IN CLASSICAL mythology, Georgia was the land where the Argonauts had to harness bulls with bronze hooves to win the Golden Fleece. Modern Georgia is the source of a treasure scarcely less precious: oil and gas from central Asia and the Caspian Sea, piped along the only east-west energy corridor that Russia does not control.

But whereas Jason and his comrades triumphed, the West's quest has ended in humiliating failure. As the occupying power in Georgia, Russia can close or destroy those pipelines whenever it wishes. The only country in the region that even came close to sharing Western values, one vital for our energy security, has been humiliatingly defeated and dismembered.

As politicians and voters in the free world return from holiday, two key questions need answers. What happens next? And how do we stop it?

Decoding the Kremlin's exact intentions is as tricky now as it was in the days of the Cold War of the 1960s and 1970s. But the outlines are clear. Russia wants to recreate a "lite" version of its old Soviet empire in eastern Europe and to neutralise the rest of the continent. Unlike in the old Cold War, military action today is a last resort: for the most part, it is banks and pipelines, not tanks and warplanes, that do the dirty work.

This may sound strange, given what has happened in Georgia. But it is vital to realise this was not the beginning of a new Russian push, but part of something that began in the mid-1990s. Russia has nobbled Belarus -- the only other country, apart from the Hamas-controlled Gaza Strip, that is ready to recognise the statelets of South Ossetia and Abkhazia. It props up the narco-state of Tajikistan, cossets the dictatorship in Uzbekistan and woos the benighted despots of Turkmenistan. It has a cautious alliance with China, in the form of the Shanghai Co-operation Organisation; it has stitched up energy deals in North Africa; it flirts with Iran and sells weapons to Hugo Chavez, the America-hating windbag of Venezuela. And by using energy, diplomacy and divide-and-rule tactics, it is stitching up Europe, country by country, from Cyprus to the Netherlands.

And it works. Over the crisis in Georgia, Europe has shown astonishing softness. The leaders of the EU have been all but invisible. Where is the supposed foreign-policy chief, Javier Solana? Or the foreign-affairs commissioner, Benita Ferrero-Waldner? Meanwhile, Nicolas Sarkozy, the French president, has been humiliated by the Russian breaches of the ceasefire agreement he negotiated.

Europe's weakness is the result of multiple forms of soft-headedness and short-sightedness. Partly it is simple anti-Americanism: if Vladimir Putin is making life difficult for George Bush, he must be a good guy. That attitude lies behind astonishing opinion polls in countries such as Germany. There is also a mistaken belief that Russia is an ally in the struggle against globalisation.

Although the Kremlin makes life difficult for Western oil companies and tightly restricts foreign investment in any industry it dubs "strategic'' at home, it is another story abroad. Russia delights in the possibilities of the global economy. If regulators in New York are sniffy about listing stolen companies on the stock exchange, there is always London. And if you fail even London's undemanding test, Dubai, Bombay and Shanghai await with open arms.

Russia also uses its colossal war chest, fuelled by oil and gas revenues, to buy up assets in other countries. And that is the taproot of European softness: money. In the Cold War, doing business with the Soviet Union was a rare and suspicious activity. Now Russia has penetrated our markets and businesses to a huge degree. Energy companies such as Austria's OMV, Germany's E.ON and Italy's ENI work hand-in-glove with outfits such as Gazprom, which is nominally Russia's biggest company, but is better described as the gas division of Kremlin Inc.

This directly affects politics. Germany, with Russia, is building the Nord Stream gas pipeline along the Baltic seabed to bypass Poland. Russia has already cut off energy supplies to punish Lithuania, the Czech Republic and other countries. When Nord Stream is built, it will be able to do the same to Poland. Yet even after a brutal demonstration of Russian imperialism, Germany refuses to consider cancelling the pipeline.

It is hard to see this changing: European consumers will not pay hugely higher energy prices to finance alternative supplies, nor will politicians give the EU the weight it needs to bargain properly with Russia (a country three times smaller in population than the EU, with an economy a tenth of the size).

That leaves eastern Europe to base its security on the United States. Yet even America's willingness to confront Russia is limited. Every incoming president since Bill Clinton has criticised his predecessor for being soft on Russia. But none has proved any better. America needs Russia -- for nuclear security, to hold back Iran, to contain North Korea, as a supply route to Afghanistan, in hunting down terrorists. And Russia knows it.

On top of all that, Russia's leaders have a massively secure position at home. Their central bank has nearly $600bn (€400bn) in currency reserves, while their popularity is far greater than the Politburo ever dreamed of. Mr Putin, and the war in Georgia, are acclaimed -- a view stoked by a docile media. Abroad, Russia senses that power is shifting east and south, to countries such as India and China, which see the Georgia question very differently.

But while the idea that the continent could again be a battleground between East and West seems inconceivable. It is be happening: and our resurgent enemy seemingly holds most of the cards.

There is, however, one chink of light for us, if not for the Russians. In the long term, the Putin regime means catastrophe for his country. The political system is opaque and fossilised, unable to respond to the needs of a changing economy or to rein in corruption.

Foreign adventures are the traditional way for autocratic rulers to distract public opinion from problems at home, and Russia is no exception. The regime will come unstuck. But the cost may be a high one. (© The Daily Telegraph, London)

'The New Cold War: How the Kremlin Menaces Both Russia and the West' by Edward Lucas is published by Bloomsbury

- Edward Lucas