Bloomberg News

As Vladimir Putin pushes his war in Ukraine into its second year, the deepening militarization of Russia’s economy is fueling fears among the country’s business elite that the squeeze on their companies is only just beginning.

The government is already considering “one-time” taxes on some big firms to help boost revenues reduced by the tightening grip of sanctions and other restrictions and tycoons said they expect the Kremlin to step up demands for cash. Wartime laws also give the authorities sweeping powers to dictate company operations, from what is produced to how much it costs.

With public calls for tycoons who aren’t enthusiastic enough in their support of the invasion be stripped of their assets, some of Russia’s richest now worry they could see their holdings seized by rivals seen as more loyal or even nationalized, according to people familiar with their thinking. The Kremlin’s public reassurances that business interests will be respected ring hollow with the Russian president’s attention focused on the war, not business, these people said, speaking on condition of anonymity for fear of retribution.

The growing fears highlight how the invasion, which the Kremlin initially hoped would deliver a lightning victory, has become a campaign without end that’s transforming all aspects of Russian society irreversibly. The lifestyle that came to be known as ‘dividend aristocrats’ — tycoons who lived richly in recent years on huge profits from their companies — is gone forever, top executives said.

Big business will have to feel the same shock as the war hits home as the rest of the country is, said a person close to the Kremlin, speaking on condition of anonymity. While Putin opposes widespread nationalization as a failed strategy, he said, the time when tycoons could reap the benefits of high commodity prices are over. Wartime, the person added, demands sacrifices from all.

That attitude has some tycoons fearing that the business outlook is getting much dimmer fast. Some executives have commissioned confidential studies on the experiences of big business in situations they worry are likely to prove analogous: the pre-World War II regimes in Axis countries like Italy, where once-powerful industrial giants were ultimately taken over by the state and subjugated entirely to the war effort. Others draw parallels to the mobilization of German corporate giants under the Nazis.

The budget deficit is already growing as spending on the war rises and sanctions and other limits squeeze revenues. “This is to a certain extent a mobilization budget,” Sofya Donets, economist at Renaissance Capital said. Even the current amendments to the plan “call for a further increase in the tax burden, thought it’s not clear yet when this will happen,” she said.

So far, the government hasn’t publicly acknowledged using the sweeping powers it gave itself last summer to force business to support the war effort. But tycoons and executives worry they will have little alternative but to comply with any requests for manpower, production or cash.

The state will take whatever it thinks it needs for the war effort, said a longtime business lobbyist. If in the past, tycoons could work the phones and their contacts in government to protect their interests, those tools now don’t work, he said.

Among the most vulnerable are those perceived to be insufficiently loyal, according to people familiar with the tycoons’ thinking.

Legislators have proposed stripping those who have left and criticize the war of their assets and even citizenship. Dmitry Medvedev, the former president who is now a senior Kremlin official known for his angry social-media posts, in December called for designating them “enemies of the state.”

Putin hasn’t gone that far in public, but he makes no secret that he believes Russians with too much of their wealth abroad are a security risk.

“If a person doesn’t link his life with this country but just takes money out and keeps everything outside, then he values not the country he lives and earns money in but the good relations in the one where he keeps his property and accounts,” Putin told reporters on Dec. 22. “This kind of person poses a danger to us.”

Any expropriation will start with those who’ve left Russia, said one tycoon who hasn’t returned to the country since the war started. He cited the examples of Yandex, the tech giant whose founder — now in Israel — has sought to negotiate with the Kremlin for an exit that allows him to retain some key businesses, and Oleg Tinkov, who has said he was forced to sell his bank at a deep discount after becoming one of the only wealthy Russians to publicly denounce the war.

Putin remains opposed to sweeping nationalization, according to people familiar with internal discussions, but that’s little reassurance to tycoons who worry that rivals with better connections to the leadership will be able to take control of their holdings.

In the fertilizer sector, where surging prices have yielded a bumper crop of profits, Uralchem founder Dmitry Mazepin, the only tycoon to have publicly met Putin one-on-one twice last year, has sought to portray himself as the only big shareholder focusing on the state’s interests, according to several executives at industry rivals. That’s alarmed some others in the sector who’ve stayed out of Russia since the war started, according to people familiar with their thinking.

Mazepin, who heads the fertilizer committee at Russia’s biggest business group, said he didn’t see consolidation in the industry as likely now. “No one has a competitive advantage — political or otherwise — that would lead to any serious changes,” he said.

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