Under A Quiet Surface

When a squad of heavily armed Russian federal agents started banging on the front door of her suburban mansion, Galina Bulbova did what any well-to-do Moscow housewife would: she called out her husband's security detail. Within minutes, two teams of Kalashnikov-toting police were facing off across her front lawn. One was from the office of her husband, General Alexander Bulbov, who runs Russia's federal anti-narcotics agency, or FSKN. The other was from the Federal Security Service, or FSB, who had already arrested the general and his personal guards across town at Moscow's Domodedovo airport. After a scuffle, Bulbov was hauled off to jail to face charges of extortion, which he vehemently denies.

An example of President Vladimir Putin's "war on corruption"? Not according to Bulbov's boss, Viktor Cherkesov, a close Putin ally and FSB general. Cherkesov warned last month that Bulbov's October arrest was the latest shot in an "internecine war within the security services"—a war between two powerful Kremlin clans so serious that if unchecked it could "bring down the stability Russia has won" under Putin in a "chaos" of warfare within Russia's elite. "There can be no winners in this war," says Cherkesov. "There is too much at stake."

Forget the elections to Russia's Duma. Russia's real politics happen in and around the Kremlin, and it is a ruthless battle for money and influence. Putin is preparing to step down (as he's constitutionally obliged to do) at the end of his second term next March, and the clans that control the power of the Russian state are maneuvering frantically to protect their business empires—and, in some cases, their lives. "There are certainly many top bureaucrats in the Kremlin who would be in great personal danger if they lost the protection of the president," says one former top Kremlin official and member of Putin's inner circle who didn't wish to be named speaking about his former colleagues. "They took away businesses, they put people in jail. They did things people don't forget lightly."

Refereeing this battle is Putin himself. He's maintained an equilibrium between the feuding clans by skillful trimming and reshuffling the various groups' powers. "Putin has been controlling the tug of war, the wars under the carpet between the competing groups," says Kremlin political adviser Vyacheslav Nikonov. "Nobody but Putin can provide the balance between the different Kremlin species."

To an extent, this battle is a simple struggle over power and wealth, and who will rule in Putin's name when he leaves the presidency. But it also involves ideological disagreements on foreign and economic policy, disagreements that will determine whether Russia emerges as more or less autocratic, more or less open to free markets and Western influence. The battle lines aren't always clear cut. In foreign affairs, "isolationists" like deputy chiefs of staff Igor Sechin and Vladislav Surkov and FSB head Nikolai Patrushev champion a strong, independent Russia that could form an alternative to American hegemony. Much of Putin's anti-American rhetoric comes from the isolationists' playbook. So have recent visits by Hugo Ch?vez to Moscow and by Putin to Tehran, as well as contacts with Hizbullah, Hamas and the Syrians, all of which seem almost deliberately calculated to raise American hackles.

The "globalists," such as Deputy Prime Minister Alexei Kudrin and Foreign Minister Sergei Lavrov "believe that Russia fits a global postindustrial world. In practical terms, that means encouraging foreign investors, making nice with George W. Bush and generally playing the responsible world power. But in many ways the two camps are entwined. Over Iran, for instance, the globalists have actually opposed going along with U.S. calls for tougher sanctions on the ground that sanctions are actually more likely to lead to confrontation and war. "Russia has far more to fear from Iran than America, I promise you," says the former Putin aide. "But unlike the U.S., we don't see any advantage in backing Iran into a corner."

On the economic front, pragmatism usually trumps principles. Anatoly Chubais, a veteran economic reformer and head of the state electricity monopoly, RAO UES, has long argued that electricity should be sold at market rates. Yet he also realizes that artificially cheap utilities are a key element of the Kremlin's control, so he has refrained from pushing his program too hard, especially in election season. Kudrin, the government's leading economic liberal, was the architect of some of Russia's most successful macroeconomic policies, including the oil stabilization fund, which put nearly $700 billion in oil revenue into a rainy-day reserve to alleviate inflationary pressures. He also designed Russia's 13 percent flat tax, which dramatically reduced Russia's once chronic tax-avoidance problem. Yet when state-controlled gas giant Gazprom pressured Shell to renegotiate a contract on an oil and gas field earlier this year, Kudrin's protests were muted. "Kudrin is politically astute. He knows when not to interfere with the projects of his colleagues," says the former Kremlin official. Kudrin and other liberals have also turned a blind eye to the state's takeover of supposedly strategic—and usually lossmaking—industries such as the Tupolev aircraft manufacturer. Such nationalization may not make economic sense, but it fits Putin's agenda of reviving national industrial greatness.

