Today’s image of Russia is one of both an increasingly threatening Kremlin and a powerful, repressive head of state in Putin. Both foreign policy and domestic reforms are met with distrust and disdain from abroad, and more often than not, Vladimir Putin is a synonym for Kremlin power. Other writers in these pages espouse this idea. In my view it is greatly overstated.

There are areas in which Putin and his closest Kremlin allies exercise enormous power, both formally and informally. Yet overall, Putin’s power is more inconsistent than either strong or weak. In spite of his efforts, the situation in today’s Russia resembles more a sort of “Fragmented Presidentialism” than a “Managed Democracy.” In spite of his formal powers, Putin is vulnerable in many areas from inside the Kremlin. Thus, Putin is paradoxically both David and Goliath.

Even if the Putinite regime is more reminiscent of the Tsarist period than a “modern-day democracy,” a popular contention in western political circles, let us not forget that the last Tsar and his family were lined up and shot by power-consolidating revolutionaries. Former Soviet leader Nikita Khrushchev was overthrown by his own advisors in a coup, and Gorbachev did not leave office on a happy note. In other words, it is not the size of your power that matters, it’s what you can do with it.

Early Attempts at Consolidation

Putin started his first presidential term as a lightning rod for both criticism and hope, but when it came to his ability to accomplish any needed substantive reforms, he initially had little actual power beyond Moscow. Consolidating power was one of the top priorities of his first term, and today, the Kremlin has gathered enough to dominate certain strategic aspects of the state. Specifically, these include (but are not limited to) foreign policy, the “strategic management of natural resources” (primarily oil and gas), and fiscal policies.

As head of state, Putin yields a tremendous amount of power over foreign policy decision-making. This was evident in his response to the terrorist attacks of 9/11, where he went against all of his advisors’ recommendations by phoning President Bush and pledging his unconditional support, solely based on his own instinct. This move notably altered U.S.-Russian foreign policy, at least for several years.

Putin’s diplomatic style is to use whatever assets he can to cover for the country’s international political and economic shortcomings. This extends beyond the use of Russia’s energy resources and often has to do with rather fortuitous timing. The terrorist assault in Beslan came to a horrific end on September 3, 2004. On September 16, Putin announced a major federal reform program, including a change in the way Duma representatives would be elected and an overhaul of federal-regional electoral procedures. Putin was vilified by western governments and activists – both in and outside Russia – who considered these reforms the death blow to the country’s nascent democracy. However, around September 27th, Vladimir Putin (conveniently) announced to the world that Russia had finally decided to proceed with ratification of the Kyoto Protocol, which needed just one more signatory to go into effect. Suddenly the roaring criticism of Putin dropped off to a whimper. Ironically, by enacting the agreement, Russia is expected to receive billions of dollars, hardly a sacrifice. Thanks to the timely use of Kyoto, Putin became the darling to a community that days before had considered him a demon, simply by signing a lucrative international agreement aiming to address a problem that even many in the Russian Academy of Science believe is based on dubious science.

It is well known that Russia’s place in the international community is due in large part to its dual arsenals of various natural resources and nuclear weapons. The strategic political and economic use of energy at home and abroad has been at the heart of Kremlin policies since the Soviet era. A tremendous circulation of elites between Gazprom and the Kremlin has essentially rendered the gas monopoly a distinct branch of the government. Today, there is even speculation that Putin himself will chair the behemoth after completing his second term in office. This is a typical scenario.

Divisions in the Power Structure

For decades, natural resource wealth has proven to be Russia’s diplomatic trump card and the state’s domestic economic crutch. Yet power over the industry is accumulating in a highly divided Kremlin, where the lack of consensus contributes to an increasing instability. There are multiple cliques with their own unique ideas about what to do with this power, which explains the often conflicting policies of the state, and points to the very different paths that Russia could take over the coming decades.

Beyond the figurehead of President Putin, there are said to be two loosely-based dueling Kremlin clans that dominate, the siloviki and the liberals. At the risk of oversimplification, the big difference between the two is that the siloviki want a strong Russia, believe that is best achieved by top-down guidance with a firm state hand, and are willing to use extreme measures in this pursuit. The liberals are western-oriented, more concerned with a strong Russian economy, and emphasize the invisible hand of the market, assuming that political and social stability will inevitably follow.

Besides the struggle for primacy in the Kremlin, the main divisive issue between the siloviki and the liberals is probably the direction of state control in the future over various aspects of the natural resource sector. Both generally support the partial re-nationalization of natural resources but differ on how to go about it. The liberals contend that any re-nationalization should be done legally, gradually, and when possible, informally, in order to avoid damaging investor confidence and impeding entrepreneurial freedom. They would prefer to see the state, or state-affiliated financial industrial groups, buy shares on the market rather than having them seized. Of course, this is in large part because the liberals stand to profit, as this group represents the oligarchy and big business. The attitude of the siloviki is that, since privatization was a semi-illegitimate disaster, “strategic” enterprises, especially in the energy sector, should be returned to state control by whatever means necessary. (It should be noted that multiple population polls show that the majority of Russians agree.) The siloviki are said to be the masterminds behind the Khodorkovsky affair and the seizure of Yukos, and increasingly seem more united in their tactics than they are in their worldviews. One can assume that they lobbied rather hard for the tax increase on energy exports and production, and that they consider property rights to be essentially another layer of bureaucracy.

