One month before Russia launched its full-scale invasion of Ukraine, Vladimir Putin’s top economic confidants visited the Russian president’s residence at Novo-Ogaryovo outside Moscow to brief him on the likely fallout from western sanctions.
Putin listened as Herman Gref, chief executive of state-owned lender Sberbank, led a 39-page presentation warning the Russian president of disastrous consequences if tensions over Ukraine, then already at fever pitch, were to escalate further still.
A close ally of Putin’s since their days in the St Petersburg mayor’s office in the 1990s, Gref had a reputation for being the most liberal member of Putin’s extended circle — and for speaking his mind.
At that moment, the technocrats feared Putin was on the verge of recognising two Kremlin proxy separatist statelets in Ukraine’s Donbas region, which they believed would provoke a furious western reaction that could cripple Russia’s economy.
Elvira Nabiullina, the highly respected central bank governor, and the other attendees shared his concerns and had helped prepare the presentation. But they let Gref take the floor.
Russia’s wartime economy
Read the first of this two-part series: FT reporters look at how the country is learning to live without imports
The presentation warned Putin that “harsh sanctions” would create panic on financial markets and potentially set Russia’s economy back decades.
Gross domestic product could fall by 30 per cent in dollar terms in two years. Inflation would force the central bank to raise interest rates to 35 per cent, cutting real incomes by a fifth.
Russians’ quality of life would lag behind even developing countries as restrictions on imports would make Russia struggle not only to find advanced technologies, but essentials such as medicines and food.
As Gref rattled through the potential consequences, Putin cut him off and asked him what Russia should do to avoid the worst of the sanctions, according to several people familiar with the matter.
Too timid to warn Putin off military escalation, the technocrats had no clear solution — and could not bring themselves to tell Putin he was at risk of courting geopolitical disaster.
They left the meeting none the wiser about what exactly Putin was planning or whether he had taken their message onboard, the people say.
“They were brave enough to ask the big man for a meeting. But they could not deliver the message,” says one of the people. “They were unable to deliver the only answer.”
The full-scale assault on Ukraine on February 24, three days after Putin recognised the Donbas separatists, exceeded their worst fears. They discovered Putin’s true intentions along with the rest of the world: on television.
Putin’s failure to heed the technocrats’ warnings devastated them. “I’d never seen [Gref] like that. He was completely bereft, in a state of total shock,” says a former executive who saw Gref in the war’s early days. “Everyone thinks this is a catastrophe, him more than anyone else.”
Four days into the war, Putin’s economic brains trust clustered together at the far end of a 20ft table in the Kremlin as Putin — evidently pleased with his bizarre joke that the US was “the empire of lies” — asked them how to mitigate the sanctions.
Nabiullina, whose attire has long been closely watched by some investors for coded signals, sat dressed all in black.
But as western countries cut Russia out of global financial markets and supply chains, the technocrats rode to the Kremlin’s rescue, deploying deft economic management skills to defuse the crisis. In the process, they have ensured that their own apocalyptic predictions did not come to pass.
Within the narrow confines of the Russian political elite, technocrats such as Gref and Nabiullina were once thought of as modernisers, a reformist counterbalance to the siloviki, the hardline security services veterans at Putin’s other shoulder.
However, when faced with a historic chance to defend their belief in open markets and speak out against the war, they demurred.
Instead of breaking with Putin, the technocrats have cemented their role as his enablers, using their expertise and tools to soften the blow of western sanctions and hold Russia’s wartime economy together, according to former officials.
Russia’s economy has avoided the most dramatic predictions that western economists — and the technocrats themselves — had made about the impact of sanctions, with the hit to GDP likely to be in the order of 3.5-5.5 per cent this year.
Though Russia is largely cut out of the global banking and payments systems, the economy has been able to fall back on ready replacements that had been created by the technocrats.