In some ways, the close coterie of men wielding the power in the Kremlin resembles the old oligarchy of the Yeltsin years, which Putin has often claimed to have vanquished. In fact, argues Kremlin-connected analyst Stanislav Belkovsky, "Russia is much more of an oligarchy now than under Yeltsin." Putin's elite, says former FSB Colonel Gennady Gudkov, now a Duma deputy, is "far closer-knit and far more cohesive" than the elite ever was under Yeltsin. Many of these new power brokers have close personal ties to Putin and to his hometown, St. Petersburg, and many of them share Putin's background in the old KGB. "In the last eight years we have created a very solid Soviet-style bureaucratic elite, with their own codes and speaking the same language," says Gudkov.

But unlike the old oligarchs, who often used their respective media empires to sling mud at one another, the new elite rarely takes its squabbles into the public realm.

The case of Cherkesov and the FSKN provides a rare glimpse into the grittier side of these power struggles. The vast resources of the FSB (the successor agency to the KGB), for instance, is nominally at the service of the Kremlin and FSB boss Patrushev. In reality, it is controlled by interlocking interest groups—some of them enemies. In 2003, Putin appointed Cherkesov, an old friend from the FSB, to create the Federal Anti-Narcotics Agency. But Cherkesov's brief was far broader. With more than 35,000 agents and a state-of-the-art electronic surveillance service headed by Bulbov, the FSKN's real job, says Belkovsky, was "to keep an eye on the FSB and the prosecutor's office" for Putin, who used the FSKN as a counterweight to other security agencies.

One of Cherkesov's first jobs was to investigate top FSB officers allegedly involved in a smuggling ring worth hundreds of millions of dollars. After years of stalling, a series of murders and multiple attempts by the prosecutor's office to close the case, heads finally rolled last summer. Prosecutor-General Vladimir Ustinov was fired, as was the head of Russia's customs service and 19 other high-ranking customs and FSB officers. A year later, Cherkesov says the group is looking for revenge. In addition to the charges against his deputy, Alexander Bulbov, for alleged misuse of his surveillance powers to extort money from businessmen, two FSKN officers, Sergey Lomako and Konstantin Druzenko, were murdered in St. Petersburg late last month with a dose of radioactive poison. (No one has been charged.) In a letter to Kommersant newspaper, Cherkesov warned this feud could become a repeat of the "bankers' war" of the late 1990s, where Yeltsin-era oligarchs squabbled over privatization deals, dragging the supposedly independent media outlets they controlled into the fight.

To maintain the status quo Kremlin insiders say Putin has little choice but to remain in power, if not in office. But how? Putin could, if he chose, simply amend the Constitution and remain in power indefinitely. He has the popular support, with approval running at more than 70 percent, and the majority in Parliament. Yet the former Kremlin official says Putin is opposed to becoming a lifetime dictator. "[Putin] is convinced that Russia cannot be run by a junta," says the official. "Likewise, he knows that his successor as president cannot be a puppet." Putin has also carefully avoided naming a successor, and by doing so he has again kept competing factions in line—though the state television's slavish coverage of deputy prime ministers Sergei Ivanov and Dmitry Medvedev, carefully controlled by the Kremlin, suggests that they are still the front runners to succeed the president.

Now he seems to be preparing for an as-yet-undisclosed role in Russia's politics after he steps down, possibly as leader of the pro-Kremlin United Russia Party, whose candidate list he headed in the Duma elections. "Six months ago, we all thought Putin was tired and was leaving politics," says Alexander Shokhin, head of the Russian Union of Industrialists and Entrepreneurs. "Now we see that he's been forced to stay on."

To what effect? Russia's oil economy is booming, and complacency seems to be widespread among the new elite. "The clans are so involved in their war that they completely forgot about growing inflation and the future of this country," complains Yevgeny Yasin, a former minister of Economy and now director of the Moscow School of Economics. At the same time, the media's pre-election obsession with Putin obscures the clans' squabbles while blocking any discussion of Russia's very real problems. But while Moscow booms, the regions are starting to feel real pain. Last month, striking workers forced the closure of the Ford Motor Co. in Vsevolozhsk, near St. Petersburg. In Astrakhan some 1,500 teachers, nurses and museum workers protested outside the region's Parliament to demand a 15 percent increase in salaries for public-sector employees, and a rise in the local minimum wage to $125 a month.

For the moment, such voices of discontent are drowned out by the relentless stream of upbeat news put out by the national media—and a very real wave of prosperity. Incomes are rising and Russian pride has been restored. So it is little surprise that Kremlin in-fighting goes largely unremarked upon. "The racketeering supervised by the security services all across Russia, and the millions of laundered money they transfer through foreign banks is not considered a problem," says analyst Sergei Markov with a shrug.

The problem is that substantive debates—between globalists and isolationists on foreign policy, and would-be reformers versus conservatives on economic policy—will be determined not by the public, but by Kremlin battles. And as the security-services bust-up illustrates, those battles sometimes have more in common with gangland feuds than responsible discussions over the future of a great power. Still, Putin's new oligarchy, emboldened by its own sense of power, is united, at least, on one thing: that this power must be maintained.