Edward Lucas

HOW JOSEPH Stalin and Leonid Brezhnev would have relished the irony: the leaders of the rich free world kowtowing to the authoritarian ruler of a state that is rich only in oil, gas and ruthlessness.

As Western leaders pack their bags for the first G8 summit hosted by Russia, starting in St Petersburg later this week, every one of them knows the event is a sick farce, of which President Putin's Soviet predecessors would have been proud.

On the surface, the arriving Western leaders will be smiling. But they are intensely aware that there is only one agenda on Mr Putin's mind: to increase his iron grip on his country and rebuild the once-mighty Russian empire. America's vice-president Dick Cheney warned Russia in March to stop bullying and blackmailing those fledgling ex-Soviet states that were once part of its empire.

Mr Putin was utterly contemptuous in response, warning in his state of the union speech days later that Russia would build up its economic and military might, so as to make his country immune to foreign pressure.

For good measure he savagely mocked America, calling it 'Comrade Wolf'. The days are gone when such remarks could be dismissed as bombast by the leader of a ruined empire.

Though Russian living standards are pitiful by the standards of real G8 countries such as Britain, France and Germany, billions of dollars in oil and gas revenues make the Russian state flush with cash. Putin has given notice that it wants to be strong, too.

In the days of the Cold War, when the Kremlin tried to match the West in an arms race, the economic costs proved so crippling that they destroyed the whole country. But the steely-eyed Putin is much cleverer than the geriatric despots who used to run the Politburo. His arms race will be based on brains, not brawn.

Russia is already developing and deploying ultra-modern nuclear missiles, such as the submarinelaunched Bulava and the land-based Topol-M, that will be near-impossible for Western defences to counter. Spending on high-tech conventional weapons is soaring, too.

But military might is not the only weapon in Putin's arsenal -- the other is economic power, and he is wielding it to devastating effect.

Georgia and Moldova, the two weakest former Soviet republics, are facing a crippling economic war. On the one hand the price of their gas, delivered by Russia's monopoly pipelines, has soared. On the other, their main exports of wine and mineral water have been banned from the vital Russian market.

And old Soviet dirty tricks are at work, too: an official psychiatric 'assessment' of the Georgian leader, Mikheil Saakashvili, is being circulated. Bearing the imprint of leading Western psychiatric institutions, it makes him out to be a sex-crazed nutcase.

Yet the Kremlin-inspired document is a forgery from start to finish.

The message to the former empire is simple: abandon your dreams of joining the EU and Nato, and return to the iron embrace of your imperial master.

I am no stranger to the despotic nature of Putin. As a correspondent in Moscow in the early years of his reign, I was immediately sceptical of his sinister background and motives.

I saw a lot of him once he became my neighbour. I doubt he saw me, fuming at the side of the road as his presidential convoy swept past at 90mph all the way to the Kremlin from his newlybuilt presidential palace in our village of Kalchuga, ten miles outside Moscow.

Even then, Putin's country home highlighted for me his regime's increasingly authoritarian, bullying style.

For one thing, it was new -- Putin hadn't inherited the sumptuous country retreat of his predecessor, Boris Yeltsin.

That was because the deal between Russia's crooks and spooks that brought Putin to power in 2000 included an iron-clad agreement that the outgoing Yeltsin clan would not just be immune from prosecution for corruption but also keep the spoils of office -- the cash, cars and mansions.

Any president sincerely committed to breaking with the past would surely have shunned the pompous, greedy lifestyle of old -- including the heavily policed convoy that cleared cars off the road every time he wanted to go to the office. Not this one.

The Putin 'dacha' or cottage -- it was about the size of Sandringham -- had been built at amazing speed and in great secrecy on a disused airfield at the edge of our village. That infuriated my sons, who were learning to ride bicycles there.

But although the Russian state may be corrupt, lethargic and stunningly incompetent, when the man at the top wants something done, whether it is building a new house or a new missile, it happens fast and ruthlessly.

Our Russian neighbours in the village were unhappy at the rush of other developments that followed Putin's arrival. One new rich neighbour with

close Kremlin connections concreted over the village green to make a driveway for his mansion, beating up an elderly neighbour who objected.

Then a property company, also with Kremlin links, started bulldozing a nearby forest for housing.

That taught us some lessons about Putin's Russia. The first was that a decade of freedom under Mikhail Gorbachev and Boris Yeltsin had had an effect -- the villagers reacted not with traditional Russian apathy but with lawsuits, petitions and, when all else failed, direct action: they blocked Putin's road to work.

The second -- and sadder -- lesson was that the grotesque habits of the Stalin era were still there. Protests and petitions were not just brushed aside, the organisers were brutally intimidated.

'We will turn up with a bit of paper saying your house is built on our land, and then we will bulldoze it,' a shadowy official told my next-door neighbour.

Clearly, Putin is no Stalin. Although tens of thousands have died in Chechnya, including in the sinister, brutal 'filtration camps', there is nothing to compare with the Gulag and artificial famines in which tens of millions perished.

And Russia is, at least on the surface, a democracy, with some lively if struggling media outlets, the semblance of contested elections and a strong desire to integrate into the structures of the civilised world.

Russian companies are queuing up to list their shares on the London stock exchange. 'And if they don't let us, we'll buy it,' jokes one rich Russian.

Yet the sinister echoes of the past grow ever louder. Russia has abandoned any attempt to put its Stalinist history behind it. School textbooks skate over the crimes of the Stalin era, presenting them as tragic mistakes or justified responses to external aggression.