“The economic team really saved him. That’s why he keeps them around. If the siloviki had been in control [of the economy] the GDP fall really would have been 10-15 per cent,” a former senior Russian official says. “He’s not crazy. That’s why he left them in their jobs.”
The FT spoke to more than 20 Russian current and former officials, oligarchs, bankers and economists who described the technocrats’ dilemma. The Kremlin, Russia’s central bank and Sberbank did not respond to requests for comment. Russian financial news outlet Frank Media first reported on the presentation.
As the war rages on, critics say their continued silence while they help the Russian state tick along has become a form of acceptance, making them complicit in a war they privately profess to oppose.
“Being on Putin’s team means that you share his values, you share his principles, and you are enormously loyal to him,” says Sergei Aleksashenko, a former deputy governor of the central bank.
“It was not possible to be on Putin’s team after 2012,” when he returned to the Kremlin after a four-year hiatus, “if you have even some degree of disloyalty. So I’m really not surprised all of them decided to stay”.
The orthodox path
In almost a decade at the helm of Russia’s central bank, Nabiullina carefully cultivated a reputation as the Kremlin’s top technocrat. She steered Russia out of its 2014 economic crisis, tamed inflation through ultra-hawkish monetary policy and took on powerful vested interests in the notoriously corrupt banking sector.
Her success earned her the trust of Putin, who backed her independence in the face of a powerful oligarchical lobby that pushed for Sergei Glazyev, a hardline nationalist and promoter of conspiracy theories who is beloved of the siloviki, to replace her. In December last year, Putin publicly endorsed Nabiullina over her critics, warning that Russia “could end up like Turkey” — a byword for unorthodox economic policy and a rapidly weakening currency — if it abandoned inflation targeting to open up cheaper credit for businesses.
As tensions with the west over Ukraine grew, especially after the 2014 annexation of Crimea, Nabiullina moved to insulate Russia from sanctions by developing an independent payments system and amassing a $643bn war chest for foreign exchange reserves.
But the scale of the invasion — and the crushing western sanctions in response — still caught Nabiullina by surprise, according to Alexandra Prokopenko, a former central bank official.
“Nobody had a scenario for Russia invading Ukraine. There were stress tests for state companies and the banking system, but nobody saw a full-scale military conflict, frozen reserves and this level of sanctions coming,” she says.
Nabiullina quickly set about dismantling her own legacy. Western countries seized about half of Russia’s foreign currency reserves, leaving Nabiullina unable to use a tool that was supposed to protect the economy from turbulence. To stop a run on the banks and ease pressure on the rouble, Russia introduced currency controls — a measure she had previously told friends would force her resignation. “We destroyed everything we built over 10 years,” a person close to her says.
Konstantin Sonin, an economist at the University of Chicago, reached out to Ksenia Yudayeva, Nabiullina’s top deputy for macroeconomic policy and an old friend, on the encrypted messaging app Signal. Sonin urged Yudayeva to resign, warning her that she was helping the war effort and likening the bank’s staff to Hjalmar Schacht, head of Germany’s Reichsbank under Adolf Hitler.
Yudayeva said “there was a lot of interest in Schacht” at the Bank of Russia but insisted she had a moral obligation to stay. If the bank’s top technocrats quit in protest at the war, Putin would appoint hardliners like Glazyev to replace them and immiserate ordinary Russians through ruinous statist policies like price freezes, Yudayeva argued. Disgusted, Sonin deleted Signal and declared he never wanted to speak to Yudayeva again.
“Glazyev would do the same things. There would be no difference between them now,” Sonin says. Yudayeva did not respond to a request for comment. Russian independent news site Meduza first reported on their exchange.
Nabiullina’s failure to anticipate the freeze on the reserves made her a target for pressure from leading siloviki who pushed for a figure like Glazyev to replace her in the spring, according to a current and a former Russian official. But Putin, evidently confident in her ability to steer Russia out of the storm, instead appointed her to a third term.
