The corporatist kleptocracy being erected by Russian Prime Minister Vladimir Putin is profoundly misunderstood in the West. Western defenders and apolo­gists of the Putin regime trot out a pet argument which migrates from one publication to another. It goes something like this: What is most important for Russia right now is not abstract “democracy,” but the development of capitalism. A grow­ing middle class with a vested interest in security for their property will ultimately demand the establishment of liberal institutions.

This extremely popular theory totally ignores the actual nature of Russian “capitalism.” The right to property in Russia is entirely conditional on the property owner’s loyalty to the Russian government. The system is tending to evolve, not in the direction of freedom and a post-indus­trial society, but rather back toward feudalism, when the sovereign distributed privileges and lands to his vassals and could take them away at any moment. The only difference is that, in today’s Russia, what Mr. Putin is distributing and taking away is not lands but gas and oil companies.

Over the last decade a mutant has evolved which is neither socialism nor capitalism, but some hitherto unknown creature. Its defining characteristics are a merging of money and power, the insti­tutionalization of corruption, and domination of the economy by major corporations, chiefly trading in commodities, which flourish at the ex­pense of the administrative resources they have privatized.

This is gendarme-bureaucratic capitalism with the Father of the Nation at its head. Such a petro-state model can deliver neither consistent economic growth, nor overcome the enormous gulf between the rich and poor, nor ensure a breakthrough to a post-industrial society. This model of provincial capitalism dooms Russia to economic degradation and margin­alization. The current global crisis has made this truth crystal clear.

Several days after his inauguration, Russian President Dmitry Medve­dev, while speaking at the St. Petersburg economic forum, spoke with thinly disguised glee about the acute problems of the world economy and declared Russia to be the island of financial stability in the stormy ocean of the global crisis of the capitalist system.

Russia’s stock markets, however, have dropped by 75 percent since Mr. Med­vedev’s St. Petersburg sermon. But these are just external indicators of a crisis that is getting deeper. Much more dangerous for our “rising from the knees” economy is the loss of Western capital and the drop in oil prices. And it appears that both have taken leave for a long time. Without these factors Putinomics is not sustainable.

The kleptocrats immediately rushed to the rescue of their little bai­liwicks—banks that belong to ministers and ex-ministers, state cor­porations that belong to the friends of the president—while spending tens of billions of government dollars for this purpose. The set of “anti-crisis” measures was so shameless and impudent, that even the super-loyal and the super-careful Russian Union of Manufactures and Entrepreneurs protested. Putinomics is becoming dysfunctional as well as mistrusted.

The artificially created image of a threatening West, and of the U.S. in particular, is now becoming the sole ideological justification for the Putin model of a corporate state. These internal political imperatives driving the Kremlin’s foreign policy are grossly underestimated or deliberately ignored in the West.

A lot of the Kissinger-Primakov group and Valdai Club alumnus are calling on the new Obama administration to take into account Moscow’s “grievances,” “concerns” and “humiliations” to encourage the Kremlin to support what the U.S. regards as its vital interests in the Middle East.  The problem with such an approach is that most of these “grievances” are those of choice, hysterically articulated by the Kremlin media to inflame anti-American sentiment. If they are accommodated, the Kremlin will immediately invent a new set of “humiliations” or unleash some new adventures in the post-Soviet space to prove to the public and to itself once again the fundamental hostility of the West.

Take for example two of Moscow’s most lamented “grievances” or “humiliations”—ABM complexes in Europe and NATO expansion. Russian military experts know perfectly well that 10 interceptors don't present any threat to the huge Russian nuclear deterrent.

As for the mammoth, aggressive military machine of NATO of which Moscow has so long been warning, it truly has lumbered up to the sacred borders of the former Soviet Union, but not from the most expected direction. Indeed, my fear is that there it will meet its end, defending those borders and Russia's southern underbelly from the advance of Islamic radicals. For the first time in Russia's military history, somebody is doing our dirty work for us rather than the other way around. If NATO departs from Afghanistan, the front of the Islamic revolution will cut through the countries of Central Asia and Russia's Volga region.

Ukraine as a prospective member of European institutions does, indeed, present a threat, but not to Russia’s secu­rity as Kremlin propagandists claim. The real threat is to the Putin model of a corporate, authoritarian state, which is hostile to the West. For the Kremlin’s occupants, it is a matter of life and death that countries that were once part of the Soviet Union but choose a different model of development—Ukraine being the chief example—should never be­come attractive to ordinary Russians.