The liberal faction’s objectives coincide best with western corporate interests. This said, they may be the leaders of privatization, but are not categorically champions of economic freedom and market values. One is hard-pressed to think of any privatizations thus far that have truly been transparent and fair. Vladimir Potanin’s brainchild, the 1995 Loans for Shares scheme, was a wild misappropriation of Russia’s natural wealth, done ostensibly with Yeltsin’s full consent. Now imprisoned, Mikhail Khodorkovsky used the Rosprom-Menatep Bank to buy Yukos for a mere $159 million. Sibneft was sold for $100 million and Sidanko for $130 million. The 1997 Svyazinvest privatization scandal led to the beginning of the end for Russian television’s autonomy. Russia’s large-scale privatizations have all been virtual formalities as political-economic forces negotiate the outcomes behind the scenes in advance. There was no truly fair way to privatize without selling Russia’s own lifeblood to foreign corporations. We should not be shocked when history keeps repeating itself; there have been no angels among any of the elites.

Today, with three or four major exceptions, the oligarchs are not gone – they just enter the Kremlin through the back door. According to one estimate done in October 2005, just 22 people own roughly 40 percent of the Russian national economy.

The Russian government cannot afford too much of a monopoly position given the massive infrastructure investments that will be required, including the addition of new pipelines and repairs to old failing ones. Thus Lukoil, for example, is best kept tied to the Kremlin in more informal ways. As long as it continues to play by “the rules,” there is no reason to believe the Russian government would formally interfere with its business. At times, Lukoil has seemed to steer the Kremlin’s policy choices. A big factor in Russia’s opposition to the invasion of Iraq was the $3.5-billion agreement between a consortium of three Russian companies and Iraq to develop Iraq’s West Qurna oil fields. The companies stood to lose their investment if Saddam was ousted. This also explains Putin’s quick turnabout after the invasion, and his attempts to maintain private-company property rights to the oil field via post-invasion diplomacy and cooperation with the U.S.

Regional differences in power structures and massive corruption also dictate that neither Putin nor his Kremlin are as powerful as they seem from the outside. Writing and passing laws is one thing, successful implementation is another. Regardless of the leadership’s intentions, there are very real constraints on what can and cannot be changed, for better or for worse. If the state were to try and close the gap between the dual pricing system, the increase in costs would likely lead to riots in the street. This is not such an unlikely scenario. The Kremlin quickly reversed course on reform in 2005 when the monetization of pension benefits sparked massive nationwide protests.

Without solutions to several nagging domestic problems, the future will be bleak for Russia. Sectoral diversification and an increase in the number of small- and medium-sized enterprises are needed if Russia wants a stable economy. Physical infrastructure to provide citizens water and heat (among other things) is desperately in need of development and repair. The country is literally falling apart. The financial and commercial banking sector should be diversified and developed, as most banks are subsidiaries of financial-industrial conglomerates and do not offer services to the public. Legal reforms must be made, implemented, and expanded. Russian citizenship needs to be something worth having, which requires educational, health-care, pension, housing, and property-rights reforms, to name just a few. Only when these tasks are accomplished will the country stand a chance against collapsing under the weight of its looming demographic crisis. The many faces of corruption must be addressed, since this undermines the legitimacy of the state, among other things. Resource wealth is of limited use in the long-run unless other complementary goals are achieved, particularly in the domestic realm.

Given its limited options, Russia is not in the midst of a foreign policy shift, nor is the Kremlin turning its back on its former Westernizing course. By pursuing its unique national self-interests, which are driven by domestic, geopolitical, and economic realities, Russian foreign policy will continue to be defined more by the issues themselves than by esoteric aspirations, such as joining or leaving the West. Russia is just acting like a normal world power. Today’s Russia is neither pro-Western nor anti-Western. Instead, Russia is simply being pro-Russia.

The notion of a unitary “West” has been challenged in today’s post-cold war, increasingly global, world. The transatlantic rift between the U.S. and E.U. is well established. Procedural quirks, problems related to integration and accession, and internal disputes plague the E.U., rendering it still very much a work in progress. NATO is starting to resemble more of a dinner club than a formidable military alliance and the Council of Europe is just one of the many other multilateral “western” organizations that have little more than rhetorical force.

Practically speaking, multilateral institutions are not the most effective foreign policy partners when it comes to economic matters, particularly trade. The Russian government has had much more success with European and American leaders on a bilateral basis in trade and economic policy, though Putin has been keen on the primacy of multilateral institutions, particularly the U.N., for resolving international political conflicts.

European states are competitive and contentious over certain issues of particular sensitivity and self-interest, expecting that their decisions and unique needs will be, if not accommodated, at least respected. Even on issues of conforming to the E.U.’s established energy standards, uniformity has proven elusive. By making their policy on an issue-by-issue basis, which means going their own way at times, Russian foreign policy leaders aren’t leaving Europe, they are acting European.

Beyond relations with the various incarnations of the West, the degree to which the Kremlin’s recent foreign policy is a break from the past or from the norm is overstated. Russian foreign policy has remained relatively consistent throughout the Putin era, especially when compared to the twists and turns of Yeltsin’s presidency. Remember the Primakov doctrine in 1997-99? It dictated that Russia’s foreign policy objective was the creation of a multi-polar world system via a strategic partnership with Beijing, in order to balance the power of the United States. Prior to that, Russian leadership was too preoccupied with surviving the continual domestic crisis at home to have much of a foreign policy, other than the constant refrain of “Help!” from atop a rusting tank. That can hardly be considered continuity.

Putin has always been very clear that Russian foreign policy should be used to achieve domestic objectives, particularly in the economic sphere. He has pursued relationships with both China and India, has maintained his highly controversial alliance with Iran, and has served as an intermediary with North Korea.

If conditions within Russia were better, perhaps foreign policy could be made strategically with long-term goals in mind. However, the still-wobbly Russian Federation does not have this luxury and won’t for some time to come. Whether or not the next G8 is Putin’s last, it probably won’t matter very much in a Russia with a slowly mutating hybrid of democracy, forever battling thorny legacy issues on the home front while having to deal on a case-by-case basis with a never-ending series of challenges and crises abroad.