Ben Aris in Krasnodar -

Russian sommeliers, oenophiles, government officials, businessmen and bibulous journalists turned out in force to attend a gala dinner in the grand hall of the former imperial vineyards of Abrau-Durso on October 18 next to the Anapa lake in Krasnodar. They had assembled to celebrate the annual award of the title of "best wine in Russia" to the leading producers in the country. The big difference with this year's competition is that the Crimea counts as "Russia" for the first time and wineries from the former Ukrainian peninsular all made the trip too, as they have been locked out of their traditional Ukrainian market and have little choice but to build up their business in the rest of Russia. After tourism, viniculture is probably the Crimea's only other "real" business so the change of nationality is extremely important to the local economy.

Soviet wine is famously bad (and incredibly sweet). Yet today's producers are not building a new viniculture from scratch, but restarting a tradition founded some 200 years ago. And tasting the wine on offer in Anapa, some producers have already completed the journey. "There are already some world-class wines in Russia – but there aren't very many of them and production is mostly small, independent and very new," says Roger Joseph, an international wine entrepreneur, former wine columnist for The Telegraph and one of the judges of the competition.

It all started with champagne, brought home by the Don Cossacks who chased Napoleon all the way back to Paris. Bivouacked at Montmartre, the Cossacks left behind the "bistro" (which means "fast" in Russia, as the soldiers called on the French waitresses to bring snacks to go with their booze), but rode home with grape seeds and magnums of champagne stuffed in their saddle bags – specifically Veuve Clicquot, according to the Abrau-Durso museum, the so-called "widow's champagne" after the company's doyen Barbe-Nicole Clicquot, who ran a French blockage of Russia in 1811 to keep the imperial court supplied with bubbly.

The Russians were so taken with champagne they launched their own vineyards with the pilfered seeds. One of the first was set up on the shores of the Anapa lake in the Krasnodar region, where the climate is "the same as Bordeaux or even better, except the winters are colder," the Abrau-Durso museum claims.

The Tsar's favourite winemaker, Prince Lev Galitsin (best remembered for his "Seventh Heaven" white dessert wine), was put in charge and produced Russia's first champagne in 1986 using a Riesling grape.

Having passed through the Soviet grinder, the vineyard was taken over by entrepreneur Boris Titov in the 1990s, who has revived its fortunes. A leading light in Russia's small business lobby and founding member of the liberal Right Cause Duma party, Titov was also appointed by his friend Russian President Vladimir Putin as the anti-corruption tsar and business ombudsman in 2012. When Putin was inaugurated to his third term as president in 2012, his re-election was toasted in the Kremlin with special reserve bottles of Abrau-Durso champagne, still made using the same techniques as Veuve Clicquot.

What’s to be done about Russian wine?

The oenophiles gathered at Abrau-Durso on October 18 were not just there to party, but also to debate the state of the industry.

Wine production and sales in Russia are growing, but Russian plonk still plays a weak second fiddle in the mind of most consumers to the better known imports. "What do Russians think of when they think of wine. Number one France, number two Italy, number three Spain. Russian doesn’t even feature in the list," says Viktor Zvagelsky, a Duma deputy and deputy chairman of the committee for economic policy, business and innovation, who was at the degustation. "

If demand increases, then so do imports. Russian wine is not increasing its share of the market," he adds before posing the quintessential Russian question: "What's to be done about it?"

Despite almost two centuries of winemaking, the Soviet-era destroyed what kudos the local vineyards had earned. "We are not making a Russian brand. We have a Russian brand in champagne, vodka and cognac, but not in wine," says Zvagelsky.

Titov is more upbeat about the future and points out that in 1901 a Russian wine won the gold medal for "best sparkling wine in the world" at the Paris world fair – the first and only foreign wine to achieve the honour. "We are stepping off square two," says Titov, who has invested heavily in completely modernising the Abrau-Durso plant. "We lost a lot of ground during the Soviet-era, but we have a very solid basis to build on. Even in America, the Californian wine was started by a Russian, Andre Tchelischeff," Titov tells bne, referring to the man known as the "dean of winemakers" in his heyday. A Russian émigré, Tchelischeff is a legendry figure amongst US winemakers and credited with founding and defining the flavours of the US wine industry in the Napa valley, California a century ago.

Sanctions boom for some

Putin's sanctions on European agricultural imports were not extended to cover wine, as Russia suffers from a big deficit of grape juice and cutting winemakers off from imported EU "wine materials" (as grape juice is known in the trade) could send many of the struggling young companies to the wall. But thanks to the wave of nationalistic sentiment following the annexation of Crimea in March, domestic wine sales have shot up. "Suddenly drinking Russian wine is cool – even at the Russian restaurants in London!" jokes Titov, alluding to the successful Novikov restaurant that recently opened in London to cater to local oligarchs.

