around the world. The demand for oil (and, of course, for the gasoline that’s made from it) among American drivers is approximately equal to the demand that comes from all of Chinese manufacturing, so Americans staying home in self-isolation is an extremely important factor shaping the current situation. However, the narrative that comes through in the press is that Sechin and Rosneft’s stance caused negotiations with Saudi Arabia to collapse, and the broader public has latched on tightly to the story that “Sechin tanked oil.” The reason is the same as in Gaidar’s stint in the Yeltsin government: it’s not about who is actually at fault; it’s about who is remembered as being at fault in hard times.

The same goes for Rosneft’s other March operation: the transfer of its Venezuelan assets to another Russian state corporation. The point of that switch was to get Rosneft out of any sanctions tied to collaboration with the Maduro regime. It can’t be ruled out that the deal may have been a mere technicality, and Russia hasn’t lost anything in the process. It also can’t be ruled out that the incident will end up on the same shelf as the IMF’s July 1998 credit lines to Russia — it could become one of those stories that gets inserted into every biography of Sechin that’s ever written.

Again, the whole Venezuela affair — where Russia was involved with an unpopular dictator who dragged an oil-rich country into hyperinflation, mass emigration, and a shortage of basic necessities (including gasoline!) — was a mistake. That country’s debts to Russia and the Venezuelan state oil company’s debts to Rosneft are worth at least several billion dollars. It’s obvious that most of that money will never be paid. Rosneft has received and might still receive some local assets (all in that same state monopoly that has caused a gas deficit in the country that holds 10 percent of the world’s reserves). But it might not even get those assets because the country’s next leader could deny both the debts and investors’ rights, as has happened more than once in Latin America before. Still, what will be remembered is not the 10 years of pointless spending on “boosting our geopolitical role” but rather an obscure asset transfer from 2020. Because in hard times, citizens keep a closer eye on the government’s wallet.

Crises are unfair. You do the same things you’ve always done, but it’s what ultimately happens that people remember. It may well be that the “Sechin era” in Rosneft’s leadership will be remembered not by its incompetence and losses in the early years, but by two words: March 2020. Not by the way state money was wasted on supporting a regime with no prospects, but by a “special ops asset transfer” in that one difficult year. And that, of course, will be unfair in its own right.