The Kremlin, now at center stage of Russia's energy sector, intends to leverage the country's vast energy reserves to exact as much geopolitical and financial benefits as possible.

With Western politicians giving Putin a cold shoulder on the back of political reforms at home deemed anti-democratic, the Russian president's arrival in Beijing was greeted with warmth and high hopes.

Russia and China already have strong trade ties, expected to be $20 billion this year and forecast to reach $60 billion by 2008. But it is energy relations both countries intend to strengthen, with Russia holding the strongest cards.

Petroleum experts assess China's oil needs will increase 20 percent, more than 53,000 tons per day, next year. Before Russian oil giant Yukos and its core shareholders ran afoul of Kremlin displeasure, China fully expected that Yukos would build a pipeline to export 30 million tons of oil a year to its market.

That expectation turned into a scare last month when Yukos announced it was diverting some exports to China to the domestic market to pay enormous back tax bills. Part of Putin's visit is to assure the Chinese that Russia is and will remain a reliable oil exporter.

While the Yukos affair is widely seen as the Kremlin limiting the political ambitions of some of Russia's oligarchs, Yukos' decision to build a private pipeline to China was interpreted by Putin as a national security decision only the Kremlin should make.

The destruction of Yukos and its production units soon to be under state control ensures that the Kremlin will decide where Russia's crude is exported.

There is every indication that the pipeline to China will not be built - for now.

Putin was his enigmatic self when commenting on this subject. I hope you will understand me when I say it sincerely and frankly: First of all we need to meet our own national interests. We should develop Russia's Far Eastern territories.

These statements would appear to confirm that a competing pipeline through Siberia to Russia's Pacific coast for export to Japan might now be the favored new export pipeline route - Russian oil that could later be easily re-exported the to west coast of the United States.

Putin has long pushed for greater economic development of Russia's vast eastern territories, but he may also have been telling the Chinese that the Kremlin wants a more equitable oil trading regime.

The Chinese have rigidly proposed future high-volume oil imports from Russia at lower than international prices.

Such a plan would make China the single most important importer of Russian oil. Having such a strong and demanding energy partner may worry the Kremlin; diversification of export markets at higher prices generates higher revenues and increases greater international political leverage.

Oil is not the only energy item on Putin's agenda. The Chinese are also very much in need of increased natural gas imports - again Russia is the obvious exporter. Plans have been developed for an $18 billion gas line from Siberia to China and South Korea.

During the public part of Putin's Beijing visit, he made no mention of this project. Again, Putin may be hedging his bets and waiting for further developments in Russia domestic gas market.

The consortium of Russia's Tyumen Oil and British Petroleum back the $18 billion gas line, but Kremlin control natural gas monopoly Gazprom - expected to assume Yukos' production units - still has not determined its level of interest in the Chinese market.

Putin's current trip to China should be interpreted as part of Russia's new role in the world - international energy broker. This is the role that Putin's Kremlin has been waiting for after a yearlong assault on Russia's private oil sector.

Capturing Yukos' core production units for later integration into state-controlled energy companies gives the Kremlin enormous international clout.

With political instability and continued violence in the greater Middle East and ongoing certainty plaguing other OPEC exporters, Nigeria the primary example, Russia appears to be the model of trustworthy stability.

This is the message the Kremlin wants to send to it Chinese counterparts. The Chinese are clearly listening, as undoubtedly the rest of the energy hungry world is.

Putin will continue to get a cold shoulder from the West for his particular interpretation of Russia's domestic political order and democracy - but not for long. The world is interested in Russia's vast energy supplies - not just the Chinese.

Eventually, even the West will have to reckon with Putin's energy bazaar.

Peter Lavelle is an independent Moscow-based analyst and the author of the electronic newsletter on Russia Untimely Thoughts untimely-thoughts.com.

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