Ukrainians are close to us Russians in their culture and mentality. If they make a different choice, why can’t we do the same?

Ukraine’s success will mark the political death of Putinism, that squalid philosophy of KGB capitalism. If Ukraine succeeds in its Eu­ropean choice, if it is able to make it work, it can settle the question that has bedeviled Russian culture for centuries: whether Russia is a part of Europe? So the best way to help Russia today is to support Ukraine’s claim that it belongs to Europe and its institutions. This will influence the Russian political mentality more than anything else.

The most sensitive and real “concerns” of Kremlin kleptocrats is the safety of their multi-billion dollar assets and their real estate investments in the West. This particular concern should have been long ago taken into account by Western courts as an act of justice and good will to the great Russian people. But it's never too late. A good case to start with is a legendary Swiss company, "Gunvor," owned by a citizen of Finland and Mr. Putin's KGB buddy, Mr. Timchenko, which is operating with about a half of Russia's oil exports.

The Iran nuclear project will be one of the first challenges faced by the new U.S. administration. The Anatol Lievens and Dmitrii Trenins of the world are trying to talk Americans into double stupidity: first, they reason, you need Mr. Putin's help for dealing with Iran; second, you should pay him for it. As for payments, these gentlemen usually suggest acquiescence to the Kremlin’s claims for “domination in the post-Soviet space”—meaning selling out the democratic aspirations of Russia’s neighbors.

As for “help,” the Bush administration has been pretending for eight years that Mr. Putin is helping. Bush adviser Thomas Graham has been repeating all these years that “our views on Iran are converging,” before he resigned and took a lucrative position at the Kissinger-Primakov group, where he is performing the same song from a new platform.  

The U.S. may “pay” but Mr. Putin will never join in any serious biting sanctions against Iran, and he will never exert any real pressure on Tehran’s mullahs to force them to stop their nuclear program. This is because his fundamental interests and objectives in this game are quite different.

For Moscow the best-case scenario for an end to the Iranian nucle­ar crisis would be an Israeli and/or American preventive strike against Tehran’s nuclear sites. This is because an Iranian nuclear bomb is something Russian lead­ers do not need. Iran is, after all, the only state in the world with of­ficial territorial claims against Russia. (Part of the Caspian seabed is disputed).

Also, all the indignation of the Islamic world would be direct­ed against Israel and the United States, which would also suit Moscow quite well.  Iran would doubtless retaliate by destroying the Saudi oil platforms and blocking the Straits of Hormuz, interrupting the export of oil from the Middle East.

The thuggish oil barons, who form the core of Mr. Putin’s en­tourage, are already rubbing their hands in anticipation of further turmoil in the Middle East. The ten or fifteen individuals who rule Russia, those in the current Politburo, also own it through their direct or indirect control of most of the country’s oil and gas companies. Too much in their life—the regime’s stability, their role on the world stage, and, finally, their personal wealth—depends on the number of dollars for a barrel of oil. It has always been the case.  But now, when the price of oil is under $40, it is a matter of life or death for Mr. Putin and his regime.

Every step of Moscow’s policy in recent years has been aimed at moving events in this direction. By blocking or completely watering down U.N. Security Council resolutions on Iran, Moscow has facilitated Tehran’s nuclear program. By supplying Iran with TOP M-2 missile installations and negotiating over delivery of the more cutting-edge S-300 complex, Russia is effectively pushing Israel towards having to undertake a military solution of the problem in the near future.  After the Rus­sian anti-aircraft installations to protect Iran’s nuclear sites are fully commissioned, a military strike by Israel will no longer be feasible.

But Iran with the bomb is an unthinkable option for Israel. The only way for the U.S. to try to prevent such a scenario is to stop immediately wasting precious time on soliciting Mr. Putin's “help” at the U.N., and introduce the toughest possible sanctions against Iran together with Washington’s allies.

Cool realism and tough patience are needed to deal with Mr. Putin's mutant creation. But it will not last for long. Crisis is the best political educator. The Russian nation’s survival instinct will prevail; sooner rather than later. It would be foolish and shameful of the U.S. to sell out the hopes and aspirations of new democracies to a dying mutant for favors this creature has neither the intention nor the ability to deliver.