It has been a bad week for Russia, a very bad week.

The slaughter of more than 300, many of them children, at the Beslan school has, three years on from the assaults on New York and Washington, been portrayed by President Vladimir Putin as Russia’s 9/11. His government sees its struggle against the Chechen separatists responsible for the massacre as being likely to be long and bloody.

What United States President George W Bush called the "global war on terror" has already had a profound effect on Western economies, and there is little doubt that the ongoing terror campaign in the heart of the Caucasus will be influential on the rapidly emerging markets in Russia. The warning signs are there for western European businesses looking to exploit opportunities in Russia; they only have to ask Russian businessmen.

The starkest example might be seen today, when Roman Abramovich, the ostentatiously wealthy Russian oligarch, takes his seat in the directors’ box at Aston Villa to watch Chelsea, the Premiership football club on which he has spent almost £300 million in the last 15 months. Abramovich’s wealth was drawn from various business interests, including Aeroflot and Sibneft, the Russian oil major.

Meanwhile, languishing in a Russian jail where he has been for nearly a year is Mikhail Khodorkovsky. This time last year, Mr Khodorkovsky was the richest man in Russia, working as the chief executive of Yukos, the country’s biggest oil company, preparing it for a mooted takeover by ExxonMobil or another American company. Today, he has nothing and Yukos is on the verge of bankruptcy, restricted by court orders from accessing its underground mineral riches, and on the verge of being sold off in tranches by Putin’s government.

Mr Khodorkovsky, seen as being punished for daring to challenge President Putin politically, remains a symbol of concern for many Russian businessmen and bankers who are starting to worry that after routing its opponents, Putin’s Kremlin faction rooted in the security services aims to take the country back down the road towards state control and central planning, using the real security fears in Chechnya as part of its rationale.

Already Mr Putin is taking direct command of Russia’s oil output. Last week he reassured other European leaders that all Russia’s (ostensibly privately owned) oil companies "without exception" would "continue to increase the extraction of oil and they will increase their deliveries to the global market". Germany’s Chancellor Gerhard Schroder thanked President Putin for the promise, saying: "Otherwise we would certainly have worries that the world economy could suffer."

Meanwhile, Moscow is continuing negotiations with Chinese state officials over the potential £17 billion disposal of Yuganskneftegaz – a division of the previously privatised Yukos which accounts for 60 per cent of its oil production.

Shrewdly, Fan Chunyong, an economics counsellor at China's Moscow embassy, publicly added the rider that: "We are very interested in taking part in the bidding. But the question is what policies the Russian government takes toward foreign companies."

For the past decade, Russia has been on the path to sustainable recovery boosted by petro-dollars. Growth in the first half of this year was put at 7.4 per cent; if oil prices stay high, that could be exceeded. Retail trade and incomes are both up by more than 10 per cent on 2003. And still foreign investment is pouring in.

But as earlywarning.com noted earlier this week, "the humbling or flight of major oligarchs has marked the end of a four-year struggle for power. That leaves the security services faction, the Siloviki, as the predominate power in Russia. Old guard v Reformers. Tensions over where Russia’s economy should go next are rising between the Siloviki and liberal reformers, led by economic trade and development minister German Gref".

Earlywarning’s argument is that in a cash-rich economy thanks to oil, the old guard "Siloviki do not see the point of more reform, and want to tighten their grip on the commanding heights of the economy. Their power reflects a pattern of rising Kremlin control at all levels of society, including corporate appointments".

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