Vladimir Putin isn’t just angering leaders from Berlin to Washington. He’s irking some of his richest friends, too, by snubbing their pleas to end the conflict in Ukraine and ostracizing all but a handful of hardliners.

The ruble’s plunge has heightened opposition to Putin’s backing of the rebellion in Ukraine among his wealthiest allies, prompting the president to shrink his inner circle from dozens of confidants to a small group of security officials united by their support for the separatists, two long time associates said.

Putin is increasingly suspicious of men who owe their wealth to their ties to him and who are being hurt the most by U.S. and European sanctions, according to the people, who spoke on condition of anonymity to avoid reprisal. The 21 most affluent people in the country lost a total of $61 billion last year, a quarter of their combined fortune, according to the Bloomberg Billionaires Index.

Businessmen who have long been close to Putin are “on the periphery now,” said Sergei Markov, a political consultant who helped monitor the referendum in Crimea that led to Russia’s annexation of the peninsula in March.

The core group around Putin is led by Security Council Secretary Nikolai Patrushev, Federal Security Service head Alexander Bortnikov, Foreign Intelligence Service chief Mikhail Fradkov and Defense Minister Sergei Shoigu, according to Markov.

David Fuller's view

Yes, Putin is doubling down and tightening security in his increasingly Soviet-style regime, but he is also running scared.  Putin knows that he has lost the support of oligarchs.  He also realises that they are generally smarter and worldlier than he is, speak English and have multinational connections.  For Putin, that now ensures they cannot be trusted.  So he surrounds himself with a small, tight circle of ex-KGB types, like himself.  They are thugs who live by lies, suspicion and spy networks which intimidate Russia’s citizens.  The biggest lie, currently, comes from Sergei Pugachyov, the new head of Russia’s Secret Service:

“Today, personal friendship and loyalty don’t mean anything,” Pugachyov said.  “Why does Putin need friends when 85 percent of Russians support him?”

Of course that number is no more reliable than claims that Russian troops are not waging war in Ukraine.  It is a propaganda statistic.  Moreover, any ordinary Russian citizen, if asked to sign a ballot or fill in a form, would not dare criticise Putin publicly. 

Political freedom always comes at a price, which few are willing to pay until life becomes intolerable.  Russia is rapidly moving down that path.  Under Putin, it will remain a pariah state until Russia’s intelligentsia finds a way to change the regime. 

It is unlikely that Putin would have remained in power, had it not been for a generally rising oil price.  That was an opportunity to diversify the economy and also establish a sovereign wealth fund, enabling Russia to be less dependent on crude oil and natural gas.  Instead, there was little reinvestment other than for more armaments, and Russia remained a kleptocracy for Putin and his cronies.  He also bought the loyalty of shrewd businessmen by creating a class of oligarchs who were allowed to take over the assets of former Soviet Union businesses.   

This has unravelled following Putin’s Cold War policies against Georgia and especially Ukraine, resulting in sanctions against Russia by the US and European Union.  The subsequent collapse in oil prices has been the heaviest blow, causing the Ruble to slump and inflation to rise.  Today, Russia is in a Catch-22 situation, partially described by this Bloomberg article: Ruble Colluding With Oil Brews Russian Toxic Loan Morass.  I think Russia will default on some of its debts.  More importantly, Putin remains a loose cannon and is therefore the biggest threat to Europe.