“Everything depends on the central bank. If the central bank doesn’t work properly the whole economy is completely fucked,” the former official says. “If Glazyev came in, the rouble wouldn’t even be printed on paper. They’d just have to give out pieces of wood.”
Nabiullina publicly pleaded for central bank staff to band together to help ordinary Russians survive the war’s financial shocks — which she sees as the crucial part of her mission, according to people close to her.
But many of them decided they could no longer go along with it.
Prokopenko, whose parents are Ukrainian, resigned from her job advising Yudayeva in the first few weeks of the war and left Russia. Though several junior and mid-career officials quietly quit the central bank and Russia’s economic ministries, almost all of Russia’s senior technocrats still remain in their posts.
“They had to resign, morally. But she feels she is doing her job,” a sanctioned Russian oligarch says of Nabiullina.
By late spring, the panic had largely subsided. The payments systems the central bank spent years developing allowed domestic transfers to flow freely even as the sanctions largely cut Russia from the outside world.
High energy prices permitted Russia to grow its budget revenue — half of which comes from oil and gas — by 34 per cent year on year from January to April and helped the rouble recover from its precipitous fall against the dollar.
This was not all down to the actions of the technocrats, however. While Russia’s dollar income from energy sales grew, the sanctions made it much more difficult for Russia to buy imports, leading to the economy running a substantial trade surplus. That eased pressure on the rouble, allowing Nabiullina to relax the currency controls and begin cutting interest rates.
“The central bank reduced the panic in the first day,” says Sergei Guriev, provost and professor of economics at Sciences Po university in Paris.
But “the central bank is backed by riot police”, Guriev adds. “If you asked me a year ago what would happen if the government announces you can’t take your money out of the bank, I would say there would be a mass protest. But in this particular case, citizens understood that if they protest, they would go to jail or be beaten up.”
Some of Russia’s technocrats are worried they could suffer a similar fate. Though many of them are privately repulsed by the war, “there’s this fear that ‘if I leave, they’ll consider me a traitor and arrest me’”, says Prokopenko.
As the war drags on, however, many of the officials have come to see their jobs as a kind of patriotic duty. “For the first 10 days, all of the elite was in a total state of shock. Then you had a second phase that was the thrill of the chase. Now it’s just become routine,” says Alexei Venediktov, former editor-in-chief of Ekho Moskvy, a liberal radio station the Kremlin closed at the start of the war.
“They are shocked and hurt so they try to find ways to justify what they’re doing,” Venediktov adds. “It’s a professional and intellectual challenge — how to stop a bank run, how to put together a budget. And Putin basically gave them the freedom to do what they wanted.”
‘Everyone was there’
One month into the invasion, former deputy prime minister Arkady Dvorkovich gathered friends in a southeastern Moscow loft for a party to celebrate his 50th birthday. For three people who attended, the event came to symbolise how Russia’s technocrats have adjusted to the new wartime norm.
Dvorkovich used to be a close aide to former president Dmitry Medvedev until he left government in 2018 and took over Fide, the global chess federation, with the Kremlin’s backing.
Less than two weeks before the party, Dvorkovich became the highest-profile Russian technocrat to speak out against the war, albeit in guarded terms. Within days, he resigned from his position as head of a state technology foundation.
But at the party, guests who were privately anguishing over their opposition to the war freely mingled with colleagues who openly supported it. “Everyone was there,” one guest says. Igor Shuvalov, another former deputy prime minister in Medvedev’s cabinet, appeared in a T-shirt emblazoned with the letter Z, a pro-war symbol, and gave an impromptu speech about how the elite needed to unite around Putin, according to three people who attended the gathering. Then, the guests drank and danced as a band played long into the night.
“It was really unpleasant,” says another former senior official who was present.
The party showed how Russia’s technocrats had begun to internalise and accept their role as cogs in the Kremlin’s war machine, the former official says. “Arkady’s an easy-going guy, and he’s not very self-aware.”
VEB, the Kremlin development bank Shuvalov runs, did not respond to a request for comment.
