He said: “Most western observers expect no change because Medvedev is the new president. On the contrary, Putin chose Medvedev precisely because he believes Russia needs to change. He has decided that Russia has now completed the previous stage, the stage of stabilization. For that stage, you needed a KGB guy to consolidate state structures and to consolidate the state’s control over the oil and gas sector. Now, Russia has come to a new stage, the stage of development. The country needs to develop new sectors of the economy, such as the hi-tech sector, and this form of development needs a new type of leadership, run by technocrats rather than KGB guys, with less state control and more innovation.”

Medvedev himself stated this new direction in his key speech in Krasnoyarsk in February, when he made an implicit criticism of the state-driven economic policy of Putin’s second term. He said: “We have to admit that we have been running the economy in manual over these last years. The time for this kind of hands-on decision-making in the economy is over. The new economy calls for a completely new approach: incentives for innovation and not directives from above. It is private initiative…that must be the foundation for the new economy.”

Medvedev has called for a number of liberal reforms to create this new hi-tech, entrepreneur-friendly and innovative economy: less red-tape for new businesses, fewer civil servants, less bureaucrats in charge of state corporations, more independence for the judiciary, more protection for small businesses from corporate raiders, lower VAT.

He has also called for more people with private sector experience in the top echelons of the government. The only time I’ve spoken to him, at a press conference in 2006, he said: “I would like to see more people with a background in business working in the government.” We shouldn’t forget he is the first ever leader of Russia to have experience of working in the private sector.

But this programme is setting Medvedev on a collision course with the Siloviki, or security services, who as a group have seen their interests furthered more than any other group during the Putin years.

Professor Stephen White of the University of Glasgow and Olga Kyrshtanovskaya of the Centre for the Study of Political Elites estimate that Siloviki account for around 23% of the political elite under Putin, compared to around 11% under Yeltsin and around 4% under Gorbachev. So they’re actually more powerful now than they were in the USSR.

Markov says he believes Medvedev can pursue his new direction without upsetting the Siloviki: “I don’t think the KGB will resist too much. They will accept Putin’s decision, not Medvedev’s. The old guard will not lose their positions. New people will come in and take new positions and new government structures, such as an agency to promote small businesses.”

But this doesn’t sound like a genuinely new direction or genuine administrative reform, but instead like the proliferation of more government, more civil servants, more agencies. You can’t make an omelette without breaking some eggs, and you can’t reduce the role of the state in the economy without upsetting some interest groups.

Professor White tells me: “The security services are at the moment in control of both the political structures of society, and the commanding heights of the economy, and the reports are that they have used this position for enormous personal enrichment. They’re not going to give that position up without a struggle. So there’s alot of room for instability in the mid term.”

Even as Russia supposedly changes direction in its development of the hi-tech economy, we see the FSB looking to get involved and get enriched. For example, Putin has outlined the development of nano-technology as a key priority for the economy. But the person he has put in charge of this project is the scientist Mikhail Kovalchuk, who just happens to be a childhood friend of his from St Petersburg, and the brother of one of the leading Siloviki in the country, Yuri Kovalchuk, who controls much of the nation’s media through his Bank Rossiya.

And one of the main ‘private investors’ in the development of nano-technology is the private equity fund, the Finans Group, run by Oleg Shvartsman, who in a remarkably candid interview with Kommersant said that his company was owned by people close to the FSB. This is not de-regulated entrepreneurship, but FSB cronyism.

So there’s a lot of potential for conflict and instability if Medvedev is serious about changing the direction of Russia. And it all depends, really, on how serious Putin is about changing the direction of Russia, because he is the one with all the political capital to spend, and he is the one that upset interest groups will come sobbing to if Medvedev’s reforms disempower them. How loyal will he be to his protege, and how loyal will he be to the KGB?

Some analysts have said that Putin sees Medvedev as the son he never had. But being the son of a Tsar can be a dangerous business in Russia – both Ivan the Terrible and Peter the Great murdered their own sons, out of the paranoid belief they were plotting against them. Hopefully this new father-son team will fare better.

