Still, Western officials and the media immediately latched on to Putin's statements that Russia was re-emerging as a major power, his warning that foreign powers should not meddle in the country's internal affairs, and the revelation that Russia was to declare a moratorium on the 1990 Conventional Forces in Europe Treaty between NATO and the Warsaw Pact until all NATO members ratified and began implementing the treaty.

That decision should never have caught the West off guard. In the 1990s, Madeleine Albright said frequently that Moscow had no veto over NATO's eastward expansion, and this week Czech President Vaclav Klaus stated that the proposed anti-missile defense system in Eastern Europe was not up for discussion.

Several countries in the Baltic Sea region and Eastern Europe that are now members of the European Union and NATO seem bent on an anti-Russia course, as this week's protests in Estonia over a Soviet war memorial testify.

The West is still far behind the curve in its understanding of the new Russia and has yet to adjust to this new reality. Russia has failed to understand interdependence -- one of the buzz words in international relations theory since the 1970s. Russia is now very confident due to its eight years of economic growth, but of course the bulk of this is due to its exports of oil, gas and commodities to the West. No wonder then, that many in the West and Russia itself feel that Putin's claims of Russia's resurgence contain a strong element of hubris.

But beyond the rhetoric lie more serious risks, and Russia is in danger of making the same kind of mistakes that the Arab world made decades ago. Russia's use of energy in politics could lead to another mistake -- that of overestimating its own strength and believing that the position of an energy superpower is a one-way street. Russia knows full well that Europe is heavily dependent on its oil and gas, but it seems to forget that the much-needed foreign loans and direct foreign investment will for the most part come from the Western camp -- as will most of its imports.

The difference this time around is that low-cost manufacturing and service countries such as India and China have kept global inflation low. Russia has also failed to realize that China and India are also intimately connected with the West.

Even more important is Russia's food security. The failure to develop agriculture means that Russia is still heavily dependent on foreign food imports. Squeezing Europe is therefore hardly a sensible idea.

Putin often makes much of Russia's contribution to European and world culture, and this is undeniable. In his address, however, he also made much of Russia's improving democracy.

And yet, like China, Russia's per capita GDP and legal, political and civil institutions remain far behind those of the West. Senior Russian politicians have failed to grasp that while Russia is indeed light years removed from the Soviet Union, any sign of backsliding to authoritarianism and the suppression of dissent, the arrest of businessmen and the murders of journalists will automatically be seen as confirming the bad stereotypes.

First Deputy Prime Minister Sergei Ivanov's recent call for Russian citizens to boycott goods from Estonia is a case in point. This is strange and seems to display a feeling of weakness combined with a failure to understand "where the West is coming from."

In fact, Russia is big and strong enough not to have to worry about dissident journalists and exiled businessmen allegedly fomenting a coup d'etat from London, and it is hard to see that Russians would buy into the kind of instability that would bring. So while Putin and many Russians see increasing wealth after decades of economic problems and decline, Westerners still tend to focus on Russia's more authoritarian tendencies and reversal of democracy.

Putin's upbeat assessment of Russia meant that he failed to address some of the country's major problems.

Much of this is also connected with Russia's four national projects initiated in late 2005, and much of the money for these programs will come from Russia's revenues from oil, gas and other commodities. Putin asked the Federal Assembly to pass quickly the necessary laws to encourage the development of these areas and attract investors.

At first sight, this looks very positive and has much to commend it, but Russia's federal and regional governments remain weak and lack capacity, making implementation of all laws and decrees difficult.

And yet the measures outlined in the address will require major government involvement. The risk is that these measures could have the opposite effect by increasing bureaucracy.

Most businessmen would probably agree that the growing level of bureaucracy and corruption is one of the country's biggest problems. The number of bureaucrats in Russia has been increasing since President Yeltsin was in office, and with every new bureaucrat there is a greater chance that a corrupt official will cause problems for business. While large companies have the time and money to solve the problem of "government relations" and deal with high-level officials, smaller enterprises do not.

One thing that many say has become more rational in Russia is that instead of paying various "mafia" groups -- criminals, the police and local officials -- businesses now just pay one group, which then takes care of everything.

Numerous observers have related this generous social problem to the forthcoming State Duma and presidential elections. The incumbents, however, have little to fear from a fragmented and largely unpopular opposition with few fresh ideas. In fact, much of the impetus in Putin's political philosophy comes from patriotism rather than democracy.

Ian Pryde is CEO of Eurasia Strategy and Communications, Moscow. The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.

United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.

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