Perestroika 2.0

As Russian President Dmitri Medvedev was preparing to make his second State of the State address on Thursday, some major shifts in Russian domestic and foreign policy appeared to be taking place. Those shifts seemed destined to affect not only the speech, but Russia as a whole.

The address was postponed for a month. The annual State of the State address can be delivered anytime in October or November, but Stratfor sources in the Kremlin have said that the speech was put on hold while Medvedev awaited permission from Russia's decision-maker-in-chief, Prime Minister Vladimir Putin, on launching massive economic reforms.

"The speech will be a test for US-Russian relations."

These reforms, reportedly, will be the heart of Medvedev's speech. The global financial crisis hit Russia pretty hard, but it also has revealed some deep and dangerous inefficiencies in the Russian economy that could seriously damage the country in the future. As previously discussed, in order to combat these inefficiencies, Medvedev – along with his mentor, Deputy Chief of Staff Vladislav Surkov, and Finance Minister Alexei Kudrin — have come up with a plan to invite Western investment and technology back into the country, taking many key companies private and quashing mismanagement – mostly by the security services – in some critical Russian corporations.

These reforms have been highly controversial: They not only would reverse the centralisation of the Russian economy – a trend that has been under way for the past four years – but would deprive many within the Federal Security Bureau (FSB) of their economic power.

On Wednesday, the day before Medvedev's speech, Stratfor learned that criminal investigations have been launched into 22 state companies – all of which are tied to the FSB. Also, late Tuesday night, Medvedev signed a document calling for a major overhaul of state firms.

These are signs that Putin has signed off on the plan by Medvedev's clan to reform the Russian economy. The president's speech was expected to make those changes public.

But the speech also was to be a test for US-Russian relations. The Russian presidents – first Putin, then Medvedev – have used the State of the State address as a vehicle for criticizing the West. Last year, Medvedev used Soviet-era rhetoric and declared Russia's return to the ranks of the world's great powers.

Relations between the United States and Russia seem to have taken a sharp downturn since that speech, with Washington continuing its support for former Soviet and Warsaw Pact states like Georgia and Poland, and with Russia continuing its support for Iran.

But Russia's stance may be shifting. In the past week, Medvedev has said that he might be open to shifting Moscow's position on Iran to support Western-organized sanctions. There also have been a string of statements out of Russia's Foreign Ministry, pushing for Iran to agree to a nuclear deal with the West.

The question is whether Russia means it or not. Medvedev may be opening a window of opportunity for the United States on the Iran issue. The Russians know they need Western investment and technology in order to strengthen and stabilise their economy. But the West has not wanted to deal with Russia while there were no guaranteed protections for investors and Russia was supporting anti-Western regimes like Tehran.

Moscow could be stringing all these issues together – conceding on Iran, while giving the West an opportunity to forge a new economic relationship with Russia.

The tone of Medvedev's speech, therefore, was expected to signal whether Russia is really going to extend an olive branch to the West or continue with the current standoff.

All of these gestures – the speech, economic reforms and shifts on Iran – come just ahead of a meeting between Medvedev and US President Barack Obama, who will talk in Singapore on Sunday. And that could be the true litmus test of how serious both sides are about a change in relations.

Stratfor provides intelligence services for individuals, global corporations, and divisions of the US and foreign governments around the world.