RUSSIA'S president, Dmitry Medvedev, is a sad, angry, humiliated man.

He has been president for three-and-a-half years and, like any incumbent leader, desperately wanted to stay in the job – he said so in a newspaper interview a few months ago. He has spent most of the past year trying to distinguish himself from his mentor, Russia’s strongman Vladimir Putin, appealing for support for his own policies of “modernisation”, and hinting that this meant a departure from the Putin model, which he warned was leading to “stagnation”.

But last weekend Medvedev had to stand up at a congress of the country’s ruling party, United Russia, and propose Putin as the party’s candidate in next March’s presidential election. Not so much a lame duck, rather one who handed the hunter the rifle and invited him to blast off his feet.

The two men grinned and saluted their adoring audience – Medvedev with a nervous giggle, trying to disguise his unease; Putin with his face shiny and stretched, apparently relying now on cosmetic treatments to preserve his youthfulness as he prepares to serve as president, potentially, until the age of 71.

The pair did not even attempt to pretend that it was not a stitch-up. They admitted they had discussed this option four years ago, when Putin, then approaching the end of his second term as president and looking for a way around the constitutional ban on serving a third term, proposed Medvedev as his successor, while himself moving into the prime minister’s seat. For many months, whenever they were asked which of them would run for president in 2012, both would reply that they would “sit down together and decide” when the time was right.

The idea of two men “sitting down together” and deciding the country’s future without a vote being cast would be cynical enough. But last weekend they were admitting it wasn’t even true – it had all been worked out years before. Medvedev was only ever placed in the Kremlin to keep Putin’s seat warm.

In theory they could keep this going for the rest of their lives, swapping the presidency and prime ministership interminably, making a mockery of the constitution. With television and the election process firmly in the hands of the Putin clique, there can be no doubt that, despite the “competition” of a communist and an ultra-nationalist candidate, Putin will be re-elected next March. He may also now constitutionally serve for another 12 years, because Medvedev conveniently increased the presidential term from four to six years.

On Friday night, Medvedev went on television (all three national channels simultaneously) to elaborate on the “pact”. His explanation was even more humiliating. In theory, he said, the two men might have decided to continue in the current configuration. But… “prime minister Putin is undoubtedly the most authoritative politician in our country at the moment, and his ratings are a little higher than mine”. With this, Medvedev seemed to confirm that his quasi-electioneering throughout the year had been aimed at improving his popularity – if his ratings had risen above Putin’s, then maybe he would have been chosen for the presidency instead.

Medvedev tried to pretend the situation was similar to America, where he said Barack Obama and Hillary Clinton took a decision on which of them would run for president “based on who could get better results. This was how we also made our decision”. He seemed to have forgotten that Obama and Clinton campaigned against each other, openly and publicly, in the Democrat primaries, before one of them was fairly elected over the other.

The details of the two men’s pact – the “understanding” back in 2007, the conversations in the past months in which Medvedev had to concede Putin’s “greater popularity” – were kept secret not just from the Russian public but from even the pair’s most senior advisers. So it is now official: Russia is Putin’s personal fiefdom, where he can do whatever he likes. Russia’s liberals, some of whom had seen Medvedev as the only hope of achieving reforms, are now said to hate him even more than they hate Putin.

The announcement of Putin’s candidature does at least put an end to the uncertainty that has virtually paralysed Russian politics for most of this year. As Medvedev toured the country on his unofficial campaign, and Putin indulged in his traditional macho photo-shoots (this summer it was motorbikes and scuba diving), government officials had gone into purdah, not daring to side with one or the other.

One commentator wrote: “Ministers, not knowing who their real boss is, are tripping up, trying to carry out often contradictory instructions.

“It’s no joke, having to choose between two people, either of whom could become president in 2012. One mistake and in a year you’re a political corpse.”

Now at least there is more clarity about the future, and so far only one political corpse – that of the finance minister, Alexei Kudrin, whom Medvedev booted out of government last Monday in a spectacular televised sacking.

Within hours of the Putin-Medvedev job-swap being announced, Kudrin had declared he would not agree to serve if Medvedev became prime minister, principally because he disagreed with his big defence spending plans (although Kudrin is known to have wanted the prime minister’s job himself). Medvedev was spitting with anger. On Monday, at a televised conference, he delivered the most stinging rebuke to a minister seen in Russia for many years, accusing Kudrin of insubordination and disloyalty.