Dvorkovich remained in Russia and won re-election to Fide in August, saying he had taken “a strong position on the tragic events in Ukraine.”
He says the FT’s “information about my position or the positions of third parties is speculation” and “information of events does not correspond to reality”.
For those who remain in their jobs, going about business as usual increasingly requires a kind of cognitive dissonance, according to the former senior official. “They made their choice,” the former official says. “It’s too late to quit in protest. But they know long term there’s nothing except for degradation and isolation ahead. They’ve lost their chance to leave.”
In Moscow, which remains largely untouched by the economic turmoil and the overzealous draft officials who are common in poorer, far-flung regions, that has become increasingly easy, Prokopenko says.
“There are these billboards with ‘heroes of the special operation’ all over Moscow, but people are still eating fresh oysters,” Prokopenko says. “The war becomes this kind of TV show, and a lot of people aren’t regular state TV propaganda viewers. If you get what’s going on, you either have to deal with it in your own way or help refugees and people who are trying to leave,” she adds. “It’s a very non-public and personal kind of struggle. Like moving to Inner Mongolia.”
With more and more pressure to profess their public support for the war, many have attempted to ignore it entirely. At the finance ministry’s annual conference in September, Prime Minister Mikhail Mishustin gave a keynote address hailing Russia’s resilience against western sanctions and praising the economic cabinet for overcoming them — but did not mention why they had been introduced. Nabiullina and a panel of other senior officials then discussed the next steps for Russia’s economy for two hours — without saying the word “Ukraine” even once.
“These guys are just going through the motions,” says a senior Russian state banker. “They believe things would be worse without them. But they can’t talk about the real issue.”
‘Now he is a pariah’
Of the group who tried to warn Putin about the dangers of sanctions in January, the most upset about the war remains Gref, according to several people who have spoken to him.
In 15 years at the helm of Sberbank, he turned the moribund, corrupt Soviet retail deposits monopoly into a world-leading bank with ambitions to challenge Silicon Valley’s top tech companies. Gref, formerly economy minister, had once hoped Sberbank’s success would convince Putin that market-oriented reform in Russia was possible, according to four former senior Sberbank executives.
But after the sanctions cut Russia off from global markets, “everything he built has been destroyed”, one of them says.
“He is a man of the world. He loved going to forums, conferences and meetings. He was in Silicon Valley all the time. He was friends with Jack Ma. And now he is a pariah,” the former executive says.
In the new Russia, Gref’s liberal outlook is a stark contrast to the grey economy of “parallel imports” and state-managed autarky. Finessing corporate culture, meeting western standards on ESG — these are unlikely to be the skills valued in the Russia of the future, says Guriev, a former Sberbank board member. “People who are in charge of those companies are not well-equipped,” he adds.
At Sberbank’s anniversary celebrations in November, Gref rented out the Bolshoi Theatre for a gala performance. Nobody from the finance ministry — which is Sberbank’s controlling shareholder — or the central bank came, according to two people close to the bank. “It was really sad. There was a bit of champagne, but nobody was joking or saying anything. They were just standing around being sad,” one of them says.
Another person who attended, however, says the party was for major clients of the bank rather than finance ministry and central bank officials. “The guests were in a great mood, including the bank’s leadership, who hung out with their clients that evening,” the person adds. “It was a great party.”
With his dream of building a world-beating financial services “ecosystem” dashed by the war, Gref has retreated even further into his fading ambitions, the people say. He demanded his executives pivot to building a “metaverse” akin to the virtual reality world envisioned by Facebook founder Mark Zuckerberg.
The sanctions will make that difficult: Russia is barred from importing advanced microchips and western-made servers, potentially setting its tech sector back years. But after deciding to remain in his job, Gref has said he wants to rise to the challenge.
“Life has become more vibrant, colourful, and interesting,” Gref said at a panel alongside Nabiullina in November. “It looks like it’ll be even more interesting in the years to come.”
Data visualisation by Chris Campbell
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