Post-Soviet Russia's economic kingmaker is natural gas, and new President-elect Dmitri Medvedev is also the country's energy czar, helping steer soaring stock prices.

In this article, we'll take a look at Russia's gas monopoly, Gazprom--in the context of the country's new leadership.

Russia has the world's largest natural gas reserves and is also the largest international exporter of the fuel. Since the Soviet Union officially dissolved in December 1991, natural gas prices have more than quadrupled. That leaves us with a political situation where gas supplies are very sensitive, and the correlation between Russia's politics and resource stocks is stronger than ever.

Russia's President-elect is Russia's Natural Gas Czar

42 year-old Dmitri Medvedev is a lawyer by training and has worked his way up through the St. Petersburg city government (where he met his mentor, current president Vladimir Putin). But his most important position to date is his ongoing chairmanship of Gazprom, the Russian natural gas export monopoly.

In elections this past weekend, Putin's endorsement led 42 year-old Medvedev to win over 70% of the vote.

Also over the weekend, Gazprom cut natural gas supplies to Ukraine by a quarter over a pricing dispute. This is not the first time for Ukraine, or fellow former Soviet republic Belarus, to suffer a gas supply drop as leaders debate the end of Russian energy patronage with Moscow. A similar row in 2006 led to major European Union debates over energy security and a commitment to kickstart renewable and safe nuclear energy

Take a look at this BBC map of Europe's main gas pipelines and you'll see why EU officials are biting their nails again over this latest episode in the continental energy saga:

Europe is up in arms, because cuts to Ukraine and Belarus harm supplies to western Europe.

As he leads, Medvedev's Gazprom background will craft his policy decisions on both national and international energy affairs.

Medvedev's management of the monopoly will also affect how world leaders view him, and Russian stocks may move on his judgment.

Russia's Economy Depends on Gas

Today's Russia is running at just under 8% GDP growth, with 2007 in the books as the eighth straight year of economic expansion. The U.S. Department of Energy reckons that oil and gas account for about 20% of Russia's total economic size.

In the mid-90s, a dire need for investment in the Russia's abundant (but at that time relatively cheap) natural resources brought on auctions at cut-rate prices to international majors like Shell and BP. The Moscow government's inability to manage all of Russia's widespread resources--from east to west, the country spans 11 time zones--also attracted also to a class of tycoons known as oligarchs, who saw huge wealth potential in Moscow's poor resource management.

Much of Russia's gas endowment is located in Siberia's most inhospitable reaches--the kind of place where leaders from Peter the Great through Putin could exile enemies and know their voices would probably never be heard again.

Working in Siberia can be an advantage, though, if you're trying to stay a continent away from your own government!

Gazprom Got Back the Gas... Investors are Happy

During Putin's tenure, oligarchs were jailed, contracts with Shell and BP were renegotiated to give the state a bigger chunk of rising natural gas and oil price returns.

The oligarchs' former holdings were folded into Gazprom and highly-publicized trials ended in--guess what--Siberian exile for the fallen tycoons.

Gazprom, in the meantime, has launched a successful IPO in London (LON:GAZP), and the company's stock is available in the pink sheets here in the U.S. as OTC:OGZPY. As the company plays hardball with Ukraine and Belarus, Europe is still not in a position to refuse Russian gas.

Russia has channeled a great portion of its oil and gas revenue into foreign currency reserves and a stabilization fund, which combine to over $620 billion today. On the stock market end of things, Gazprom's fortunes should continue rising as Medvedev takes office, though we don't know for sure whether he will be allowed to keep one hand on the gas spigot and the other on a the presidential pen. In either position, Gazprom's success is at the top of Medvedev's priority list, and investors will reap the rewards.

Russian Gas Spurs Gazprom Stock Gains

Gazprom shares are up over 57% since early 2006, and other Russian resource trades like Norilsk Nickel (OTC:NILSY) are also delivering big gains, with Norilsk ADR shares over 80% above where they traded in March 2007.

Both Gazprom and Norilsk are leading components of the Market Vectors Russia ETF Trust (NYSE:RSX), which has gained over 25% in the past year, up to today's share price just below $50.

It's right for a Russia fund to be overweight on resources, but as Russia's economy matures and diversifies, the 20% total of the national economy that the DOE says oil and gas make up should actually come down.

Then, we will have more access to strong consumer plays, technology startups, and other Russian stocks that get away from current resource supremacy. Right now, Gazprom is set to continue leading the Russian pack.

Regards,

Sam Hopkins