The main event was the result of the "best Russian wine for 2014" competition, where much slurping and sloshing of wine accompanied the announcements as the audience had a taste of each of the five finalists.

The white wine category was won by a 2011 vintage from the well-known (in Russia at least) Chateaux le Gran Vostok, produced by Elena Dnisova, a fruity and crisp beverage that would not be out of place in any good Western restaurant. The winner of the red wine category went to Verdernikov's 2012 Krasnostop Zolotovsky (a well-known grape in Russia), which has established itself as one of the very best local wines and is already on the menu at the Ritz-Carlton in Moscow, Russia's most exclusive hotel. "The Russian wine industry is coming up very quickly, probably more quickly then somewhere like New Zealand's, which took many years to mature," says The Telegraph’s Joseph, who has been coming to inspect Russia's vineyards for about a decade.

After the awards ceremony was over, it was time for what all the participants were looking forward to most; down into the cellars and a chance to try many of Russia's leading wines. But the talk quickly turned to politics. At least four of Crimea's leading wine producers were official present at this year's competition, as they are now official "Russian producers."

Their reaction to the sudden change of statehood was decidedly mixed. "We were Russian before and now we're back!" gushed Irina Pavlenka, director Novi Svet, one of Ukraine's best-known classic champagne producers in Crimea.

The factory was founded by the same prince Galitsin that set up Abrau-Durso and was until recently owned by the Ukrainian state. "We plan to in double our production on the Russian market to 2.5m bottles a year," Pavlenka said with enthusiasm, pointing to the increasingly affluent society of 143m people. Since Crimea's annexation, Novi Svet's sales are already rising.

Other producers were less sanguine. The sales director at the Esse stand, who didn’t want to give his name, was stoic about the change over. "What can we do about it? We weren’t really given a choice," he said with a glum face.

Owned by Ukrainian entrepreneur Igor Samsonov, Esse is the maker of a well-known (and extremely palatable) red wine in Ukraine, selling 2m bottles a year on the Ukrainian market and exporting another 3m to Russia. It is also one of the few Ukrainian wineries to have invested in modern equipment. But since March, the company's Ukrainian business has more-or-less come to halt, while it can't restart its sales on the Russian market until it has finished re-registering as a Russian legal entity. "We want to live as we did before, but Russia is a very big and prospetive market. The trouble is getting documents to work in Russia is more difficult than in Ukraine."

Everyone admits that the Russian bureaucracy is a major headache for the latest addition to the Russian vinifamily – even the government. The Duma deputy Zvagelsky candidly admits that the Russian rules are too strict. "Currently, all alcohol production comes under the same regulatory regime – whether it is beer and wine producers or whether it is vodka and spirit makers. We need a lighter regulatory touch for winemakers to encourage the sector's development," argues Zvagelsky.

And the problems run deeper than mere red tape: the former Ukrainian producers have been given a temporary license to operate in Russia and must complete the formalities by January 1, 2015. However, the whole operating environment in Russia is totally different. Rapacious tax officials and the threat of expropriation by venal oligarchs are a constant threat in Ukraine, where the alcohol business is as opaque as mud.

Russia is not perfect, but its ranking according to corruption watchdog Transparency International has been improving in recent years, whereas Ukraine officially became the "most corrupt" country in Eastern Europe in 2012 under ousted president Viktor Yanukovych. "The main problem for the Ukrainian producers is 80% of their work was on the black market and they don’t know how to work in a white market," says Zvagelsky.

A few of the Ukrainians at the event were openly resentful of the changes forced on them. "I was born in Crimea. My family is from Crimea. We have always lived in Crimea. But now I am foreigner in my own country," says Irina Segan, wife of the brand ambassador for champagne producer Inkerman, a household name in Ukraine.

Inkerman is a case in point: it produces a whopping 30m bottles of wine a year and used to sell 70% of its production in Ukraine, exporting the rest to Russia. Irina's husband is more pragmatic and says it is still too early to tell how the new flag atop the parliament will affect business, as they are still ploughing through all the paperwork. But he made the trip to Anapa because clearly the company has to re-orientate to the Russian market.

On the other side of the fence the small Russian producers have welcomed the sanctions on European food products that have helped burnish their products' image. Katarina Malik runs the Donskaya Grozd vineyard together with her father and is typical of the new generation of Russian winemakers.

The Maliks went to the Russian Wine Institute and got hold of some of those seeds the Cossacks brought back from Paris – the actual 200-year-old seeds – and used them to populate their vineyards.

Last year Donskaya Grozd produced 25,000 bottles including a Tsimlyansky and Krasnostop – the same grape that won this year's Russian competition – as well as a Sibirkovy white wine, a grape that only grows in Krasnodar, and a Seperavi, the most famous of the Georgian grapes. Malik says that the current showdown with Ukraine has altered Russians’ attitude to business and will be a huge boon to producers like Donskaya Grozd.