When Russian President Vladimir Putin sits next to his fireplace and Christmas tree, summing up the success and failures for 2012, he will find that the results achieved by Russia and him personally are ambiguous at best.

“I'm all right,” said Russia’s “National Leader” in a meeting with experts from the Valdai Club in October, which this author attended. Yes, Putin was able to win reelection for a fourth term (assuming the presidency of Dmitry Medvedev was his third). But this past year marked the beginning of a turbulent period for the Russian leader and his United Russia party.

While Russia is safe and secure, the challenges are mostly domestic. The ruling elite, including the opposition and media, recognize that three key reforms of education, pensions, and defense have failed. The corruption cases against the former minister of defense, Anatoly Serdyukov, and his band of young and pretty female aides revealed rampant corruption in the defense procurement and property management—and they are just the tip of the iceberg. Graft in other sectors, such as the Sochi Olympics and pipeline construction, has not been addressed.

But first things first: The opposition surprised everyone—possibly even itself— when at the end of last year it managed to get more than 100,000 people to protest against electoral fraud in the aftermath of December 2011 Duma elections. The ruling United Russia party did not expect the outcry when Central Election Commission announced the election votes. Although the people were not supposed to, they rebelled.

Later, the Russians protested against the March 2012 election in which Prime Minister Vladimir Putin returned to the presidency. The day after the elections about 20,000 people gathered for a rally at Pushkin Square. After protests on the May 6 Inauguration Day turned violent, the Ministry of Internal Affairs opened several criminal cases for "resistance to riot police."

When in doubt, blame America. Today, Muscovites talk about the ghost of "conspiracy theory" that wanders the corridors of power. The main culprits and instigators of Russian protest against electoral violations and fraud, according to the official party line, turned out to be the State Department, Secretary of State Hillary Clinton, and US. Ambassador Michael McFaul. But in reality, it is not the much-maligned, Western-oriented “liberals,” but off-the-wall Russian nationalists, populist leftist radicals and over-reaching Russian Orthodox Church hierarchs who are capable of destabilizing the country.

When the protests subsided, the government started its crackdown. The authorities imprisoned some leading opposition figures, primarily the leftists. The new Russian legislation passed in the wake of protests affected freedom of expression, including online speech.

An important resource of activists, independent journalists, and ordinary citizens is under threat. Russia already has several methods to suppress anti-government bloggers and journalists. One is the Internet-traffic tracking system called SORM, which is analyzed by security services and used for prosecution. However, this was not enough. This fall, the Duma approved laws to reinstate criminal libel and the "black list" of Internet sites. Russia also supported transferring Internet control over to the United Nations, where Moscow, Beijing, and many Muslim countries virtually have controlling stakes.

Another repressive law requires registering non-government organizations (NGOs) as “foreign agents” if they are partially financed from international sources and engaged in “politics.” But the law’s definition of politics is extremely vague. Such wording creates endless possibilities for arbitrary interpretation, classifying a wide range of NGOs that conduct election watches, electoral training, anticorruption efforts, soldier-abuse awareness or other human-rights activities.

New amendments to the Criminal Code proposed by the Federal Security Service—quickly adopted by Duma and signed by the president—have expanded the concept of "high treason" to measures that Stalin and his secret police chief would have cheered. According to the new law, almost any Russian citizen working with foreign organizations or governments, including those serving as consultants, can be accused of treason. The state tightened the punishment for disclosing state secrets. Even an inadvertent disclosure based on a mistake of a state official is now punishable.

The only glimmer of hope is a return to the ideas of the much-maligned 1990’s: gubernatorial elections; single-member-district seats for 50 percent of Duma members; and Federation Council (the Parliament’s upper house) elections. But while the United Russia party utterly dominates the political scene and the ballot box remains under its control, there is little chance for policy change.

The outlook for democratization of Russia’s political system in 2013 is bleak. The possibility of weakening government control over major television networks, increasing neutrality in the Internet, appointing independent judges in the Supreme and Constitutional Courts, fighting corruption, and spreading privatization and modernization all seem like science fiction for my friends in Moscow.

In 2012, relations with the United States further deteriorated. Moscow kicked out the U.S. Agency for International Development, rejected an honest investigation into the death of Sergei Magnitsky (an anti-corruption whistleblower), and ignored calls to review the case of the former YUKOS owner Mikhail Khodorkovsky and his partners. Today, regime opponents are collecting names of officials involved in gross human rights violations to be included in the Magnitsky List, while Russia is “asymmetrically retaliating” by drawing a list of U.S. officials involved in Abu Ghraib, Guantanamo, and the prosecution of the arms dealer Viktor Bout.

The Duma also passed a law banning adoption of Russian children to U.S. parents. Such a measure only hurts abandoned and unwanted Russian kids and American parents yearning to adopt.

The main foreign policy bet for the Putin administration—support from Bashar al-Assad—appears to be crumbling. This caused serious damage to Russia's relations with Turkey and many Arab countries. Delaying the agony of the Assad regime reinforces the Sunni extremist wing of his opponents, including jihadist elements associated with al Qaeda. Groups such as Al Nusra, which the United States recently listed as a terrorist group, receive their support from Turkey, Qatar and Saudi Arabia.

However, the Kremlin also had its successes. Mikheil Saakashvili of Georgia, the old "enemy of Russia," lost parliamentary elections. His opponent, Prime Minister Bidzina Ivanishvili, the leader of the Georgia Dream coalition, is likely to improve relations with Moscow, where he made his billions. The Ukrainian Party of Regions, headed by President Viktor Yanukovych, managed to keep its majority in the Rada. Russia will attempt to utilize Yanukovych’s isolation in Europe to bring its “younger sister” Ukraine into the fold of the Customs Union, and in the future the Eurasian Union.

Economically, Russia had a growth rate of 2.9 percent annually, as measured in September 2012. Russia continues to bet on oil and natural gas through new oil and gas pipelines in Eastern Siberia, and implementing the South Stream gas pipeline project. The latter will allow the Kremlin to reduce or even stop the gas transit through the Ukraine. Huge amounts of money will be pumped into pipeline construction and used to buy oil company TNK-BP (worth $55 billion).

But in the upcoming year—energy excluded—Russia will face economic stagnation. The economic elite understand that they need to break the hydrocarbon dependency, but the Kremlin does not want to privatize the market. Plus, the conditions are not in place for competitive non-energy, non-natural resources sectors to attract investment and thrive. When have you ever purchased a Russian tablet computer, car, or luxury item?

Maybe Vladimir Putin is "all right" this New Year’s eve. He sure thinks he is. But what of the country he leads?

Ariel Cohen, Senior Research Fellow in Russian and Eurasian Studies and International Energy Policy at The Heritage Foundation.

Image: Flickr/Mark Pegrum.