Ever since Vladimir Putin let loose with a recent broadside against U.S. domination of global affairs, there’s been talk of a new Cold War.

At a conference in Munich last month, Putin complained that the world had become too unipolar. The United States, Putin stated, “has overstepped its national borders … in every area.”

What he never mentioned was his own effort to exert Russian leverage over former Soviet republics and throughout Europe by heavy-handed use of Russia’s oil and gas resources.

We don’t need to worry about a return of the Cold War, since today’s Kremlin can’t match the muscle of the Soviet Union in the 1960s. But Putin’s effort to revive Russian power, and his willingness to use it in crude ways, puts the spotlight on the kind of political system he’s building inside Russia.

While Putin hobnobs with European leaders, he has created a “managed democracy,” where the Kremlin controls the parliament, the courts and regional governors as well as the national media. The Kremlin has retaken effective control of natural resources, and sent Russia’s most successful private entrepreneur, oil magnate Mikhail Khodorkovsky, to a Siberian prison on trumped-up charges.

Prominent Kremlin critics are murdered mysteriously and their killers never found. The latest case is the notorious assassination by polonium-210 of former KGB agent Alexander Litvinenko in London.

Putin acts according to the dictum he embraced when he was elected president in 2000, when he promised to establish a “dictatorship of law.” The Russian leader rejected (or failed to grasp) the concept of “rule of law” – meaning no one is above the law, even government officials. Instead, he adopted “rule by law” – meaning laws are clubs that government leaders use to justify what they do.

The divide between “rule of law” and “rule by law” represents the divide between Europe and Russia today.

Yet Putin is tremendously popular at home. He revived Russia from the economic collapse that followed the break-up of the Soviet Union and has re-distributed oil profit as social largesse in a way that makes some call him Hugo Chavez-on-the-Moskva.

The 64,000-ruble question is whether, as Russia recovers from its post-Soviet trauma, it will move closer to Europe, or deepen the Third World autocracy-with-oil model. Without a genuine legal structure, it is hard to imagine Russia’s developing into a modern, advanced country. When people ask me where I think Russia is headed, I say it depends on when Russian leaders ultimately grasp the benefits of “rule of law.”

The answer to that question, in turn, may depend on whom Putin chooses to succeed him. His endorsement will decide the result of the 2008 elections.

That choice, in turn, will reflect the answer to a question that I asked four Russian leaders sitting on a podium at the Davos World Economic Forum in 2000: “Who is Mr. Putin?” At the time, none of them would answer, and the footage of their studied silence ran for months on Russian television. Now, there is general agreement that Putin’s worldview was shaped by his KGB experience, which put a premium on centralized power and secrecy. In other words, rule by law.

So far, there are two likely candidates to succeed Putin. One is Dimitri Medvedev, the 41-year-old first deputy prime minister and chairman of Gazprom, Russia’s state-controlled energy giant. Medvedev put on a charm offensive at this year’s Davos forum in late January, giving a major speech in Russian and switching into English at the point where he mentioned Russian democracy.

So, of course, I asked him, one-on-one: “Who is Mr. Medvedev?” He answered swiftly: “I am a lawyer.”

“Do you believe in rule of law or rule by law?” I queried. Medvedev snapped back: “I prefer rule of law, not by law, and not dictatorship.”

Perhaps these remarks were meant to please a Western journalist. But at least lawyer Medvedev clearly seemed to grasp the difference between the two legal concepts, unlike many Russians.

Two weeks after Davos, Putin named Defense Minister Sergei Ivanov to a first deputy prime ministership, alongside Medvedev, making Ivanov a second potential candidate. Like Putin, Ivanov is a former KGB officer, said to be the favored presidential choice of Russia’s powerful security services.

KGB man Putin wants dictatorship of law. Presumably another KGB man would feel likewise. So, if you want to parse Russia’s future, pay attention to which man Putin anoints to run in 2008.