Few Russian schoolchildren have any idea that Stalin was allied with Hitler until 1941, and jointly carved up the peaceful countries of Eastern Europe.

Putin himself describes the collapse of the Soviet Union -- Stalin's empire -- as 'the geopolitical catastrophe of the century'.

Imagine a German leader saying that of the Third Reich.

And imagine how that sounds to the brave, freedom-loving Estonians, occupied by Stalin in 1940 and regaining their independence only in 1991. How would the Dutch feel if a German leader openly expressed nostalgia for the days of Hitler and Himmler?

The truth is that, under Putin, Russia's lust for imperial expansion is stronger than it has ever been since the Cold War. But he wants to rebuild Stalin's empire using banks, pipelines and financial threats rather than tanks and barbed wire.

With its monopoly supplies of gas and oil, Russia has already forced the former captive nations to hand over their energy supply companies, thereby regaining a crucial foothold in the economies of the former Soviet bloc.

And that economic foothold soon turns into a political one. Murky Russian-backed energy brokers sprout like mushrooms in the former satellites, spraying directorships, political donations and outright bribes over the fragile political landscapes of these new democracies.

Indeed if Gazprom -- the Russian energy giant -- succeeds in its stated intention of buying Britain's Centrica gas company, it is hardly far-fetched to worry that the same noxious mixture of influence-peddling and mischiefmaking will quickly take root in Britain's own fetid political culture.

'I know how much a congressman costs. What about an MP?' a Russian tycoon asked me ten years ago. Then I thought he was just teasing me. Now I would not be so certain.

For Putin's long-term plan is to establish economic dominance also in the complacent and greedy countries of 'old Europe'. The first thing is to sabotage any plans for diversifying gas supplies.

Russia is desperate to stop the Nabucco pipeline, an EU-backed project to bring gas from Iran and central Asia, which threatens to challenge its own monopoly of gas deliveries from the east.

So do plans, bravely pioneered by Poland, to import more gas in liquified form by tankers from sources other than Russia. These projects are expensive but as vital to our security as radar was in World War II.

But just as politicians in the 1930s preferred appeasement to rearmament, our Western politicians are failing to support the scheme, preferring the short-term, easy gain of gas deals with Russia to the hard work of establishing the continent's independent energy security.

This takes us to the crux of the forthcoming G8 negotiations. On one side there is Putin, desperate to increase his stranglehold on European gas supplies and sign up long-term deals with Western consumers.

On the other is Europe's need to maintain a diversity of supplies from a free market. The stark fact is that Putin is likely to be the winner, offering persuasive arguments and incentives that are attractive in the short term to the West but for which we will pay dearly.

For there are no signs of Putin embracing Western-style financial and political reforms -- indeed, quite the reverse.

Mikhail Kasyanov, the prime minister who ran Russia during the startling economic success of Putin's early years, told me last week that the Kremlin is now full of thugs and yes-men. 'There is nobody willing to stand up to Putin in an argument,' he said. That sounds all too like the craven culture surrounding Soviet leaders.

Although Putin claims to dislike personality cults, every Russian office in the public sector (and many in the private sector) has a picture of the President on the wall.

The Kremlin is a law unto itself, intervening in politics, business and the legal system as it pleases -- a kind of power that Britain abandoned, at least until the dying days of the Blair government, with the signing of Magna Carta nearly 800 years ago.

At first sight it is hard to see why Putin has done so well. A dull, publicity-shy bureaucrat with not an ounce of charisma, he seemed sure to be swept aside by some bouncier character.

But for the public, President Putin was sober, young and athletic -- everything that his predecessor Mr Yeltsin wasn't.

And for the Russian elite, he was the ideal compromise.

The spooks, longing to restore Russia's great-power status, liked him because of his intelligence department background: not quite the top drawer, perhaps, but certainly part of the charmed circle that had studied at the Red Banner Institute, the top Soviet spy school.

All KGB officers are trained in target acquisition -- gaining an enemy's co-operation through bribes, flattery or threats, and then bending them to your will. Putin will have every opportunity to display these talents when he plays the host in St Petersburg.

Privately, Putin even enjoys showing off the fruits of his spy networks and their dungeons packed with information. A Western newspaper editor who met him was amazed when the Russian leader murmured at the start of the interview, in English: 'I hope your wife's mother recovers soon.'

Not even the editor's closest colleagues knew that his mother-inlaw was gravely ill.

It is this combination of guile, charm and utter ruthlessness that has enabled Putin to increase his grip on power.

Everyone who has dared challenge or resist his rule has been sidelined, neutralised or humiliated. The Yeltsin advisers are gone. The tycoons are in jail, in exile or in political purdah.

The media is cowed. The opposition parties are shams, run to give the appearance of pluralism to the Russian public and the outside world, but with no chance of taking real power.

The once-mighty regional chieftains who used to run Russia's cities and regions are now merely nervous servants of the Kremlin.

Putin understands the way that corruption both fuels Russia and makes it manageable. When the rules can be bent and are impossible to observe, everyone is vulnerable.

He has unleashed the two most sinister forces of his country's Stalinist past: the totalitarian habits of the security services and the imperialist urge that lies deep in the Russian psyche.

Putin is trying to recreate an empire reminiscent of the Soviet Union -- feared by its own people, its neighbours and the West in equal measure.

And the tragedy is that we in the West are letting it happen.