Medvedev demanded Kudrin’s immediate resignation; Kudrin calmly and insolently replied: “Very well, but I’ll consult the prime minister [Putin] first.”

Medvedev could hardly speak with fury at this insult, which implied he was a total wimp, no longer even nominally in charge. “You can consult whoever you like, including the prime minister,” he snapped back, “but so long as I am president, I take these decisions myself!”

A leading journalist, Alexei Venediktov, says Kudrin’s phrase, “I’ll consult the prime minister first”, has become a euphemism among the chattering classes for “Go f*** yourself!”

Kudrin’s sacking made the biggest splash, but there have been other ripples following the announcement of Putin’s intention to return. Medvedev’s economic adviser Arkady Dvorkovich, a longstanding champion of liberal reforms, watched the speeches on television and sent out some not-very-cryptic messages on Twitter: “Yes, nothing to be joyful about”, and “Time to switch to the sports channel”. Since then he’s taken to tweeting pictures of his breakfast, as though politics was too painful to talk about.

These murmurings could be just the first signs of a rocky road ahead. Kudrin was a symbol of stability, a talisman for foreign investors. He built his reputation on financial prudence, refusing to countenance high government spending and insisting on putting away billions of dollars earned by Russia’s oil exports during the years when the price soared into a rainy-day fund – which effectively saved Russia during the global crisis of 2008-9. Without him there will be fears that the government will loosen the reins and increase spending – especially in the run-up to an election.

Much will depend on the price of oil in the future. As Medvedev has repeatedly pointed out, Russia’s manufacturing and services sector is tiny: the country relies almost entirely on revenues from its exports of oil and gas. When energy prices are high, the state can pump money into social programmes, but if energy prices slump, some analysts predict social unrest. The unspoken deal imposed on the country over the past decade has offered the Russian people a measure of stability and growing prosperity in exchange for political docility. If the government can no longer keep to its side of the bargain, the population might not remain so docile.

Some observers even speak of the Arab Spring as a warning of what might happen in Russia if its leaders are seen to be merely passing power back and forth between them while living standards falter. However, I think it will take a lot for such a movement to gather strength in Russia: after the upheavals of the 1990s, most Russians value stability above all else. And let us not forget the fact that they like Putin – he may not be the kind of person the West would like to run Russia, but he is perfectly in tune with the man on the Moscow trolleybus.

Medvedev has promised that if – or rather when – he is appointed prime minister after Putin makes his comeback as president, he will continue with his modernisation programme. Rarely seen without an iPad in his hands (he read his denunciation of Kudrin from one), Medvedev is a passionate advocate – at least in his public utterances – of reform. He has two mantras, which are unlikely to change: the need to wean Russia off its dependency on oil and gas, and the need to combat corruption, which stifles enterprise and scares off foreign investors.

The trouble is, Putin and Medvedev have been in power for 11 years, and after initial reforms that were welcomed in the West, the economy is stuck in a rut, while corruption – by the Kremlin’s own admission – has got much, much worse. Bribery accounts for a phenomenal proportion of the state’s income. Medvedev says Russia loses up to $33 billion a year due to corruption; independent experts put it at $300bn – a quarter of GDP. The chief military prosecutor says 20% of the military procurement budget is stolen by corrupt officials. The average bribe paid to state officials is $10,000.

Corruption has soared because it is intimately tied up with a vast network of officials, politicians and businessmen linked, ultimately, to Putin himself. It is the kind of corruption that grows when a clique stays in power too long.

So the danger is that Medvedev’s hopes for reform, even if they are real, will sink in the great cesspit of corruption and cronyism, pulled down by the inertia of the system. Neither Medvedev nor Putin can provide the fresh impetus needed to pull Russia out. And they may be terrified of letting anyone else do so because so much of the sleaze leads back to them and their cronies.

As I discovered when researching a new book and four-part BBC series about Putin (which is to be aired later this year), almost the entire political elite, and the controllers of Russia’s oil, gas and media empires, are either from Putin’s home town, St Petersburg, or are former KGB operatives, or are simply friends with whom he once founded a “dacha co-operative” – a private village of country houses on a lake outside St Petersburg. The extent of their wealth and influence is breathtaking, and they will be in no hurry to give it up.

Angus Roxburgh’s new book, The Strongman: Vladimir Putin And The Struggle For Russia, will published next month by IB Tauris