The Russian-Oxford alumni association held monthly drinks in Moscow, which I went along to a few times. Can’t say it was a hotbed of Decembrist activity…more like a lot of Russian MBAs back-slapping each other and reminiscing about that time they drove through Oxford back in the 90s. Ilya seemed like a decent-enough guy though.

The FSB (the heir to the KGB) apparently invaded the offices of TNK-BP and found all sorts of ‘incriminating evidence’ against him, such as the business cards of ‘foreign military agencies and the CIA’ according to an FSB spokesperson. This is sufficient, apparently, to prove that both Ilya and his brother Alexander, who the BBC says works for the British Council, are illegally getting industrial secrets for foreign companies (presumably BP).

But if they really were spies, would they leave the business cards of CIA agents lying around on their desk at work? And isn’t gathering information on market participants like Gazprom not ‘industrial espionage’ but simply doing their job?

This could be a way of turning the screws on BP, as Gazprom prepares to buy many of its Russian assets. But it’s also a sign of the continued unchecked power of the secret services to harass private citizens on the flimsiest of charges. And it’s further evidence of the FSB’s growing harassment of foreign individuals in Moscow, or Russians working for foreign companies.

Another friend of mine, an American journalist, had to leave Moscow abruptly last year, when he was advised by the US government that he was in the process of being set up by the FSB. He had been handed over some military secrets by a taxi-driver who claimed to be ex-FSB (I know, weird circumstances). But he was then told, while abroad, that if he went back to Russia, he could be in hot water. So he never went back.

Well, I hope Ilya and his brother – who both have dual Russian and US citizenship – are let out soon. Using the freedom of your own citizens as bargaining chips in mergers and acquisitions seems like a pretty shoddy way of behaving.

Banking analysts and strategists have been quick to recognize the ramifications of Putin’s handover of the presidency to Dmitri Medvedev. As Deutsche Bank’s Russian research team says in a report today:

If Putin was as keen to retain full political control over the foreseeable future as most of the Western press suggests, he would have opted for a third term in our view…Thus, in our view, Putin’s voluntary exit from the Kremlin puts a huge question mark on the consensus opinion that the political strategy is a retention of the status quo of the recent past.

So if we’re not going to see a continuance of the status quo, what will we see? Deutsche thinks probably a change in the personnel running the national champions. Out with the KGB, in with more private-sector individuals:

we believe that substantial – and welcome — shifts in the balance of power within the political establishment are highly likely in the coming months. Putin’s first priority in 2000 was to check the predatory behaviour of oligarchs and create incentives for them to use their efforts more productively. Similarly, it is quite likely that in his first 6-12 months as president, Medvedev will concentrate on tightening the leash on the burgeoning bureaucracy, which has shown increasingly abusive behaviour in recent years.

Medvedev’s mission is finally to modernise the public sector. In order to achieve that, he will most likely have to rely on the expertise and human capital of the private sector once again. Therefore, the key gauge to watch, politics-wise, is not simply the alignment of top ministers in the next government, but also the tendency of seasoned private sector professionals to take senior roles in policy-making and state-controlled corporations.

The real challenge for Medvedev and for Russia, in the coming years, is whether he can de-personalize Russian politics. Putin built up a political system where power was very much centred in his person, at the cost of just about every other institution – the press, the judiciary, the Duma, the party system, the NGO sector, the business sector, the regions. In essence, he made himself a Tsar again, albeit a Tsar prepared to relinquish power after eight years.

If Medvedev simply turns himself into a new Tsar, and keeps the other institutions of the country in a state of arrested development, he will not have taken Russia forward. But which politician ever consciously lets go of the powers of their office? As Yevgeny Yasin, head of the Higher School of Economics in Moscow, put it: ‘Medvedev is a good boy. But he will face many temptations in office.’

The consensus Western view is that Medvedev is Putin’s stooge. The Western press were full of cartoons last week depicting Medvedev as a puppet sitting on Putin’s knee. Western politicians have been happy to parrot the same negative opinion of the new president. Hillary Clinton, for example, said the new president (whose name she couldn’t even remember – see this video. Man, that’s foreign policy experience for you!) is “someone who is obviously being installed by Putin, who Putin can control, who has very little independence”.

