LUKOIL: How to Become a Billionaire Russian Oligarch

LUKOIL: How to Become a Billionaire Russian Oligarch

In the aftermath of the Soviet Union’s demise,
Russia saw its wealth get concentrated into the hands of just a handful of businessmen. These oligarchs, known as the New Russians,
came to own over half of the Russian economy, including its vast oil industry. That’s why today we’ll learn exactly how
this transition happened, especially in the context of one of Russia’s biggest oil companies,
Lukoil. On Christmas Day in 1991, the president of
the USSR Mikhail Gorbachev announced on national television that he had resigned. The bigger shock of this announcement was
that Gorbachev would have no successor; instead, the Soviet Union would be dissolved. On the following day, the Russian flag was
flown over the Kremlin and Russian president Boris Yeltsin was now in power. His vision for the future of Russia was one
of drastic reforms; he wanted to transition Russia to a free market economy as fast as
possible. With funding from the Bush Senior administration
and the research from a Harvard University think tank, Yeltsin put the Russian economy
in shock therapy. He removed price and currency controls, lifted
barriers on international trade, but most importantly he privatized the country. Obviously in a free market economy you can’t
have the state running major industries, but Yeltsin didn’t have time to set up a proper
infrastructure for the transition. Instead, he opted for a very simple solution:
Every Russian citizen was issued a voucher that could be exchanged for shares in any
recently privatized business. The idea was for workers to convert their
vouchers for shares in the company they worked for, essentially getting regular people to
benefit from the success of their chosen industry. While the idea sounded good on paper, it was
extremely easy to abuse. Most Russians at the time had no concept of
capitalism or shares in a company. In fact, in the aftermath of 1991 people were
happy to even get their wages with just a few months delay. Now these vouchers were worth the equivalent
of about $30, which back then amounted to one month’s wage. So what happened in reality is that a vast
majority of people immediately sold their vouchers for cash, either to feed their families
or to buy otherwise lavish luxuries like a refrigerator. Very few Russians in 1991 were both educated
enough and rich enough to take advantage of the opportunity these vouchers presented,
and the ones that could ended up becoming very wealthy, often through rather dishonest
practices. The oil company Sibneft, for example, stopped
paying the salaries of its workers for several months in a row because supposedly it didn’t
have any money. But the owner of the company, Roman Abramovich,
was generous enough to offer to buy the shares of the few workers who were smart enough to
convert their vouchers instead of selling them. And just to be sure, some of the newly privatized
oil companies issued more shares to be sold privately in order to dilute the few stragglers
that remained. Of course, all of this was done through various
shell companies so that regular people didn’t know what was going on until it was too late. So let’s walk through the whole process
of becoming a billionaire Russian oligarch, using as an example Vagit Alekperov. He was born in the capital of present day
Azerbaijan. His father was an oil worker so he studied
engineering and eventually moved to work in Western Siberia, where large oil fields had
been discovered in the early 1960s. In 1983, he became director of oil production
in a town called Kogalym, where he dramatically boosted their output, from a few million barrels
a year in 1983, to 240 million seven years later. He did that by integrating the three branches
of the business – exploration, refining, and distribution, which under the Soviet system
were entirely separate. His performance caught the attention of Moscow,
and he was invited there to serve as deputy minister of oil and gas. Then he did what he knew best: integrating
the oil business, but on a much more massive scale. When he realized that the Soviet Union was
on its way out, he made great efforts to build up favor with Boris Yeltsin, who in return
granted Alekperov autonomy to consolidate the Russian oil business in the most profitable
part of the country. That’s how he created Lukoil, as a merger
of three big oil producers in the region. Now under the privatization scheme, the state
would keep one third of the shares, the workers would get a third through the voucher system,
and then the final third would be reserved for outside investment. Alekperov and the other oligarchs, of course,
quickly bought out the workers. They also got a chance to buyout the shares
held by the government, when Boris Yeltsin needed to raise money for his reelection campaign. Despite the consolidation though, Lukoil’s
production was still inefficient compared to Western oil companies due to its declining
Soviet-era equipment. So Lukoil struck a deal to sell 70,000 barrels
of oil per day to Chevron, and using the revenues as collateral for a $700 million loan from
a Japanese company. With new equipment, Lukoil soared to record
profitability, even in the midst of the oil crash of 1998. Of course, the main benefactors here are the
oligarchs. They’ve been doing pretty much everything
they can to move as much of their wealth as possible outside of Russia, mostly by purchasing
stock in foreign companies and real estate. As to what the future holds for Lukoil and
the other Russian oil companies, the truth is that they aren’t gonna disappear any
time soon. Oil remains the lifeblood of the Russian economy,
even though prices have been low for over two years now. So essentially, the Russian oligarchs have
many decades of oil revenue to look forward to, while the Russian people, well not so
much. Now, many of the photos you saw in this video
came from Storyblocks, which I can happily recommend to you for all your stock image
needs. If you’ve been thinking of starting your
own YouTube channel I can tell you that having such library of resources is a huge help. What makes Storyblocks even better is that
they operate on a subscription model, so you pay a fixed fee to access their full Member
Library of over 400,000 images. You should definitely check them out, and
to that end I’m giving you a 7-day free trial if you register with the link in the
description. Of course, I want to give huge thanks to everybody
on Patreon for supporting me and to you for watching. Don’t forget to follow me on Facebook, Twitter
and Reddit, and as always: stay smart.

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About the Author: Oren Garnes


  1. And yet the people of Russia don't seem to mind, because they all still love Putin who is the one preserving all of this.

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  3. Russia sucks at free markets. First, it was a backwards Czarist imperial regime, then it was an opressive communist dictatorship, now it is a psuedo-dictatorial oligarchy. No wonder they are constantly the world's bad guys!

