Katya Malofeeva and Tim Brenton of Renaissance Capital -

This is the last in a series of three articles looking at Putin's legacy as he prepares to step down.

On August 8, 1999, Russia's first president, Boris Yeltsin, nominated Vladimir Putin, head of Russia's Security Council, as the new acting prime minister, and this nomination was confirmed by the Duma the following week. On December 31 of the same year, Yeltsin resigned, calling for early presidential elections and leaving Prime Minister Putin to come in as acting president.

Boris Yeltsin made Russia's inclusion in the G8 international forum a major priority of his presidency - a mission that he largely completed. By the end of Yeltsin's presidency, Russia's head of state was regarded as a somewhat exotic and extravagant leader, who, however, unequivocally leaned towards the West.

Yeltsin's short-term goal was to persuade the international community that Russia represented no nuclear threat, and that the cold-war period was firmly behind it. Yeltsin's policy in the FSU countries was driven by a desire to limit the scope of Russia's responsibility for economic and military issues - an initiative that assumed allowing significant sovereignty to former USSR partners.

In the new millennium, the situation has changed dramatically. Along with political stability, increasingly centralised power in Russia and the economic boom that have taken place under President Putin, Russia has become increasingly outspoken and independent, and sometimes even somewhat aggressive, on the international stage. This shift has become apparent across all areas of Russia's foreign policy, and has been another popular aspect of Putin's regime, as an increased sense of national pride (as well as some less pleasant nationalism) has been a major theme of the Putin presidency. Marching to this tune has certainly contributed to Putin's domestic popularity.

Russia and the West: From cooperation in antiterrorist operations in the early 2000s to the harsh rhetoric of 2007

At the beginning of his presidential term, Putin appeared willing to be associated with the leaders of the West - probably even to a much greater degree than his predecessor: Putin was much younger and more energetic than Yeltsin, spoke fluent German and was certainly a better fit among the Western leaders at the time. Most observers at the time thought Putin's foreign-policy objective was for Russia to become a European country, and believed that one of Putin's personal aims was to be perceived as a modern leader, strengthening Russian democracy.

Since then, the situation has changed. Not only does Russia not appear to be eager to join the EU, but it also chooses to be on somewhat confrontational terms with some of the largest Western countries. Putin's Russia is not aiming to approximate its political system to the democracies of the West; on the contrary, today the Putin administration defends the concept of sovereign democracy, and claims that European countries have their own problems with democracy.

Russia-US

At Putin's first meeting with US President George Bush, Bush immediately warmed to the new Russian leader, and initial predictions were that their relationship would herald a new era of Russia-US cooperation and that the scars of the cold war might finally be healed. This view was further embedded when Putin was the first leader to offer his support to the US after the terrorist attacks of 9/11. Since then, however, relations have chilled, and increasingly so since Vice President Dick Cheney harshly criticised Russia - a move that was followed by the Russian leader attacking the US' "unilateral" foreign policy at a security summit in Munich. Since then, the Russians and Americans have been at odds over the latter's planned missile-defence system, independence for Kosovo and how best to deal with Iran. Although Putin and Bush still seem to have a close personal relationship (despite the wide political divide between them) this may not be the case with the next US president, who could well take a tougher line with Russia.

Russia-EU

Relations between Russia and the EU have evidently suffered since Russia's emergence as an economically strong and stable nation state on the EU's eastern border. Issues have largely arisen over energy security and the protection of European companies' rights in Russia - notably over the treatment of Royal Dutch Shell, and disagreements between Russian and Ukraine over energy supply. Another issue in Russia-EU relations can be summarised as follows: while, initially, Russia did not object to the rapid eastward expansion of the EU (engaged, as it was, in partnership talks with the EU), in the past few years, Russia has become increasingly concerned about the spread of US and European influence in its neighbouring countries. The Russia-EU partnership and cooperation agreement appears likely to lapse in December, and negotiations for a new one have yet to begin. The start of such negotiations was blocked last year by Poland over a Russian embargo on Polish meat imports.

Estonia, another vehemently anti-Russian former Warsaw Pact country and EU member, had a recent run-in with the Russian government over the removal of a Soviet war memorial from the central square in Tallinn. On the other hand, Moscow continues to host a stream of European heads of government, hoping to win lucrative contracts for their companies. Italian utility ENI has recently entered the market, as has French oil company Total. The enlarged EU seems to be having serious problems forming a coherent policy on the resurgent bear, with some going for a strongly negative position and some concerned to protect their business interests.

Russia-UK

The UK is currently the major EU nation with the most negative relations with Russia. Yet, paradoxically, it is the country with potentially the best business relationship with Russia. The UK has demonstrated concern on a number of occasions with regard to Russia's slide away from democracy and the protection of private property - apparently seeing the YUKOS affair as a watershed moment in this regard. What has made the situation worse is the decision by the British courts to shelter a number of individuals wanted for prosecution by the Russian state - notably the exiled tycoon Boris Berezovsky, who openly preaches revolution in Russian from his Mayfair mansion; and the Chechen separatist Akhmed Zakayev, whom Russian officials regard as a terrorist but who spends his time fraternising with British intellectuals and giving lectures on Russian brutality in Chechnya. This group of Russian exiles in London recently entered the news due to the poisoning of Alexander Litvinenko, a former KGB agent with a UK passport. The Litvinenko affair has reached fever pitch with recent tit-for-tat diplomatic expulsions from London and Moscow. Both sides have maintained, throughout the affair, that business relations should not be affected. It is difficult, however, to see for how long the two can remain totally separate.