Obama was similarly down on the new guy, saying “Putin will still have the strongest hand”, while John McCain, well-known Russophile, said Medvedev’s election meant that “Putin had just made himself president for life”. Nice one fellows – how to offend the new Russian president before he’s even been inaugurated!

Russians themselves are unsure how seriously to take their new president. I haven’t met anyone who’s voted for him, in fact, I haven’t met anyone who voted at all. When he appeared on stage at a rock concert with Putin on Sunday, it was Putin’s name the crowd chanted, which must have been somewhat gutting for Medvedev. The public have already given the diminutive president a nickname though: ‘nano-president’.

But we shouldn’t be too quick to write off Medvedev. Kremlinologists tell me Medvedev is his own man, with his own team, and his own agenda. And, as president, he has vast powers of appointment. In fact, the rumours from the Kremlin are that there is already tension between him and Putin over personnel changes. Medvedev wants to bring in his own team, and get rid of some of the old guard.

What can we expect from the forthcoming personnel changes? It may mean out with the spooks, in with the lawyers.

Putin filled his administration with people who like him had a background in the KGB. He placed many of them in key positions in the presidential administration, as well as making them chairmen of powerful state corporations – the railways, the arms monopoly and the largest oil company all have spooks as chairmen.

Medvedev has already said he would like to reduce the number of state bureaucrats heading up state companies. And the man writing Medvedev’s speeches, Putin’s chief economic advisor Arkady Dvorkovich, has also spoken out against the growth of state corporations, labelling them “a dead end for the development of the Russian economy”.

What this means is that Putin’s old KGB chums, such as Igor Sechin (deputy head of the presidential administration and the chairman of oil company Rosneft), Vladimir Yakunin (head of Russian Railways) and Sergei Chemesov (head of arms monopoly Rosoboronexport) might have to start looking for new jobs. But will they go quietly, or will they consider the companies they manage to be their own private property? We could be in for another round of vicious asset battles, just as we saw in Putin’s first years in power.

The difference is that, unlike Putin’s purge of Yeltsin-era figures, Putin is still around, young, healthy and vigorous, while Yeltsin was old, sick and drunk when Putin became president. So we could see some nasty political battles between Putin and Medvedev as Medvedev brings in his own posse. The good side of this, however, is that for the first time in five years or so, we will have multiple centres of power in Russia, and something approaching pluralism.

Who’s coming into power with Medvedev? As I’ve already mentioned, one of his closest advisors is Arkady Dvorkovich, a small economist with a big brain. He’s not very well known in the West (he doesn’t even have a Wikipedia entry, so he can’t exist) but he’s a powerful figure in the new Russia. He wrote the speech Medvedev gave a month ago in Siberia, where he called for a more independent judiciary, more respect for private property, and less state interference in the economy.

Dvorkovich was the author of Putin’s tax reforms of 2001, which were one of Putin’s most liberal reforms. He’s a believer in more tax cuts now, and will likely press Medvedev to spend more of Russia’s petro-wealth. This is good news for the West, which could do with Russia’s sovereign wealth fund buying up some assets and giving our stock markets a boost.

We’ll also likely see a host of St Petersburg lawyers filling the presidential administration, such as Igor Shuvalov and Dmitry Kozak, and replacing the spooks.

Another rumour is that we will see the return to power of Alexander Voloshin, the chain-smoking former chief of staff of both Putin and Yeltsin. Voloshin has close links to the Yeltsin family, and to the oligarchs of the Yeltsin era. He retired in protest from Putin’s government when it arrested Mikhail Khodorkovsky. If he came back to power, it would be good news for oligarchs like Roman Abramovich, and could even herald the release of Khodorkovsky (though this is a long shot).

Whatever the personnel changes, the West needs to get it into its head quickly that they are dealing with a new president, one in a position of enormous power, in a country with enormous economic resources, with the largest reserves of oil and gas in the world, and with a seat on the UN security council. And this president is a Western-friendly lawyer who is set to reduce the power of the secret services over the economy. In other words, this is an opportunity for an improvement in Russia’s relationship with the West. Pity the front-runners for the US president can’t even remember his name…