  4. Without Putin old people would still have to choose to turn on the heater or buy food instead. The perestroika was a desaster to russian people.

  5. A Russian colleague of mine told me about this, he traded his voucher for a leather jacket and there were guys he worked with that gave their vouchers away for some vodka. A couple of years later they came to knowlegde that their voucher was worth an appartment.

  6. To put it simpler: People from the KGB took everything. The big communist were the first (and only) to become rich. Not capitalists, they are simply thieves.

  7. Hi, good video. The one bit you've missed is that there were ubiquitous organized criminal gangs that racketeered people for these vouchers so they could acquire various real estate and machinery after the fall of Soviet Union. So having a lot of vouchers (or as they were called investment checks) "puts a target on your back".

  8. Greedy oligarchs like Putin and his cronies are the main source of the ordinary Russian people's misery.

  9. How were there rich people right after the end of the socialist country?

    A video of what happened to Oligarchs after the arrival o Putin would be interesting.

  10. Пидорасы ебаные. За последний месяц стоимость 95 бензина вырос с 40.90 рублей до 42.40рубля

  11. So I myself am Russian, 19yo. This is entertaining, very true, and, sadly a problem that gets worse every single day. This transition happened not only in oil industry, but other too. Literally the only industry growing itself without the support of the government is.. web. Including software developers (ugh.. only some) and almost no hardware. The last one standing is getting tortured now too.

  12. Pretty much the same has happened like a 100 years ago in the US.
    Big fish eats small fish… that's the truth.

  13. Вот какого хуя я узнаю эту информацию от западного блогера? В школе этому надо было учить, стыдно!

  14. I just hate how everytime the Eastern block is portrayed by a westner it is said to be like a living shithole. No, a fridge was not a luxury. Everyone had a fridge and I can tell you that there are more people today in the ex-commie countries that will consider a fridge a luxury than there were before. And no one was starving, crops were grown everywhere. We didn't have bananas but we never had food shortages and everyone could afford food. Yeah, $30 might be the typical wage, but consider that days worth of food was around 50 cents and thats while eating out and eating all you can and with drinks aswell. A lot of the community enterteinment like the movies and museums were free or had a symbolic price of literally 1 cent. It wasn't THAT bad. People wanted communism to fall because they thought the west was even better, little did we know that both regimes had their ups and downs. The Eastern block was not North Korea!

  15. My grandparents got a small plot of land and a 2bedroom apartment from those vouchers back in the day.

  16. And now European Courts demand Russia pay these people absurd amount of money for robbig the country for years

  17. The Russian public takes a heck of a beating; from the czars, to Stalin, to the collapse of the union, and even until this very day (sanctions).

    They're resilient.

  18. Step 1 live in a post communist country step 2 buy guns and some people to use those guns step 3 say you claim this oil refinery

  19. Russia has $75 trillion in natural resources according to the world bank. Oil isn't its only strength they also produce a lot of diamonds.

  20. This video is selling an oligarch vs. people narrative that I call bullshit on.

    The corruption at the end of the Soviet Union was bad. But that was a government issue. You can’t blame a businessman for bribery when all the other businessmen are doing it – it’s just standard practice at that point, you have to do it to compete.

    And private business owner control is certainly better for the masses than government control. History is absolutely overwhelmingly clear on this. The government sucks at running shit other than the violence industry – military and police.

  21. So basically people worked in these companies all their lives and as always, abusive people took advantage of the system and stole their papers. And then you would ask, why communism came to be ?

  22. I used to repair Alekperov's son's RR Wraith. And pensions in Russia are about $40-$250. This happens in one country, in one culture, at the same time, right on my eyes. It's quite dissonant. Such a nice way to make buisness…

  23. After the fall of the USSR the Russian billionaires oligarchs used their connection with the Russian government to buy Soviet state businesses on the cheap.

  24. I can't call this bullshit, but for such a short video you have too many mistakes, biggest of which – this story is much more complex, then you show here.

  25. Lukoil supplies my entire country with oil and gas to meet our nations energy needs. We buy it at a record high price and despite all this Lukoil hasn`t paid taxes in over a decade. They do it through Russia`s political and virtually every kind of medallying in our state. The biggest problem is that half the country is just as dumb as the russians and can`t see things through.

  26. I feel bad for the Russian people. First they get fucked by the Tsars, so they abolish the monarchy. Then they get fucked by the authoritarian Soviet state until that collapses. Now they get fucked by being in the hands of a few oil barons running the country. Russians are a strong people, hopefully they can truly fix their problems someday.

  27. Did that voucher system come from the Think Tank? 'Cause we tried that over here when we left the British, and it led to Shay's Rebellion which nearly destroyed the country…

  28. Ahh under Yeltsin unemployed numbers went from 4 million people to 70 million. What a great guy… Also sold out the economy to america until Putin reclaimed it for Russia.

  29. lol,I live in Burgas – here Lukoil refines the oil and sends it trought the Balkans. It's also one of the reasons why the air quality here is so bad

  30. At least some businesses are running in Russia, sadly many countries which were ran by communist parties after the period 1989-91 companies and factories were privatized and bought for less than 1 dollar, corruption occurred… and some people become millionaires just for one night….

  31. chin(k) from asia here……this capitalism bullshyt happens everywhere in the world not only in corrupt russia….the rich will use their immense wealth to buy out everything and everyone….the means of production,the land for redevelopment,the resources,the malls,leaving the poor with nothing except jobs so they can slave for the rest of their lives to put food on their tables and a roof over their heads.

  32. China started installing elements of free market bottom-to-top, to eduacte population while maintainng strategic control. Soviet block attempted new system with old top-to-bottom approach. Results are well known and visible. Russia has economy size of about South Korea, Poland is about half of US DoD budget or Norway Welfare Fund.

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