Joan Smith: Oligarchs are unfit company for friends of democracy

It's a high-risk business being an oligarch. In recent years, the word has lost its connotation of political power and become associated with astonishing levels of wealth, epitomised by the owner of Chelsea football club, Roman Abramovich.

Even so, it isn't all yachts, dachas and private jets. The Russian tycoon Boris Berezovsky had to seek asylum in this country after falling out with his former protégé, Vladimir Putin. Mikhail Khodorkovsky, the founder of the giant oil company Yukos, fared even worse; he was removed from his private plane by security agents five years ago and is languishing in a remote prison in eastern Russia.

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Oleg Deripaska, the Kremlin's favourite oligarch, has avoided such problems; indeed he was scarcely known in this country until he was mentioned last week in a letter to The Times. Despite his notoriety in Russia as the victor in its fierce aluminium wars, Mr Deripaska owes his sudden visibility here to a spat among members of a much grander oligarchy.

The adversaries are the Shadow Chancellor, George Osborne, and his old friend Nat Rothschild. Last week Mr Rothschild made the sensational claim that Mr Osborne solicited an illegal donation to the Conservative Party while visiting Mr Deripaska's yacht, a claim which Mr Osborne denies.

What's so startling about the row is that the friendship between Mr Osborne and Mr Rothschild goes back to their Oxford days when they were both members of the Bullingdon Club, young men who partied together and assumed they would one day run the country. Mr Deripaska tended his family's cows until entering university, and some aspects of his road to riches remain obscure. But the attraction between new and old money is well-established and one of his business partners is Mr Rothschild, who is also a close friend of Peter Mandelson.

Just after his recall to the Cabinet, Lord Mandelson was accused of dripping "pure poison" about Gordon Brown while he and Mr Osborne were guests at Mr Rothschild's villa in Corfu in the summer. Mr Osborne was blamed for the story becoming public and, it is said, provoked Mr Rothschild into last week's counter-attack. To complete the circle, Lord Mandelson knows Mr Deripaska, and admitted in a letter to yesterday's Times that they first met in 2004. When first asked about his relationship with Mr Deripaska, he said that the two men had met "at a few social gatherings in 2006 and 2007".

No one has accused Lord Mandelson of any wrongdoing, and it is unclear whether Mr Osborne's actions broke the law on political donations. But a larger problem affects Labour as much as the Tories. Since the collapse of the Soviet Union, vast sums of money have been made in Russia but the stakes are very high, as the fate of Mr Khodorkovsky – once the country's richest man, a position now occupied by Mr Deripaska – demonstrates. Mr Khodorkovsky's fall came after he opposed the Kremlin, and Mr Deripaska has been more circumspect. "I don't separate myself from the state. I have no other interests," he has said.

That state has ruthlessly suppressed dissent, imprisoned opponents in mental hospitals and committed human rights abuses in Chechnya and Georgia. Successful oligarchs have to be Mr Putin's cronies, and that disqualifies them as suitable friends for people committed to democratic politics (Mr Deripaska can't even get into the US, which has revoked his visa). The big question is not who said what to whom on a luxury yacht but why Mr Osborne and Lord Mandelson have been keeping such company in the first place.

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