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Russian President Dmitry Medvedev used his state of the state address to call for a sweeping modernization of the Russian economy, rejection of the corrupt oligarchy and diversification away from the nationalized oil and gas sector. Speaking to an audience that included Prime Minister Vladimir Putin, chief architect of the system Medvedev wishes to reform, the president rhetorically stepped outside of his mentor's shadow and set a vision for his legacy.

He might also have just ruled himself out of a reelection bid.

A liberal by nature, Medvedev has failed to deliver the economic and institutional reform many hoped for. This is unsurprising as real power has been consolidated firmly in the PM's office, and the silvoki now pervade Russian society from the commanding heights to regional governorships. These vested interests are backed by the PM himself, and therefore unlikely to encounter any serious challenge their grip on Russian power and wealth. Nonetheless, Medvedev's rhetorical liberalism, often in direct contrast to Putin on economic matters and the glorification of the Soviet past, has sustained a slimmer of hope that after building his own power center he would set out on a reform agenda and confront the rotting Russian core. Few doubt his sincerity.

But confidence in the president to deliver on this vision cannot be high within Russia. Medvedev has thus far been long on words and short on actions, and opposition to any liberalization of strategic sectors, either through ownership or management, will undoubtedly be fierce. One can easily foresee a scenario where Putin simply brushes Medvedev aside in 2012 to return to the Kremlin. But if he can begin to produce tangible reforms, such as electoral reform in the regions, and achieve some high-profile break-ups of state-owned companies, he just might build some momentum among a population clearly dissatisfied with Russia's ability to cope with the financial crisis. At the very least, this could stimulate a fundamental debate within Russian society as to the direction of the country and the best mechanisms to get it there. That would be downright revolutionary in the Putin era.

Medvedev has it right: Russia must modernize or die. Its massive FX reserves carried it through the worst of the global financial crisis, but exposed the economy's vulnerability to oil and gas price volatility. The lack of alternate sources of revenue is a serious crutch to the country's future prospects. With its oil and gas sector declining at an alarming rate, and woefully mismanaged by firms like Gazprom, Russia's FX reserves could increasingly be needed to finance the budget and subsidize state-owned behemoths in sectors from aviation to agriculture. The planned return to international debt markets shows the government is aware of impending, possibly chronic, shortfalls. The writing is on the wall, but can the PM read it?

Medvedev could yet convince Putin of the future's peril, but this seems unlikely. A confrontation seems more probable, and unfortunately for the Russian people, Putin is a strong favorite to emerge victorious. I mean, have you seen them guns?