An important theme running through all these recent issues is that there has been a changing of the guard at the heads of a number of European states, with one such change soon to come in the US. With these changes in leadership, a new generation has emerged which has more experience of a modern post-Soviet Russia, and a number of them have a better understanding of the political mentality which has emerged in Russia since the collapse of the Soviet Union (particularly French President Nicolas Sarkozy, the son of Hungarian immigrants, in France, and Angela Merkel, the first East German Chancellor of the reunified German state). The emergence of a new leader in Russia will also be an important step in the development of Russia's new level of relationships with the West.

Russia and the East

Russia's perceived intention to become the leader of a bloc whose interests are opposed to - or not in line with - the thinking of NATO countries, has become another aspect of its apparent falling out with many of the main Western powers. Russia has consistently been the key member of the UN Security Council that has aggravated attempts to deal firmly with issues such as Iran's nuclear programme, North Korea and the rise of a Hamas-led government in Palestine. Russia's proximity to a number of these regimes has proved a double-edged sword for the world's leading industrialised powers, as on one hand, Russia often proves an obstacle to their desired aims in dealing with such regimes, but on the other, often represents the main line for negotiation with them. We suspect the main worry for the world's main powers is not that Russia is often keen to represent the interests of these nations but that Russia seems to be keen to establish a bloc as a counterweight to NATO power. While current problems between Russia and the West are pragmatic, if they become ideological, this would clearly represent a very negative development.

Policy in the CIS and Baltic States

Russia's relations with its closest neighbours have changed dramatically in Putin's eight years in the Kremlin. To a significant degree, this has contributed to the deterioration of Russia's relations with Western democracies. As the Soviet Union collapsed in the 1990s, Russia was too focused on its own internal politics to be able to make a great effort to stop its influence decreasing dramatically with its former partners, and aimed only to maintain friendly political relationships with FSU countries, trying to preserve its remaining economic ties.

Since its resurgence, Russia has attempted to bring some of these countries back into its sphere, with varying degrees of success. The coloured revolutions in Ukraine and Georgia have seen these two countries turn their sights on NATO and the EU, and this has caused friction with Moscow and resulted in difficulties over trade and, in the case of Georgia, a heightened level of tension around Abkhazia and South Ossetia. The Baltic States, along with Poland, have become the leaders of an anti-Russia movement in the EU, which has often resulted in economic retaliation from the Russian side. In Central Asia, Russia has had more success in building relations with the former republics, but a new great game has emerged in the region, largely focused on control of the area's wealth of natural resource. The Russians remain on top of this struggle for influence, but are being forced to compete on a more level playing field with the US and China.

Most recently, the new theme of energy emerged in Russia's dealings with other countries in the former Soviet Union. Russia is trying to defend its monopoly in distributing gas to world markets from Central Asia, and was a major opponent of the construction of the BTC pipeline, which bypasses Russia. On the other hand, Russia is rather aggressively increasing the prices it charges for energy supplies to Georgia, Ukraine, Moldova, Armenia and Belarus. Relations with the latter group of countries have become more commercially based, and, in fact, are already forcing these energy-importing economies to conduct reforms aimed at greater liberalisation and centralisation of the economy. These changes may result in decreased dependencies of these countries on Russia - both politically and economically, probably contrary to Russia's own aspirations.

WTO

Membership of the World Trade Organisation (WTO) has long been an important post-Soviet aim for Russia (declared first by Yeltsin), and was, for some time, dangled as a carrot after the break-up of the Soviet Union, despite the protests of some Russian business leaders. In 1999, Putin made WTO membership a clear policy priority, and although Russia has been making slow progress towards membership of the organisation for some time, there seems to have been a lack of momentum in the process recently, owing largely to a lack of political will. A recent economic embargo on Georgia even seemed to take negotiations back a step, as Georgia suspended a bilateral trade agreement it had already signed with Russia. The Russians have now completed bilateral WTO talks with the US; however, the removal of the Jackson-Vanik amendment may have become more difficult under a more isolation-inclined US Congress.

Besides, at a recent meeting with the working group on Russia's WTO accession, new issues reportedly arose. By the final year of Putin's rule, WTO accession has become a much more realistic target than it was eight years ago, but somehow still remains a target that is hard to hit.

Economic leverage

A major factor in Russia's emergence on the world stage has been its new role as a global economic power. Although it cannot yet be seen as a fully developed economy, Russia is certainly considered an energy super-power, and the continuing search for energy security has increasingly seen the West turning to Russia's huge natural-resources reserves. Russia is demonstrating economic growth rates that are sustainably above the growth rates of developed nations - a factor that has allowed it to become one of the world's top-10 economies by GDP. It is also surrounded by countries that are also demonstrating very high growth rates (this is true for almost all FSU countries).

Simultaneously, the high oil price has allowed the Russian government to pay down Russia's international debt, meaning that many of the Western nations that lent money to Russia during the 1998 crisis now have less leverage.

Another important factor is the huge opportunity Russia's emerging middle class constitutes for sellers of Western goods, and the massive boost being given to the international capital markets by the arrival of Russian companies and investors. All this adds up to Russia increasingly becoming an economic power to be considered on the global stage, and adding to general confidence in the country's foreign-policy initiatives.

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